From promise to plausibility: Credibility-adjusted Implied Temperature Rise (ITR) scores

Financial institutions are often expected to demonstrate how their portfolios align with global climate objectives. To do so, they can draw on a growing set of tools designed to measure alignment. [note1] Among them is Implied Temperature Rise (ITR) [note2], a methodology that translates an entity's forward-looking climate performance into a temperature score.

While ITR scores are commonly used to measure and communicate portfolio climate alignment, differences in modelling choices can lead to materially different outcomes and fuel ongoing discussions about methodological divergence. [note3]

One modelling choice is particularly influential. Because ITR scores rely on emissions projections, future emissions are typically estimated either from disclosed GHG emissions reduction targets or by extrapolating historical emissions trends. As a result, the treatment of climate targets can have a material impact on implied temperature outcomes.[note4]

Effectively, all temperature alignment methodologies face the same challenge: should they trust a company's stated ambitions or its observed emissions trajectory? Targets remain a measure of ambition and can be revised or delayed over time. [note5] Conversely, historical emissions trends capture realised performance but may understate future emissions reductions that companies are already planning to deliver.

The difference is material. For the FTSE All-World Index, the ITR score falls from 3.11°C when targets are ignored to 1.87°C when targets are included (Figure 1). LSEG already provides both views, [note6] each of which offers a different perspective on climate alignment.

Rather than choosing between the two, the key question perhaps becomes how much confidence should be placed in a company's climate targets. TPI Management Quality (MQ) scores, which measure how a company manages its GHG emissions and the risks and opportunities related to the low-carbon transition, provide one potential answer. Our previous research [note7] shows that companies with stronger TPI MQ scores are more likely to decarbonise and typically do so faster. The score therefore provides a useful signal of a company's ability to translate climate ambitions into action. This assessment remains relevant even if a company downgrades, delays or drops its targets.

Building on this insight, we can use the TPI MQ score as a proxy for the credibility of a company’s climate targets and as a weighting factor for an ITR estimate. Companies with higher TPI MQ scores receive a greater weight on the target-based ITR, while companies with lower scores receive a greater weight on the trend-based ITR (the weights assigned are provided in Figure 3, located at the end of this article). By incorporating target credibility, the methodology produces a temperature score of 2.26°C for the FTSE All-World Index (Figure 1), sitting between the target-based and trend-based outcomes and offering a more balanced perspective.

The distribution analysis reinforces this finding (Figure 2). A simple target-based approach classifies many more companies as “1.5°C aligned” than the credibility-weighted methodology. Once credibility is considered, the number of “1.5°C aligned” companies in the FTSE All-World Index falls materially: from 27% to just 8%. In other words, for a substantial share of companies, there is a gap between the ambition reflected in their climate targets and the evidence of management practices and strategic processes associated with delivering on those targets.

The results illustrate why the choice of methodology matters. Projecting corporate emissions based on targets produces much lower implied temperature scores than approaches that extrapolate from current emissions trajectories. Factoring in TPI MQ scores effectively acts as a credibility adjustment. It creates a middle ground between stated ambition and observed performance by assigning greater weight to firms whose climate ambitions are supported by strong climate governance and planning – signalling which emission outcomes are plausible, not merely promised.

LSEG’s Climate MAP is a multi-dimensional assessment framework designed to provide a holistic view of corporate climate transition readiness, rather than relying on any single metric. It organises climate-transition signals across three complementary pillars: Management assesses whether governance, strategy and transition planning support execution; Ambition evaluates whether a company's forward-looking emissions trajectory is aligned with climate goals; and Performance examines its current emissions profile and evidence of delivery. Read together, the pillars can reveal inconsistencies - such as ambitious targets unsupported by credible governance or emissions progress - and support portfolio monitoring, stewardship, reporting and the identification of potential inconsistencies between stated climate ambitions and observed performance.