Sustainability at BlackRock

Lighting the path to a low-carbon economy

Understanding the Implied Temperature Rise Metric for Index Mutual Funds and ETFs

Executive summary

Over the past year, our clients have told us that understanding climate risk and its impact on their investments is a top priority. To adequately prepare for the profound changes ahead, our clients say they want more data, metrics, and analytical tools. BlackRock is committed to advancing measurement and transparency in this critical area.

As part of our effort to meet this growing need, and fulfill a pledge we made early in 2021, we’ve published a temperature-alignment metric known as implied temperature rise (ITR) for all of our public index mutual funds and exchange traded funds (ETFs) where data are sufficiently available. The ITR metric is the latest sustainability indicator that we have made available to help inform our clients’ decision-making.

The ITR metric incorporates both current emissions intensity and forward-looking assessments of projected emissions, and while the calculations that underpin the metric are complex, the output is an easy-to-understand temperature indication, expressed in half-degree Celsius bands. It can help shed light on whether indexes and portfolios are progressing toward the temperature goal of the Paris Agreement, which calls for countries to limit global warming to well below 2°C, and ideally 1.5°C. Currently, fewer than 10% of the companies in MSCI All Country World Investable Market Index align with a 1.5°C temperature rise.1

ITR metrics are evolving, and there are inherent limitations to what the ITR can tell investors; it should not be solely relied upon to make investment decisions. The metric offers a potential window into whether investments and investment portfolios are currently aligned to the climate transition that is already underway. 

The path to a low-carbon economy is still uncertain, and investors can only manage what gets measured. By equipping our clients with metrics such as ITR, we believe they will be better prepared to identify risks and opportunities.

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