For years, investors have been struggling to find suitable approaches to integrate sustainability in a reliable, transparent and uniform way into their investment process. This was also accelerated through the EU Climate Disclosure Regulation and the EU Taxonomy. Until recently, the focus was on the impact of climate change on investments, the so-called ‘outside-in’ perspective.
However, in mid-2019, the EU Commission felt compelled to clarify the concept of materiality. This had long been intended, following the CSR Directive, however interpretations of the phrase “significant risks relating to environmental issues” differed widely. Now, the concept of Double Materiality, has been clearly defined by policy makers: complementary to the outside-in perspective, the inside-out perspective describes the influence of a company on the climate, which can be financially material and therefore also has to be reported.
Partially in response to this, the idea of so-called “temperature alignment” is gaining momentum, mainly fuelled by the financial sector. Temperature Alignment is the concept of calculating the compatibility of investments and economic activities with a certain temperature or global warming scenario.