Climate AIR Toolbox

To improve decision-making around the choice and use of climate-related tools and frameworks, financial institutions should first clarify their climate focus. The AIR toolbox highlights three distinct but overlapping foci: portfolio alignment, real-economy impact, and risk management. These goals are not mutually exclusive, and financial institutions can pursue more than one at a time. For example, actions taken towards portfolio alignment can result in real-economy impact and risk reduction. However, it is important to distinguish between them, as achieving one will not necessarily lead to achieving others. For instance, measuring and managing climate risk will not directly lead to alignment with global climate goals, just as one firm’s achievement of portfolio alignment does not guarantee positive impact on real-economy decarbonization. RMI defines each focus in the following way: 1) Portfolio alignment refers to the extent to which financial portfolios and the activities financed are consistent with the transition required to achieve defined climate goals. 2) Real-economy impact refers to the influence that financial institutions have on real-economy decarbonization. 3) Risk management refers to monitoring how climate change materially affects portfolio performance now and in the future. This can include climate-related physical risk (e.g., risks to physical assets and supply chains from more frequent or severe weather events like flooding, droughts and storms), transition risk (e.g., business risks associated with shifts towards a low-carbon world), and/or litigation risk (e.g., legal risks resulting from claims linked to physical or transition risks). The Climate AIR Toolbox features more than 30 tools and resources. This wide range of instruments and categories explains some of the confusion and complexity in the market when it comes to choosing which tools and frameworks to apply. To help financial institutions differentiate and choose among the relevant options, we categorize them into the following types of tools: 1) Data & Metrics 2) Pathways & Scenarios 3) Assessment Tools 4) Methodologies 5) Target Setting Guidelines & Verification 6) Reporting Frameworks & Guidelines 7) Collaborative Initiatives