Would these be acceptable portfolio coverage targets:
[For Corporates] “Company A commits to 35% of its corporate loans by total company revenue setting SBTi validated targets by 2025”
[For bank bonds] “Company B commits to 30% of its bonds portfolio by total assets setting SBTi validated targets by 2025”?
The guidance is unclear because it says “using a weighting approach in the SBT Finance Tool” (which includes AOTS and ROTS) but the SBT Finance Tool doesn’t work for the Portfolio Coverage Approach so it’s not possible to test it. It would be great if you can confirm the phrasing can be a simple % like those above rather than using the formulae for the Temperature Rating Approach listed in Table E1.
What do you mean that the SBTi Finance Tool doesn’t work for portfolio coverage?
You are presented with portfolio coverage alongside the temperature rating when you run the tool.
There is currently a tiny bug in the Google Colab version, but if you simply replace the very first line of code
it works as expected. The GitHub version should also work as expected.
Having said this, portfolio coverage is a fairly simple calculation, as it only takes into account SBTi-approved targets. You can then simply apply one of the accepted aggregation methods for the CDP-WWF Temperature Rating method manually, instead of running the SBTi Finance Tool.
Regarding target language, this is really a question for the target setting process, and something that you develop together with the SBTi, but please see the guidance document for examples of language, or indeed the already approved targets, based on portfolio coverage. Filter on As an example it could read like:
Investment Firm A commits that 30% of its equity portfolio within the asset class/sector by total assets will have science-based targets by 2025.
I’m not sure if you’ve completely answered my question about the method for PCA. The formulas in Table 8 of the link you sent refers to formulas for the temperature rating approach not the PCA (it contains Ts in each formula). My main question is, for the PCA, do we use these formulae but remove the Ts? I.e. for ROTS, if we used the formula, the baseline would look like ((𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒/𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 × 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠) of all companies with SBTs)/ 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑤𝑛𝑒𝑑 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 of all companies in the portfolio.
Or can we simply use: revenue of companies with SBTs/ revenue of all portfolio companies
This latter approach doesn’t use the Table 8 but seems more inline with some of the target phrasing
I have the same question as Nettie and Ligia. If one decide to calculate portfolio coverage manually (not using the Finance tool), what formula should be applied? The same as in Table 8 without Ts or simply [Revenues of companies with SBTs/ revenue of all portfolio companies]?
Hi,
The portfolio coverage should follow one of the portfolio aggregation methods set out in the Temperature Rating method.Using the SBTi Finance Tool is not a requirement. In order of preference, SBTi would prefer if you use ROTS/AOTS, ECOTS, EOTS, MOTS, TETS and WATS.
Hi @Donald ,
Very sorry but I am still confused… Do you mean to say that in order to use the portfolio coverage approach we MUST calculate temperature scores for each instrument in the portfolio??
This is not the impression we get when reading the finance institution methodology and the numerous case studies. In our understanding it is enough to calculate AUM of SBTi approved instruments / total AUM to calculate the starting coverage/baseline.
We really do appreciate all your help in clarifying here!
Welcome to the forum. No, but you have to use one of the 7 portfolio aggregation methods that are described in the Temperature Rating Method, when calculating your portfolio coverage, as described on page 32, 82 in appendix F in the Guidance and in the Temperature Rating method. What solution you use to calculate this is up to you. The SBTi Finance Tool is one solution, but you can develop your own solution for this, from scratch or use our code as a starting point, if you want. You can naturally calculate this manually too, as the calculations are not too complex.
Looking at the 7 portfolio aggregation methods on page 25 in the Temperature Rating Methodology, and with the confirmation from you in the previous post that it is not necessary to calculate temperature scores (Ts) for each instrument under PCA. Will the formula for ROTS be:
∑ ((𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒/𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 × 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠) of all companies with SBTs)/ 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑤𝑛𝑒𝑑 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 of all companies in the portfolio.
Hence the information that needs to be gathered from each instrument in the portfolio is: (1) Whether the instrument has a validated SBT (yes/no) and (2) Instrument GHG emissions
And if WATS is applied, the formula will be:
∑(𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 𝑤𝑒𝑖𝑔ℎt i ), hence one can simply use; Asset under management of companies with SBT/total asset under management of all portfolio companies in that asset class
To define the coverage of the Portfolio Coverage target, FIs shall use one of the weighting approaches
in the SBTi Finance Tool (listed in Appendix E) consistently throughout the target period. As the
Portfolio Coverage (PC) method is binary and we’re using the Temperature Rating aggregation
methods, we can replace the outcome from the Temperature Rating method for the companies, i.e. TS,
in the formula with the outcome of the PC-assessment, i.e. 1 if the company has an approved target or
0 if the company does not have an SBTi-approved target. This means that you can use the same
weighting methods for both Temperature Rating and Portfolio Coverage. Simply replace TS with PC in
the formula.
I interpret the formula for portfolio coverage calculation the same way as you have done above but unfortunately, responses you have received don’t clarify any further. Did you figure out the answer to your question?
If we apply WATS will the formula for weighting be : Asset under management of companies with SBT/total asset under management of all portfolio companies in that asset class?
If we apply ROTS, will the formula be: ∑ ((𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒/𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 × 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠) of all companies with SBTs)/ 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑤𝑛𝑒𝑑 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 of all companies in the portfolio.?