The financial sector is seeking more practical information on climate risk. The ‘Sustainable Edge’ project is developing a tool for investors and creditors to understand how well-aligned a company’s business activities are with the transition to a low carbon economy.
The transition to a low carbon and climate-resilient society requires financial flows to be channelled from 'brown' to 'green' investments. The project, led by CICERO Center for International Climate Research in partnership with leading Norwegian financial institutions, will contribute to make it easier to understand climate risk in practice. Sustainable Edge is financed by ENOVA, a Norwegian state enterprise established to promote environmentally friendly restructuring of energy use and production, as well as other partners who are actively participating in the project.
The analysis methodology will build on CICERO’s acknowledged Shades of Green methodology for green bond framework assessment. This climate-science based rating method allocates a shade of green to activities depending on how well the investment is aligned with a low-carbon, climate resilient future. CICERO has ten years of experience delivering science-based analysis to the financial sector. A key strength of this methodology lies in the facilitation of a dialogue between investors and companies to understand how green the companies are and to track their progress in aligning with a low carbon and climate resilient future. ‘Sustainable Edge’ is further developing this methodology for assessment of companies. A company’s investments, revenues and development efforts will be assessed on a scale from dark green to dark brown depending on their contribution to a low carbon future.
The new tool will:
- Assess how companies are changing their investments and development efforts over time towards a green transition, thus enabling tracking of the share of green investments and revenue over time.
- Give an assessment of risk management for physical climate risk and transition risk.
- Give an assessment of use of climate scenarios and alignment with the climate risk reporting recommendations from the Task Force on Climate-related Financial Disclosure (TCFD).