Aligning financed emissions targets and portfolio investments for top UK FIs

Starting point

Three major UK financial institutions had made public climate commitments and were facing increasing scrutiny of their financed emissions. Regulators, clients, and stakeholders were asking a simple question with a complex answer: how aligned are your portfolios with stated climate targets and global temperature pathways.

Internally, each institution had climate and ESG programs in place, but most views of financed emissions were still relatively high level. Portfolio warming metrics and sector averages existed, yet they did not tell investment committees which specific issuers and assets were driving misalignment, how credible those issuers’ targets were, or where capital should be reallocated.

There were three core gaps to solve:

1. A consistent, asset level view of emissions trajectories and climate risk across thousands of issuers.
2. A way to compare portfolios against multiple temperature pathways and scopes without rebuilding the analysis from scratch each time.
3. A structured framework for turning analytics into invest, divest, and engage actions that fit each institution’s policies and risk appetite.

Each client needed more than an ESG score. They needed decision ready analytics that could withstand board and regulator scrutiny and that would inform real capital allocation choices.

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Approach

The institutions worked with a climate analytics team that had developed a market ready Climate Change Scenario Model, later acquired and integrated into a leading global climate risk platform. The core engine linked asset level fundamentals to company and sector views for more than 2,000 public companies, with emissions histories and projections through 2050.

Bhuvan Maingi, now leading Strathen Group, served as one of the portfolio analytics leads across the engagements. The team mandate was to configure scenarios, translate the model’s technical outputs into portfolio views, and help leadership act on the findings.

I. Map holdings into the climate engine

The work began by mapping each institution’s holdings into the scenario model. Positions were reconciled to the model’s universe of more than 2,000 issuers using identifiers, sector and region mappings, and conservative gap handling rules where public data was incomplete.

For each issuer covered, the model already held:

• Asset level locations and characteristics
• Historical emissions from 2000 to 2020, harmonized across Scope 1, 2, and where possible Scope 3
• Technology and regional attributes needed to project emissions under different climate pathways

This foundation allowed the team to build financed emissions baselines by issuer, sector, region, and scope for each client.

II. Run multi pathway climate scenarios

Next, the portfolios were run through multiple temperature pathways. Using the model’s projection engine, emissions trajectories from 2021 to 2050 were generated for 1.0-, 1.5-, and 2.0-degree scenarios, with toggles for Scope 1, 2, and 3.

For each issuer and portfolio, the analysis produced:

• Emissions trajectories under each pathway
• Contributions to portfolio level financed emissions and implied temperature alignment
• Overlays of physical risk, such as heat, flood, storm, drought, and transition risk including policy, technology, and market shifts

This gave risk and investment teams a common, quantitative view of exposure instead of fragmented, report by report diagnostics.

III. Assess target realism with an R coefficient

A critical step was testing how credible investee climate targets really were. The team applied a target realism coefficient, R, that compared each issuer’s stated targets against pathway consistent reductions from its own historical baseline and sector context.

Issuers with ambitious but plausible trajectories scored differently from those whose stated targets implied unrealistic jumps or minimal change. This allowed the institutions to distinguish between:

• Leaders with credible plans that merited increased exposure or partnership
• Laggards whose targets fell far short of pathway consistent reductions
• Issuers in the “watch” category, where targets existed but execution risk remained high

Target realism results were integrated directly into issuer scorecards instead of being treated as an appendix.

IV. Translate analytics into invest, divest, and engage actions

With issuer level diagnostics in hand, the team worked with each institution to frame practical portfolio actions. For each client, the team built:

• Portfolio heatmaps showing financed emissions and risk concentration by sector, region, and scenario
• Issuer scorecards combining emissions trajectories, risk overlays, and R scores
• Shortlists of names to consider for invest, where both returns and climate alignment were strong, or divest, where misalignment and risk were material.

These actions were tested against each institution’s mandates, policies, and risk appetite, then refined into capital reallocation options and sector tilts.

V. Prepare board and regulator ready narratives

Finally, the analytics were translated into materials that boards, regulators, and external stakeholders could understand. This included:

• Portfolio level summaries structured around TCFD style pillars
• Examples of issuer level decisions and rationales
• Scenario comparisons that showed how portfolios might evolve under different pathways and policies

Instead of relying on abstract portfolio warming scores, leadership received issuer level diagnostics that linked climate pathways, target realism, and clear actions on where to allocate or withdraw capital.

Outcome

For the three UK institutions, the work moved climate alignment conversations from general aspirations to specific, defensible decisions.

Investment committees gained:

• A single, scenario-based view of financed emissions across Scope 1, 2, and 3
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• Visibility into which issuers and sectors were most responsible for misalignment, and why
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• A grounded understanding of which climate targets were credible, which were not, and where engagement could realistically shift outcomes

Risk and sustainability teams gained a repeatable process. Portfolios could be re-run through updated scenarios, disclosures, or holdings without rebuilding the entire framework. As new data emerged, the same engine could refresh issuer scorecards, R coefficients, and portfolio heatmaps, allowing clients to track progress rather than rerun one off studies.

For climate reporting and stakeholder engagement, the institutions now had content that connected numbers to narrative. They could explain how financed emissions were measured, what pathways had been tested, which actions were being taken, and how those actions aligned with commitments and regulation.

For financial institutions, the real shift was treating financed emissions analytics as a core input to portfolio strategy and risk management, not as a parallel ESG exercise.

This work continues to shape how Strathen Group supports financial institutions today, combining asset level climate analytics, target realism, and practical capital allocation choices so climate commitments translate into credible portfolio action.