Evaluation of Warming function vs Single scenario

Abstract: The private sector has an increasingly important role in limiting the temperature rise to below the crucial 1.5°C of the Paris Agreement. In order to assess how well a portfolio is aligned to the goals of the Paris Agreement, benchmarks need be used. The creation of benchmarks is complex and varying methodologies with associated opinions exist. The purpose of this thesis is to examine two different approaches for creating benchmarks; Single scenario and Warming function. The usability of the benchmarks is examined from the perspective of a financial institution. The methodology is based on a literature review of earlier research. Using empirical data the different methods are tested in a smaller Case study and on a larger data set. The results give insights in different advantages and disadvantages of the methods. Using a Single scenario approach allows for a more granular analysis, however it is criticized for being misleading as the result is easily manipulated. The Warming function is less granular, as almost all companies in the empirical data are assessed against the same benchmark - creating unfair results for companies active in sectors with different demands on emission reduction. In order to gain sectoral granularity the Warming function methodology need to be investigated further. By lowering the demands on the final benchmarks, the adaptation to different sectors can increase inthe Warming function approach.