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At a Glance: Entelligent Smart Climate®

Entelligent uses state-of-the-art global climate circulation models, integrated resource assessment models, financial modeling, and machine learning to predict corporate vulnerability to energy transition risks under various scenarios.

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Basics

Content Category: ESG

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Entelligent Smart Climate®’s methodology and its resulting E-Score® provide a company-level climate sensitivity measure. Smart Climate blends energy economics and climate forecasts with traditional financial data to predict corporate vulnerability to energy transition risks under various scenarios. Rather than relying on backward-looking ESG data, Entelligent uses state-of-the-art global climate circulation models, integrated resource assessment models, financial modeling, and machine learning to create the forward-looking E-Score. The E-Score and accompanying analytics offer leading indicators for company performance and environmental impact that are rooted in science and additive to investment strategies.

Smart Climate includes two packages: AE-EMTR and CO-EMTR. AE-EMTR covers most constituents of the S&P 500, Russell 1000, and MSCI All Country World indices. This package identifies energy source dependency for each company and assesses the impact of fluctuations in profitability of all energy sources, such as Oil, Gas, Bio, Hydro, Coal, Nuclear, Renewables, and New Technology. CO-EMTR covers constituents of the S&P 500 and is designed to assess risk in a company’s profitability and future returns due to coal and oil dependency specifically.

Data Overview

Asset Class: Public Companies

Data Frequency: Quarterly

Delivery Frequency: Quarterly

History: Data available back to 2006 

aag entelligent smart climate feed

Data Methodology

While there is some variation in methodology between the AE-EMTR and CO-EMTR packages, both forecast company vulnerability to various climate change scenarios by assessing how their underlying assumptions (e.g., energy source reliance, policy changes, and economic growth) will impact company performance. Entelligent uses En-ROADS (Energy Rapid Overview and Decision Support) to generate these climate change scenarios. En-ROADS simulates the effects of changes in global GDP, energy efficiency, R&D results, carbon prices, fuel mix, and other factors based on carbon emissions, energy availability, and temperature. 

These forecasts are then blended with financial modelling to predict the share price, profitability, and exposure to energy transition risks. Entelligent’s proprietary methodology also considers each company’s energy dependence. The AE-EMTR package will capture all energy sources, such as Oil, Gas, Bio, Hydro, Coal, Nuclear, Renewables, and New Technology, while the CO-EMTR package focuses on a company’s dependence on Coal and Oil.

The data is extensively tested for risk-return ratio improvement and social environmental impact. The resulting E-Score measures the level of carbon emission reductions at the security level by evaluating an asset's current and future exposure to competing climate scenarios.

Use Cases

Evaluate Climate Change Risks 

  • Smart Climate assists managers and owners in evaluating portfolio performance by relating both risk and return to a series of critical environmental metrics. Smart Climate analytics measure the security-level scientifically standardized climate transition risk associated with slow or sudden policy, energy, technical, and macroeconomic dispersions from the “business as usual” (BAU) climate scenario.
  • E-Scores can help investors with stock screening, portfolio construction, portfolio rebalancing, and weighting adjustments to hedge the risks associated with rising variable energy costs, increased regulation, and changing patterns of energy use. The Smart Climate data and analytics can also suggest portfolio modifications to improve environmental impact and better manage portfolio risk as well as exploit opportunities for improved return per unit of risk.

Forecast Future Environmental Impact 

  • Identify companies that can have the biggest impact on reducing global carbon footprint. This often means finding companies that currently have a large carbon footprint but are well positioned to transition to a low carbon economy. Rather than looking exclusively at historical environmental impact, Smart Climate offers a leading indicator for emissions reductions and insight into how climate, environmental, technological, and policy changes will impact companies in the future.
  • Considering the current data gaps and noise in traditional carbon footprint analysis, using E-Scores provide users with a more holistic view of energy efficiency and carbon emissions using robust methodology.
    • The E-Score is an indicator of an investment’s energy efficiency and thus its reductions of both Scope 1 and Scope 2 carbon emissions. Companies that are increasing capital expenditure in energy efficiencies show favorable E-Score rankings. 

Reduce Exposures to Energy Mix Transitions and Tilting Portfolios Toward New Opportunities (AE-EMTR) 

  • The AE-EMTR package is intended for users interested in building sector inclusive investment strategies that reduce portfolio exposure to global energy mix transitions and energy price volatility for Coal, Oil, Gas, Renewables, Nuclear, Hydro, and Biofuels using a soft divestment approach. The package helps investors identify opportunity shifts in sectors due to energy transitions for both energy suppliers and consumers. 

Reduce Exposure to Coal and Oil Volatility (CO-EMTR)

  • The CO-EMTR package is intended for users interested in building all sectors inclusive investment strategies that reduce portfolio exposure to oil and gas volatility using a soft divestment approach. The identifies leaders across all GICS economic sectors that have managed to minimize exposures towards traditional fuels.

The details provided above are as of July 2020.

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