CONSOLIDATED ALIGNMENT PERFORMANCE ANALYTICS (CAPA)

The Consolidated Alignment Performance Analytics (CAPA) research project, developed and led by the Institut Louis Bachelier Labs in partnership with Scientific Portfolio (an EDHEC Venture), and financed by the French environmental agency ADEME and Climate arc. The overarching objective of the CAPA research project is to develop an approach to assess the consolidated alignment of different groups of financial institutions such as financial centres with low-carbon pathways commensurate with the global net zero objective (thereafter “consolidated alignment assessments”).

While there is an increasing body of research on assessing alignment at the entity- and portfolio-level, assessing the alignment of a group of financial institutions has rarely been discussed beyond measures on the scale and volume of financial initiatives. Relying on a patchwork of micro-level methodologies and metrics as a proxy for consolidated alignment runs the risk that hundreds of gigatonnes of carbon are lost in translation when converting the global carbon budget into multiple alignment assessments.

As such, the CAPA project seeks to contribute to the advancement of research on how to monitor the collective progress made in achieving the purpose and goals of Article 2.1(c). It aims to develop an approach to assess the consolidated alignment of financial institutions by exploring how methodologies that operate at the micro-level (financial asset, portfolio, financial institution, with a specific focus on portfolio alignment methodologies) can be meaningfully consolidated into higher categorical groups (e.g. group of financial institutions).

The first phase, achieved through the publication of two reports:

• The Alignment cookbook II, reviews the range of existing frameworks, methodologies and tools that exist to assess the alignment of financial institutions and portfolios. As the purpose of this document is to perform a review, it remains at a technical level without judging the relevance of one versus another.
• The report “Implied Temperature Rise of equity portfolios: a sensitivity analysis framework” aims to extend the inventory of “The Alignment Cookbook 2” by proposing a quantitative analysis of the impact of different options for these design choices on the final ITR metric.

The next phase, based on the technical panorama achieved through the first phase, will identify the different options that are the most suitable to assess the consolidated alignment of a group of financial institutions and suggest a methodology.