Models


Kepler Cheuvreux

The equity research products of Kepler Cheuvreux comprise single stock research, sector research, innovative thematic research, strategy research and ESG research among other products. As a broker, Kepler Cheuvreux’s empirical research seeks to challenge the consensus and to critically question the pronouncements of company managements. In the context of the ET risk project, Kepler Cheuvreux is exploring the integration of the results of the climateXcellence model (e.g. around company margins and cashflows), the reference decarbonization scenarios and the asset-level databases developed as part of the project in its equity research services by defining the key inputs by type of industry that are relevant in determining the valuation of companies. Company-level assessments from a transition risk perspective will be done using discounted cash flow models and other valuation models.

S&P

S&P Global Market Intelligence will explore how to use the scenarios and asset-level data developed in the project together with the results of the CO-Firm’s climateXcellence model to determine if there is a material impact of energy transition risk on a company’s creditworthiness. The impact assessment will be done in a credit risk model, analysing sector-level and potentially company-level impact

S&P Dow Jones Indices will explore the potential for integrating the project’s findings in one of the indices in the existing family of existing green and low-carbon indices or the design of a new index integrating transition risks. Thus, S&P Dow Jones Indices will assess how the selection or re-weighting techniques currently being employed can be combined with the impacts on profitability and credit quality of companies resulting from climate related risks and opportunities.

The CO-Firm

The CO-Firm's ClimateXcellence Model analyses company exposure to transition risks based on a cost and product volume approach and its effects on company margins, operating cashflows and capital expenditures viability.  The analysis consists on a threefold approach considering: i. regional/country-level regulatory changes; ii. impact of regulatory risks on internal processes based on an energy and carbon intensity analysis; and, iii. company adaptive capacity and a cost/benefit and margins analysis.
The model is now being expanded as part of the ET Risk project to measure regulatory, technological and market-based risks associated with 2°C scenarios and soft transition scenarios for a series of sectors (i.e. utilities, automotive, steel, cement), complementing existing models on gas production and oil refining. The model is being used by Kepler-Cheuvreux and S&P Market Intelligence to develop valuation models and credit risk models, approaches that could ultimately be applied in the context of company reporting or even financial portfolio assessments.

2° Investing Initiative

Developed by the Sustainable Energy Investments consortium (involving the 2° Investing Initiative, WWF G, WWF EPO, Climate Bonds Initiative, CDP, Kepler-Cheuvreux, Cired, University of Zurich, and Frankfurt School of Finance) and funded by the European Union’s Horizon 2020 program, the 2°C portfolio assessment measures the alignment of listed equity and corporate bonds portfolios – in terms of key technologies and sectors (~20% by market cap, ~70%-90% by GHG emissions) – with 2° C scenarios. It determines the over- and under- exposure a portfolio has respect to a benchmark scenario using asset-level data. More than 150 investors have used the tool at portfolio level to date, including asset managers and asset owners. The tool can be used as well by issuers in their 2°C alignment reporting. It involves a bottom-up, asset-level based analysis covering the fossil fuel, electric utility, and automobile sector, as well as planned launch for frameworks for aviation, shipping, cement, and steel in Q2 2017. The tool is being retailed by Trucost / S&P, South Pole Group, Sustainalytics, ET Index, and Grizzly RI, and is currently available as a free tool. For more information on how to get a free test of your portfolio, contact clare@2dii.org.