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    TPI Raises the Bar

    Stockholm (NordSIP) – The Transition Pathway Initiative, TPI, is one of the few authoritative sources of data and analysis on the progress of the financial and corporate world in transitioning to a low-carbon economy. As befits the rapidly evolving field of research that TPI is conducting, its methodology is a work in progress. In November, the initiative launched a new, more ambitious version of its corporate climate governance framework, Management Quality (MQ). To guide both active and potential users through the changes introduced and officially reveal the latest findings based on the improved methodology, TPI hosted a webinar on 7 December.

    Tuning in to the event, Raising the Bar: TPI’s new Management Quality Framework, NordSIP finds it to be more than just informative. It also serves as an inspiration to start using the resources provided by TPI, especially as the webinar offers the perspectives of an asset owner and an asset manager who are already doing it.

    Evolving methodology

    For those still unfamiliar with the initiative, Simon Dietz, Research Director at the TPI Centre, introduces briefly the work done by him and his colleagues. The purpose of the research is to assess companies on two dimensions based on publicly available information. The first one, MQ, covers companies’ governance of greenhouse gas emissions and the risks and opportunities arising from the low-carbon transition. The second, Carbon Performance (CP), tests the alignment of company targets with the UN Paris Agreement goals. The methodology is developed by an international group of asset owners and managers in partnership with the TPI Centre (based at the London School of Economics and Political Science) and supported by data from FTSE Russell.

    Guiding us through the latest methodology developments, Valentin Jahn, Principal Research Project Manager at TPI Centre, points out that central to this update is the creation of a new MQ Level 5, which tests companies on whether they have transition plans that include defined, quantified, and financed actions to get to net zero. In addition, the number of indicators in TPI’s MQ framework has been increased from 19 to 23. Jahn is also excited to announce that TPI has almost doubled its coverage, expanding the assessment to more than 1.000 companies and adding a new sector, Food Producers.

    The gold standard and the rest

    Looking at the actual results of the assessment, it becomes evident that the newly introduced MQ Level 5 is still highly aspirational. It turns out that no more than 5% of companies satisfy any MQ Level 5 indicator, and no company satisfies them all, according to research analyst Robert Ingham. This suggests that credible transition planning and implementation remain scarce even though many companies are integrating climate change into operational decision-making and may be thinking about climate change strategically.

    “Level 3 functions as the new ‘par score’,” explains Ingham. “Companies that fall under this threshold can be considered laggards.” Thankfully, only 18% of companies end up on Levels 0–2 after a marked year-on-year improvement. Almost a quarter of the companies assessed in both 2022 and 2023 have moved up at least one MQ level, reinforcing the need for new and more demanding indicators.

    A noteworthy conclusion that Ingham highlights is that there is no clear correlation between average MQ scores and the perceived difficulties in decarbonising that different industrial sectors experience. In other words, there are no excuses for companies in the difficult-to-abate sectors to stall.

    The proof of the pudding

    A self-proclaimed “big fan of TPI”, Valeria Piani, Head of Stewardship at Phoenix Group, welcomes the improvements introduced by TPI, especially the added coverage. “It is also good to see a ‘stretchier’ category,” she says, referring to MQ Level 5. According to her, TPI provides not only a valuable extra layer of quality check to her organisation’s proprietary analysis, but the research is also instrumental from a voting perspective.

    Emily Homer, Climate Specialist at Robeco, agrees with Piani on the many possible uses of the TPI framework and data. Most importantly, according to her, TPI brings consistency to what asset owners and managers ask of the companies. As to the improvements, she is pleased with the introduction of an indicator on whether a company will use offsets to reach its decarbonisation goals.

    It seems like the investors who already use TPI’s tools and data find them worthwhile and appreciate the constant improvement of the framework. Perhaps more asset owners and managers will join them in the future.

    Image courtesy of Andreas N from Pixabay
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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