Sustainable Edge: assessing the climate transition record of Norwegian companies

Despite the importance of finance in driving the green economic transition, it is not easy for investors to analyze the degree of sustainability and climate risk exposure of their portfolios and to fully exploit the value creation potential associated with companies providing sustainable solutions. The aim of our feasibility study is to provide a starting point for a methodology that gives investors and public authorities a practical tool for understanding climate risk and which companies are best situated to contribute to the low-carbon, climate resilient future. Our method is based on the CICERO Shades of Green methodology which allocates a shade of green to activities depending on how well the investment is aligned with a low-carbon, climate resilient future. We have taken an iterative approach to methodology development with the involvement of financial sector partners and engagement with companies to guide our process. 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. We found that the methodology is robust across the small sample of companies analyzed in this preliminary study. Further development and testing is required to advance the methodology and approach. The feasibility study also identified key challenges, the foremost of them data availability and data quality. The feasibility study is a starting point for discussion and further development and not yet a conclusive analysis. While the method has potential, the analysis presented should be viewed as illustrative and not a conclusive view on the companies analyzed. The next phase of development would include testing the method against a larger pool of companies, developing sector benchmarks and will be to incorporate quantitative aspects into our qualitative approach.

(1) Despite many actors populating the market for risk assessments for equities, our interviews confirmed that there is a need for a climate risk analysis of equities. (2) The Sustainable Edge concept and draft communication tools were well received by investors as a potential response to their needs. (3) The CICERO Shades of Green methodology can be adapted to equities and has shown to be robust across the study's small sample size. The feasibility study also identified key challenges, the foremost of them data availability and data quality. (4) The results from the preliminary study were be presented at the ENOVA annual conference on Tuesday 29 January. This conference is Norway's premier meeting place for innovative sustainable technology and provided an excellent arena to disseminate our preliminary results. In addition, results were published.

The financial sector has a vital role in fulfilling SDG. 12 "Sustainable consumption and production". The sector decides which companies and projects to provide financing to, thereby affecting companies’ competitiveness and shaping the future of trade and industry. To allow companies to transform sustainable development into a competitive advantage, there is a need for a communication tool between investors and companies on sustainability and climate risk. CICERO has experience in facilitating communication between investors and issuers in the green bond market through our work with independent reviews. Based on this experience and our methodology, we are well-positioned to contribute to the dialogue between investors and companies on climate related risks and opportunities. From our experience in the green bond market, we have found that investors appreciate a science-based approach with an easy to grasp communication aspect. In cooperation with ENOVA, CICERO has begun drafting a method and communication template for sustainable finance. Several financial market actors have expressed interest in our work and we see the need for a stakeholder-based feasibility study. This study will have four key phases: 1.Mapping – review of existing methodologies and frameworks that can provide input to the tool. An engagement plan will be developed and companies for analysis selected. Additional stakeholders will also be identified. An initial SWOT analysis will be conducted. 2. Outreach – systematic collection of insight and feedback from investors and companies. 3.Development – assess and adapt our Shades of Green methodology. As this is a feasibility study, the purpose is not to design a complete methodology, but to develop an approach to analyzing sustainable transformation that is a scientifically sound. 4.Communication – communicate publically about the project together with partners. The final deliverables are a summary report and several draft communication templates.