Attribution factor for Listed Bonds in absence of EVIC

Methods
1

According to PCAF, to calculate the attribution factor of a bond for listed companies, it is necessary to use the EVIC.

However, our client is not currently able to provide this data. Is the market capitalisation a good estimate for this data, is it accepted? What is a possible alternative to EVIC?

2

Hi @Benedetta,

In the CDP-WWF method for temperature rating we allow a range of portfolio aggregation methods, EVIC is just one of them, but we call it ECOTS. You are currently free to select any of the 7 different aggregation methods we provide on page 24-26. They all have their pros and cons. Generally, from SBTi’s perspective we prefer AOTS and ROTS, as the denominators are usually less volatile and not influenced by market valuations, giving us a better reflection of progress in emissions reductions.

  • Weighted average temperature score (WATS)
    Allocation based on portfolio weights
  • Total emissions1 weighted temperature score (TETS)
    Allocation based on historical emissions
  • Market Owned2 emissions weighted temperature score (MOTS)
    Allocation based on equity ownership, very reliant on market valuation of equity, which often becomes the main driver of changes in the metric.
  • Enterprise Owned emissions weighted temperature score (EOTS).
    Allocation based on enterprise value
  • EV + Cash emissions weighted temperature score (ECOTS)
    Allocation based on enterprise value including cash, also known as EVIC
  • Total Assets emissions weighted temperature score (AOTS)
    Allocation based on total asset ownership
  • Revenue owned emissions weighted temperature score (ROTS)
    Allocation based on total revenue ownership
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3

To the question if market cap is a good proxy for EVIC, that naturally depends on the financial structure of the specific company. For a company with low financial leverage and will little cash on the balance sheet, it may be, but the higher up you get in terms of financial leverage and cash levels, the less appropriate it becomes.
The volatility of market cap (and EV) is also making any market valuation-based denominators less useful in SBTi’s view, as any progress in the metric can be influenced by movements in market valuations. Rising valuation means that a company/portfolio may seem to be making greater improvements compared to its history than what it really is in terms of absolute emissions reductions in the real economy.
Therefore, SBTi favors the much less volatile passive side of the balance sheet and total assets as the denominator or alternatively use revenue, again for its more stable properties for most companies and portfolios.