Climate Data Market Analysis: working with the PRI to understand the supply and demand Side

Climate Data Market Analysis: Understanding the Supply and Demand Side

Dr Rory Sullivan, Dr Ian Woods and Robin Goon

Institutional investors have a key role to play meeting the goals of the Paris Agreement. There are now many organisations providing data to support and enable investors deliver their net zero commitments. The question is whether the data being provided actually supports or hinders investors’ effort? Chronos has worked with the PRI on a new report that explores the gap between investors’ needs and the data available to them.

The demand for climate-related data is growing rapidly. Net zero frameworks such as the IIGCC Net Zero Investment Framework, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and the expectations of initiatives such as theNet Zero Asset Owner Alliance (NZAOA)) all rely on the existence of robust credible data that enables investors to take meaningful action and to report on the outcomes that they have achieved.  

In 2022 and 2023, we worked with the Principles for Responsible Investment to analyse what investors need from climate change-related data, and the supply of data from companies and from third-party data providers. We reviewed the requirements of 16 major investor-led net zero and similar climate change frameworks and initiatives, we reviewed 62 different climate data products and we conducted a series of in-depth interviews with data providers and with institutional investors around the world about their climate data needs.

In September 2023, the PRI presented the key findings in its report Climate Data and Net Zero: Closing the Gap on Investors’ Data Needs. In many ways the PRI’s report covers familiar territory, although there is great value in the fact that it is grounded in a systematic analysis of the supply of and demand for net zero data.

The report’s recommendations focus on three main areas:

1.     Improving corporate disclosure, as a pre-requisite to improving the coverage and quality of data products.  

2.     Improving the coverage and quality of products offered by the data providers, in particular extending data coverage from large cap listed equities and investment grade fixed income, being transparent about data sources and in-house calculation methodologies, providing forward-looking analysis of climate data, and developing portfolio-level metrics and methodologies.  

3.     Facilitating data comparability, with the report emphasising the importance of establishing common definitions across the investment market (e.g. on net zero, on fossil fuel reserves) and of agreeing recognised sector and geographic pathways.

The report acknowledges that the investment industry is already working to address some of these recommendations. Initiatives such as the PRI are looking to bring some consistency and alignment on the supply side and data providers are providing more information about their emission calculation methodologies. Despite these developments, the report also stresses the need to accelerate these efforts to ensure that investors have the data that they need to deliver on their net zero commitments – something we are following very closely at Chronos.

Deeper insight: Chronos’ view

This report makes two hugely important contributions.

First, it recognises that this is not just a supply side issue. Many of the issues identified, such as the lack of comparability of corporate data, the inconsistencies in how data providers analyse data and fill gaps in data) reflect the lack of consistency in how investors define net zero and what data they ask for in order to assess company and portfolio performance. 

Second it emphasises the urgency of focusing on the real-world impact of company and investor action on climate change. The reality is that company emissions – and the emissions data reported by data providers - can change year-on-year for a variety of reasons. Investors need to understand the factors that drive changes in reported emissions, and be absolutely clear on what changes result fromreal-world – or actual – changes in emissions (e.g., energy saving, changes in business activity, changes in grid electricity carbon intensity), what changes are due to emissions accounting processes (e.g., changes to the scope of reporting), and what are a result of the actions of other parties (e.g., changes in the energy mix of the electricity grid) may be outside the company’s influence. Without this, we will continue to have the situations where most organisations are reporting reductions in their emissions, and yet global greenhouse gas emissions continue to rise.