Sweden’s AP4 has partnered with Invesco to analyse the current landscape of carbon neutrality and explore the risks and opportunities associated with temperature alignment for investors.

The report provides a robust framework and valuable insights for investors seeking to optimise and safeguard their portfolios in the context of climate change.

It outlines different approaches to identifying paths towards carbon neutrality and specifically highlights the potential impact of integrating climate alignment in portfolio construction.

"There is a lack of guidance and knowledge on how to address temperature alignment in portfolios. This report therefore acts as a tool for investors to navigate different types of data sets and how the choice of measurement method affects the portfolio's alignment with the Paris Agreement," AP4 senior analyst, Julia Ripa, said.

Part of the report focuses on comparing carbon budget divergence and implied temperature rise (ITR) as essential tools for assessing portfolio alignment with climate goals.

Carbon budget divergence is useful for detailed issuer-level analysis with a focus on materiality as it looks at absolute deviations from an assigned carbon budget. ITR is aimed towards for high-level communication and focusses on the relative over- or undershoot.

Invesco senior sales manager, Daniel Eskilsson, said the report is a “testament to our ambition to share sustainable investment insights widely”.

“It has allowed us to combine our expertise and resources to deliver a practical and very topical guide for climate-conscious investors in relation to forward looking carbon metrics,” he said.

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