Skip to main content

Your browser is out of date, and unable to use many of the features of this website

Please upgrade your browser.


This website requires cookies. Your browser currently has cookies disabled.


Issued: June 2021
Last updated: September 2022


Read paragraphs 117 to 183 in part 3 of the DWP’s statutory guidance and paragraphs 1 to 14 in part 2 of that guidance for more on the requirement to calculate a minimum of four climate change metrics.

Example steps to take

Taking the following actions may help you meet your obligations to calculate metrics.

Select and review your metrics

Use the metrics recommended in the DWP’s guidance to help you select at least four metrics for your scheme, including an absolute emissions metric, emissions intensity metric, a portfolio alignment metric and an additional climate change metric.

Adopt a process to review these at regular intervals or when there is a change in circumstances that makes such a review appropriate, for example, if there’s a significant change in investment arrangements. You could do this alongside reviews of your scenario analysis.

Selecting metrics

Example 1

The trustees of the IJ pension scheme are considering what metrics to select and report on for their scheme. They want to ensure: 

  • the metrics are objective, understandable, trackable over time and support decision making  
  • they are consistent and comparable across their portfolio where possible, and given any limits in data
  • they understand what a target set against those metrics might look like and the actions that might need to be taken to achieve that target

The trustees review with their advisers:

  • the range of metrics available and how they might be applied to their scheme, given the nature of the investments held and the current data limitations
  • the types of decarbonisation trajectory they could adopt for their scheme and the actions that would need to be taken to meet those trajectories

The trustees are aware that they need to select at least four metrics:

  1. an absolute emissions metric
  2. an emissions intensity metric
  3. a portfolio alignment metric
  4. an additional climate change metric

They initially focus on selecting the first three metrics and agree to select and report on the following:

a) Total greenhouse gas (GHG) emissions (absolute emissions metric)

The absolute GHG emissions of their scheme assets should:

  • be calculated in line with the GHG protocol methodology
  • include Scope 1 and 2 emissions initially (and Scope 3 emissions once required)
  • be reported in terms of tonnes of carbon dioxide equivalent (CO2e)

Example target: Reduce net Scope 1, 2 and 3 emissions to zero by 2050, with an interim target to cut emissions by 40% relative to a 2020 baseline by 2030.

b) Carbon footprint (emissions intensity metric)

The volume of total GHG emissions per million pounds invested for the scheme's assets is calculated and expressed in tonnes of CO2e/£M invested.

Example target: Reduce the GHG emissions intensity of the scheme's assets by half by 2030, from a baseline start of 2020. In addition, aim to reduce this intensity by 20% by 2025, in line with their decarbonisation trajectory. 

(c) Portfolio alignment metric

This metric compares the alignment of the scheme’s portfolio to the climate change goal of limiting the increase in the global average temperature to 1.5oC above pre-industrial levels.

The trustees are aware that they need to calculate ’as far are they are able, one of three types of portfolio alignment metrics based on either binary target measurements, benchmark performance models or implied temperature rise (ITR) models. Given current limitations, the trustees agree to calculate the portfolio alignment metric initially using a binary target approach and to review their approach as industry methodologies develop.

Example target: To have 100% of the assets held by the scheme by 2030 (or before) invested in assets that are aligned with declared net zero or Paris-aligned targets where they are verified using Science Based Targets.

The trustees agree they will only select appropriate targets for at least one metric once they have:

  • completed some initial scenario analysis, as they believe this analysis will help them better understand the climate-related risks and opportunities relevant to their scheme
  • reviewed the additional climate change metrics with their advisers and agreed on those they will report on

Example 2

The trustees of the KL pension scheme are considering what additional climate change metric they might select and report on for their scheme. They know they can choose different metrics for different parts of the portfolio, and they can select an alternative additional climate change metric to those listed in the DWP’s guidance if they explain why.

The trustees decide to calculate a range of climate change metrics in line with those listed by the DWP and to apply them to different parts of their portfolio.

Climate value at risk (climate VaR)

This metric provides a forward-looking valuation assessment to measure climate-related risks and opportunities in the trustees’ portfolio over different time horizons. The trustees believe that this analysis will enable them to identify climate VaR exposures and contributions by sector and security level. They also think that this will help them focus their time and resources on the most material issues. It will allow them to review with their advisers whether adjustments to investment holdings should be made to limit exposures to climate-related risks and maximise exposures to opportunities.

Data quality

This measure will calculate the proportion of the portfolio for which Scope 1 and Scope 2 emissions (and Scope 3 emissions once required) are available.

Portfolio exposures

The trustees also agree to calculate some further metrics and monitor progress against these. They include:

  • the proportion of assets and/or operating, investing or financing activities that are:
    • materially exposed to physical risks
    • aligned to climate-related opportunities
    • materially exposed to transition risks
  • the percentage of scheme asset value exposed to:
    • material physical climate-related risks
    • material transition risks

The trustees receive a report from their investment adviser, setting out the additional climate change metrics and the basis for those calculations, together with details of the limitations of each of the metrics calculated, including consideration of:

  • the potential for model error
  • the range of uncertainty in individual metrics
  • the potential impact of data availability and comparability between data inputs on the outputs.

The trustees discuss the results and report with support from their investment adviser. They set targets for each of the additional climate change metrics. The trustees believe the targets set are suitable for different parts of their portfolio, allow appropriately for the limitations in their calculation, and future intended investment strategy changes.

Gather data on greenhouse gas emissions ‘as far as you are able’

Establish systems and processes to obtain Scope 1, 2 and 3 greenhouse gas emissions attributable to the scheme’s assets. The data must then be used to calculate your metrics, as far as you are able. This is likely to involve early engagement with service providers and third parties. Use the most recent data available, even if the data is not from the current year. Document the steps you have taken, including engagements with your service providers. This may help demonstrate why you were not able to obtain some data.

Where it has been difficult to obtain data for your first reporting period, you should fill gaps as far as you are able. For example, use estimated or proxy data and then develop a plan for improvements in future.

If your asset manager is only able to provide data for part of your portfolio, develop a plan and timetable for improvement. Be aware that the quantity and quality of the data available should improve for future reporting periods.

Use the metrics to inform risk management

As with other activities in this guidance, use your work here to develop other aspects of your governance of climate-related risks and opportunities. As far as you are able, use the metrics to identify those parts of your portfolio more exposed to climate-related risks and prioritise your actions.

Consider the extent to which the metrics you have used have been limited by data constraints and the impact this might have on decision making.

Document how you have used the metrics, the advice you have taken, and any relevant outcomes, such as whether they led to changes in your investment strategy or in implementing investment arrangements or your scheme procedures.

Example: using a metric in risk management

The trustees of the MN pension scheme are concerned that significant exposure to fossil fuels represents a reputational risk for the employer and potentially exposes them to losses in their investment portfolio from stranded assets.

Their employer’s business is heavily dependent on its ethically-focused branding. The trustees have taken covenant advice and believe that exposure could damage the employer’s reputation, present a material risk to the employer covenant and undermine the security offered to the scheme.

They decide to measure the exposure of the scheme’s investments to fossil fuel revenues as an additional climate change metric.

To calculate the metric, the trustees identify investments with direct exposure to fossil fuel extraction (oil, coal and gas) and energy generation from fossil fuels.

The trustees have an existing engagement policy, which forms part of their Responsible Investment policy. Having identified their portfolio exposures to fossil fuels, they further develop their Responsible Investment policy with their investment adviser to make clear their policies on engagement, exclusions and disinvestment.

The trustees agree on new investment beliefs, including that:

  • an effective program of stakeholder engagement, including collaboration with other like-minded investors, can help to manage climate-related risks and opportunities
  • while effective engagement can serve to reduce climate-related risk, in some instances, the level of risk may support disinvestment or exclusion of new investments
  • investments in certain sectors may be financially unsuitable over the long term, and the risk from those investments may be too high; those sectors should be excluded where possible

The trustees take legal advice on the revised policy to ensure that it does not conflict with their fiduciary duties. They agree that:

  • they will ask their investment adviser to set out
    • how their revised policy affects their current fossil fuel exposure
    • how they should manage their current exposures through a combination of engagement and divestment or exclusion, if appropriate and in line with their fiduciary duties
    • the timescales they recommend should be set for disinvestment and engagement
    • the social impacts of implementing their revised policy decisions
    • how their current investment manager mandates should be adjusted to reflect their revised policy
  • they will prepare a briefing for members setting out the approach they have adopted once they received advice and finalised their policy views
  • they will keep their policy on exclusions, engagement and disinvestment under regular review

What to report


Read paragraphs 175 to 183 of part 3 of the DWP’s statutory guidance for what you must describe in your report. A summary is set out below.

When reporting on the steps you have taken, you must describe:

  • the metrics you have calculated
  • if you have been unable to obtain data to calculate the metrics for all of the scheme assets, why this is the case

You should also:

  • use the metrics recommended by the DWP, or explain why you have not done so
  • explain the methodology you have used for each metric, including those of any asset managers or third-party service providers and the reasons for the adopted approach
  • describe the key components of the methodology used in calculating the portfolio alignment metric, including key assumptions and how data gaps are allowed for
  • when reporting total greenhouse gas emissions and carbon footprint:
    • state the proportion of assets for which data was available
    • indicate if any data was estimated or of uncertain quality, giving reasons why
    • indicate if you made any assumptions that could significantly impact the results
    • report your absolute emissions in the amount of CO2 equivalent
    • set out the Scope 1 and 2 emissions of assets separately from Scope 3 emissions for each DB section and each popular DC arrangement

If you believe it is not meaningful to aggregate data across certain asset classes. you should:

  • only report at the most aggregated level that remains meaningful
  • also report the proportions of the scheme assets associated with each reported metric

You may also choose to:

  • report Scope 1 and Scope 2 emissions of assets separately
  • disclose some or all of your metrics against a relevant benchmark. This could help identify the relative performance of your portfolio
Risk management