LO Portfolio Temperature Alignment Tool (LOPTA).

The transition to a low-carbon and climate-resilient economy is one of the most important features of the sustainability revolution. At Lombard Odier we have built a robust, science-based proprietary framework to strategically analyse portfolio temperature alignment across all of our portfolios.

The LO Portfolio Temperature Alignment Tool (LOPTA) allows us to align portfolios with the companies best-positioned to capitalise on the climate transition opportunity, as well as identify specific and systemic risks for those companies that have not understood the urgency and nature of the transition.

 

Example of company X temperature alignment 

 

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Source: LOIM analysis; illustrative only

 

Decarbonisation commitments are increasingly enshrined in law by many countries and are being adopted directly by companies. This is consistent with the reality of the transition to net-zero emissions, which will require concerted action across all sectors of the economy. However, a lack of standards and definitions, incomplete disclosure of data and nascent understanding of the decarbonisation pathways particular to individual industries and geographies, has resulted in a complicated landscape for sustainable investors.

We believe it is vital to monitor the ‘temperature trajectory’ of individual companies within our investment universes. This means assessing the degree of alignment of companies to the decarbonisation pathways implied by the goals of the Paris Agreement, which seeks to limit global warming to 1.5-2°C.

For example, a company that is on a trajectory more aligned to a 3°C outcome might be cutting its direct and indirect CO2 and greenhouse gas emissions to some extent, but is not decarbonising at a pace sufficient to meet the goals set by the Paris Agreement. This may lead to more stringent operating circumstances, loss of competitiveness, restricted growth prospects and asset stranding; all having a negative impact on future profitability.

Our objective is to help our clients understand the decarbonisation objective and pathway of their portfolio companies through a single and easy to use metric.

 

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