Investors may want to understand not only if their portfolios are aligned with global climate goals but why they may (or may not) fall short of the mark. A performance-attribution analysis can help them understand how “hot” or “cold” their portfolios are.

Using Implied Temperature Rise — an intuitive metric that can be used to assess net-zero alignment — we analyze temperatures for climate-focused indexes designed to meet or exceed the requirements of the EU Paris-Aligned Benchmarks standard.

With COP26 over, the hard work begins as investors seek to limit temperature rise to less than 2°C above preindustrial levels in their portfolios. We investigate how they can understand whether a portfolio or fund is aligned with temperature targets.