Navigating SBTi’s alternative climate assessments
Institutional investors need third-party assessments to help them analyse risks and opportunities. However, the market offers many different frameworks and assessments, often without clear comparability.
Issuers face the challenge of deciding which assessments to focus on, track, or pay for to demonstrate their credentials.
1. Intended user and purpose
Who is the intended user of the assessment, and what is its purpose? Is it for an investor to assess risk and credibility, or for a company to showcase their credentials to attract investors?
See here a non-exhaustive list of assessments classified from the perspective of the company, investor and whether they are free or paid for[1]:
| The investor perspective* | The company perspective** | |
|---|---|---|
| Free | • TPI (Transition Pathway Initiative) • SBTi (Science-based Target Initiative) • Moody’s Net-Zero Assessment • Standard & Poor’s Climate Transition Assessment • Fitch Transition Assessment | |
| Pay for | • Sustainalytics low carbon transition rating and temperature • MSCI Low carbon transition scores | • SBTi (Science-based Target Initiative) • Moody’s Net-Zero Assessment • Standard & Poor’s Climate Transition Assessment • Fitch Transition Assessment • CDP climate scores • Climate Bonds Initiative |
*Is it for an investor to assess risk & credibility?
**Is it for a company to showcase their credentials in order to attract investors?
There are many more assessments available in the market produced both by not-for-profit and for-profit organisations, some for example include:
2. Analytical capabilities
Does the assessor possess the necessary analytical capabilities to evaluate a climate plan? A credible climate assessment requires strong analytical expertise, especially in complex or hard-to-abate sectors like chemicals or oil & gas. Combining climate and decarbonisation expertise with financial analysis is rare but essential.
We have encountered cases where assessments fail to capture industry-specific challenges due to insufficient analysis, lack of experience or just lack decarbonisation knowledge. This discredits the assessment all-together.
Issuers should be cautious about unsolicited assessments based on minimal public data and ensure their climate plans are properly evaluated. Combining climate and decarbonisation expertise with financial analysis is rare but essential. At Impactivise, we aim to bridge this gap.
3. Public and private information
Most of the assessments which are unsolicited (not paid for by an issuer) are based on public information only. These are done “no matter what”.
On the one hand, they are forcing corporates to disclose more publicly, which is a good thing as it helps investors to make more informed decisions. Issuers should keep track of those as they can have a strong influence on investor decisions.
On the other hand, sometimes material pieces of information can’t be disclosed due to confidentiality, or the disclosure is heterogeneous both across and within sectors. This begs for strong analytical expertise from the assessor’s perspective. Again, this is something that issuers should manage and proactively engage assessors on to make sure they are appropriately assessed and find the right balance between what they can and should disclose.
Paid assessments typically involve direct engagement between issuers and assessors, enabling a more comprehensive evaluation. However, as of today there is a limited, though growing, number of companies that have taken this route.
4. Recognised benchmark
Does the assessment reference a recognised and universal benchmark for comparability? To enhance comparability, assessments should ideally reference recognised benchmarks or scales, such as temperature alignment scales (1.5°C, well-below 1.5°C, and below 2°C).
5. Binary or granular evaluation scale
Is the assessment binary, or does it offer a more granular evaluation scale? While binary approaches, like for example SBTi, are useful for identifying top performers, a more nuanced grading system is necessary to account for companies making progress but not yet achieving 1.5°C alignment.
As investors recognize that 1.5°C alignment is increasingly difficult, there is growing demand for sector-specific certifications and more detailed assessments.
One emerging example is SMARTargets, a methodology being developed in the U.S. for electric utilities. The assessment description highlights the need for tailored approaches:
“Designing targets and strategies that consider the unique opportunities and characteristics of individual companies is essential for a viable and successful clean energy transition.” The key question is whether such frameworks will gain investor recognition and influence investment decision-making.
Convergence to a universal scale?
There is a flurry of products that aim to assess the climate transition of entities. And as we can see with slightly different uses. At Impactivise, we have played our part in the last 3 years to work towards the convergence of the scale. However, it looks to us that the market is still relatively young and still needs to mature towards a more common scale.
In our next blog, we will map out some of the assessment methodologies and explore how they align.
I look forward to your feedback,
Fabrizio Palmucci
Founding Partner, Impactivise
