Portfolio Alignment to a 2°C Trajectory: Science or Art?

Abstract

The concept of portfolio alignment to a temperature trajectory has gained momentum among investors and regulators since the 2015 Paris Agreement recognized the importance of the financial sector for the low carbon energy transition. Yet, a clear definition and a transparent methodological framework for alignment assessment with a temperature trajectory, or portfolio temperature alignment, are presently lacking and few academic studies have addressed this question. This paper provides a definition of portfolio temperature alignment, reviews the key methodological steps in computing alignment measures, and highlights the main scientific challenges, with the aim to stimulate further research on this topic. We review, analyze and place in context the main findings of the recent technical review of portfolio temperature alignment assessment methodologies by Institut Louis Bachelier.