Introduction

Many institutional investors are now required to calculate portfolio-related carbon emissions and produce assessments of climate-related risks. Yet, while national pension regulators and other oversight bodies understandably emphasize emissions-related metrics, there is increasingly widespread awareness that these provide only an indirect indication of the portfolio’s potential resilience to transition risk. This Market Review briefly illustrates the complexity of this challenge by looking at a universe of more than 1200 equity funds through the dual lenses of Carbon Intensity (CI) and Conditional Transition Loss (CTL). In addition, we look at a white paper from the Scientific Portfolio team, which presented a methodology for CTL calculation.

Key takeaways

• Carbon metrics should not be treated as the sole proxy for transition resilience. Although analysis of 1,255 U.S. and European equity funds illustrates a broadly positive correlation between CI and CTL, there is substantial variance: funds with similar carbon intensities are predicted to have very different losses in various transitions scenarios.
• Both costs and revenues should be considered when modelling CTL. Fund-level analysis demonstrates the lack of relationship between losses attributable to carbon taxes and projected revenue changes, underlining the importance of looking at both aspects rather than taking a cost-centric approach. We adopt a company-level methodology that allows for both negative and positive revenue impact, facilitating the identification of potential winners and losers of transition.

The subject of ‘transition loss’ modelling will be the subject of an in-depth webinar on December 4^th, 2025. To register to attend the webinar click here.

View climate, performance and risk data for your equity portfolio and a wide range of equity strategies on the Scientific Portfolio platform.

Authors

Aurore Porteau de La Morandière
ESG & Quant Researcher,
Scientific Portfolio …………………………………………..

Vincent Bouchet
Director of ESG & Climate Research,
Scientific Portfolio

Shahyar Safaee
Deputy CEO and Business Development Director,
Scientific Portfolio

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