Despite the rapid expansion of ESG data, financial institutions across the globe still struggle to obtain transparent and comparable climate data. This absence of high-quality data is a major hurdle to understanding climate risks and impacts within financial portfolios – and it severely constrains decision makers in identifying and taking the steps necessary to address them.
This white paper explores a physical asset-based data methodology for assessing climate risk and impact. This bottom-up approach, which measures emissions in the real economy and links them to their owners in the financial economy, is transparent and comparable by design and can revolutionize the way financial institutions address climate change. By integrating data from many different sources and linking physical assets in the real economy to their owners in the financial economy, this approach, pioneered by organizations like Asset Impact, can equip financial institutions with far more detailed climate-critical insights for decision-making than are available from high-level company-level emissions disclosures or estimates.
Overview of the approach
An asset-based approach to decoding climate impacts within a financial portfolio starts with collating a range of data points from a wide range of sources on the physical assets within the real economy that are responsible for greenhouse gas emissions.
In combination with contextual data, each asset's production profile is then run through proprietary models that estimate the carbon emissions associated with its activities. Crucially, all of the data gathered on physical assets is normalized and standardized at the outset to facilitate cross-company and cross-sector comparability. Then, to allow users to analyze financial portfolios, each individual asset is linked to a corporate ownership structure – from direct owners up to parent companies.
Asset Impact's comprehensive Physical Assets Matched with Securities (PAMS) database spans nine high-emitting sectors, encompassing a vast array of emissions-intensive activities from coal mining and power generation to heavy-duty vehicle and steel manufacturing. Covering 75% of global emissions, the datasets paint a comprehensive picture for investors, spanning 334,000 assets and over 65,000 companies.
The Asset Impact methodology
Asset Impact's detailed, bottom-up solutions are underpinned by asset-based data. Available at the asset level and the company level, they are designed to help financial institutions and managers of financial portfolios make decisions that have a positive impact on real economy emissions. The approach is informed by a commitment to maximizing clarity and transparency, as well as the reality that decarbonization strategies must go beyond portfolio alignment to drive the necessary real-economy transformation.
The Asset Impact methodology proceeds in four key stages:
- Onboarding: Source, clean, and aggregate millions of raw data points from multiple sectoral commercial providers, open datasets, and other public sources, triangulating data wherever possible to enhance its accuracy.
- Asset-level processing: Apply a suite of proprietary methodologies and models to physical assets to produce activity-based and emissions-based indicators and analytics, applying a robust and consistent framework across nine sectors.
- Company-level processing: Apply a further suite of proprietary methodologies to link activity-based and emissions-based indicators to direct corporate owners and indirect owners within complex ownership structures, and aggregate indicators to every individual company in the dataset.
- Testing and quality assurance: Run a range of quality assurance and quality control checks. Different checks are implemented at every step, starting at the onboarding stage and being repeated and expanded as the data approaches its final form. A set of automated tests complemented by manual review ensure that the output data is transparent and reproducible from source data, which helps to identify and rectify any data quality issues before the data is made available to users.
- Extraction: Benchmark indicators and analytics against external data sources to ensure consistency. This is the final round of quality checks, and ensures that data extraction and delivery can proceed, with the data ready to be applied to a wide array of use cases.
Asset Impact's rigorous and sub-sector-specific methodologies have been specifically developed to equip decision-makers with actionable and easily interpretable insights that not only help optimize financial outcomes but also drive tangible, positive impact on emissions in the real economy.
Company- and asset-level coverage
Asset Impact's bottom-up approach to understanding portfolio emissions by scope links over 334,000 physical assets in the real economy with over 65,000 direct and indirect corporate owners across nine of the world's highest-emitting sectors, covering 75% of global emissions. At present, the Asset Impact database covers physical activities, emissions, and emission intensities across upstream oil & gas, coal mining, power generation, aviation, shipping, light- and heavy-duty vehicles, and cement and steel production.
Case study 1: How BBVA uses Asset Impact data to drive climate goals
BBVA is implementing its commitment to achieving net-zero emissions in close collaboration with Asset Impact. The bank was an early adopter of the Paris Agreement Capital Transition Assessment (PACTA) methodology and a key participant in the Katowice Commitment published ahead of COP24 pledging to align lending portfolios with global climate targets.
For BBVA, integrating Asset Impact's data into their systems allowed the bank to not only to estimate its financed emissions with a high degree of precision, but also to develop sophisticated portfolio analysis tools that enabled the formulation and implementation of sector-specific plans and corresponding investment strategies.
The firm's TCFD reports showcase these sector-specific targets and significant reductions in emissions across industries like power generation, automobile manufacturing, cement, and steel. They highlight BBVA's goals of phasing out coal exposure by 2030 in developed countries and by 2040 globally. Leveraging asset-based data internally for portfolio alignment and externally for client engagement, BBVA sees its partnership with Asset Impact as a cornerstone of its data-driven strategies for financing a sustainable future.
"The accurate and reliable asset-based dataset provided by Asset Impact has allowed us to develop sector plans, set investment strategies, and track progress towards our global targets. With the insights gained from this data, we have successfully reduced emissions, aligned our portfolio with climate goals, and made significant strides towards contributing to a net-zero world." – Gerardo Echave Pita, Sustainability Risk Manager at BBVA
Case study 2: KLP's active ownership journey
KLP, a Norway-based asset owner and the country's largest pension fund, is on a mission to achieve net-zero emissions. Partnering with Asset Impact allowed KLP to address important data gaps within its portfolio of companies, which is proving crucial for analyzing the climate profiles of portfolio companies and implementing measures to improve performance. With granular company-level insights from Asset Impact, KLP is tracking the pace of transition in its portfolio. It achieved a 54% Paris Agreement alignment portfolio-wide in 2022, attributed to a combination of investment strategy shifts and improved data quality supported by asset-based data.
Engaging with investors and coalitions like Climate Action 100+ and Nature Action 100, KLP also helped push some of its portfolio companies, such as Yara, to develop more robust climate action plans. The fund's proactive, data-driven stance helps KLP position itself as a leader in responsible investment and offers a blueprint for others to follow in combating the climate crisis.
"To effectively gauge the progress of the companies within our portfolio, especially concerning their climate goals, granular company-level data was imperative. Asset Impact's forward-looking data and company-level transition insights fulfilled our need for comprehensive data for portfolio companies in high-emitting sectors." – Gjermund Grimsby, Chief Advisor, Climate Change at KLP
See Asset Impact's data in action
Explore how asset-based data can help reduce your financed emissions by linking your portfolio to companies and underlying assets in Asset Impact's dataset and tracking sources of emissions over time.
- Monitor your portfolio and gain insights into the transition pathways of your investee companies, using consistent and comparable metrics.
- Break down your portfolio's current and future emissions into Scopes 1, 2, and 3 and set accurate decarbonization targets based on Asset Impact's forward-looking emissions data.
- Engage with your portfolio companies to help investee companies reduce emissions, invest in decarbonizing their asset stocks, and improve their sustainability practices.
- Build internal systems and comply with regulations to help align your portfolio with your climate objectives and legislative requirements, including disclosures.
