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Scientific Beta welcomes updated TCFD guidance and renews criticism of EU Climate Transition and Paris-Aligned Benchmark Regulation


Press Release - Boston, London, Nice, Paris, Singapore, Tokyo, October 21, 2021

Scientific Beta welcomes updated TCFD guidance and renews criticism of EU Climate Transition and Paris-Aligned Benchmark Regulation

Index provider reiterates warnings against use of enterprise-value based carbon intensity and regards integration of implied temperature rise metrics into portfolio construction as premature

On 15 October 2021, the Task Force on Climate-related Financial Disclosures (TCFD) updated its 2017 guidelines on implementing its recommendations that aim to promote more informed financial decisions in relation to the risks of climate change.1

The updated guidance:

  • Promotes more granular or explicit disclosure of risks and opportunities identified by reporting organisations and how these impact their strategies
  • Introduces significant revisions to the disclosures of metrics and targets to:
    • Encourage the uptake of indicators that are relevant across industries and of related targets
    • Require disclosure of Scope 1, Scope 2 and material Scope 3 emissions
    • Require the financial sector to disclose its financed emissions and the extent to which its activities align with the goals of the Paris Agreement

With respect to the supplemental guidance for the financial sector pertaining to the Metrics and Targets pillar of the recommendations, Scientific Beta welcomes two major changes relative to the draft proposals on which the TCFD sought feedback. First, the TCFD reaffirms Weighted Average Carbon Intensity as recommended disclosure2 for funds, products and strategies (while also requiring the disclosure of financed emissions, where possible). Second, it adopts a more cautious approach in respect of disclosure of alignment with Paris-Agreement-consistent temperature scenarios.

“The TCFD is to be commended for taking an evidence-based stance on the evolution of metrics and targets and reversing proposals that would have provided further incentives to counterproductive action by investors,” comments ESG Director Frédéric Ducoulombier who penned Scientific Beta’s contribution to the TCFD consultation.

“The prudent approach of the TCFD in respect of portfolio alignment is befitting the lack of maturity and convergence of methodologies in that area and we salute the work commissioned by the organisation to try and establish bases for the development of robust and convergent portfolio alignment tools,” says Ducoulombier.

“While there is understandable interest in financed emissions as a potential carbon footprinting approach for varied financial activities and investments, it should not be allowed to guide security selection and issuer engagement, notably because its reliance on enterprise value introduces capital market volatility into carbon intensity measurement and obscures the relationship to real-world emissions as we have documented in published research3. While not perfect, revenues-based carbon intensity, as endorsed by the TCFD since 2017, is a superior metric for these applications.”, he adds.

“The integration of climate considerations into investment management must be based on robust data and fit-for-purpose metrics and methodologies whether its primary focus is on managing climate-related risks and opportunities or on promoting real-world climate change mitigation. The European regulator has erred in the matter and bears responsibility for the proliferation of greenwashing strategies claiming EU labels,” says Scientific Beta CEO Noël Amenc, who co-authored a February 2020 report with Ducoulombier that warned of the unintended consequences of the EU regulation then in the making.4

“It is thus a source of comfort and hope that the TCFD, despite a difficult political context, chose to revise its guidance in a manner that preserves established and relevant metrics for climate-related investments, strengthens the issuer-level disclosures on which they are based, and takes a careful, multi-pronged, approach to strengthening the bases for the integration of forward-looking climate-related data in investment management”, he adds.

1 The TCFD was established by the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system. Financial regulators worldwide have endorsed TCFD recommendations with the European Union, Japan, the United Kingdom, Brazil, Switzerland, Singapore and Hong Kong having set, or announced they would set, reporting requirements aligning with the work of the TCFD. The TCFD recommendations are organized around four pillars: Governance, Strategy, Risk Management and Metrics and Targets.
2 The TCFD distinguishes between recommended indicators that financial institutions “should disclose” and additional carbon exposure and footprinting metrics that they “should consider” for reporting. Weighted Average Carbon Intensity (WACI) defined as the average, based on portfolio weights, of the issuer-level ratios of Scope 1 and Scope 2 greenhouse gas emissions to revenues was the sole recommended indicator until the October 2021 update (which added financed emissions to be calculated according to the standards being developed by the Partnership for Carbon Accounting Financials (PCAF)). The draft guidelines had proposed requiring the disclosure of “financed emissions in line with PCAF’s methodology and WACI, if relevant (…) with WACI and other carbon footprint metrics (…) remaining as ‘should consider’ metrics.”
3Carbon intensity bumps on the way to net zero, Frédéric Ducoulombier and Victor Liu, The Journal of Impact & ESG Investing, Spring 2021, Volume 1, Issue 3, pp. 59–73.
4Unsustainable Proposals: A critical appraisal of the TEG Final Report on climate benchmarks and benchmarks' ESG disclosures and remedial proposals, Noël Amenc and Frédéric Ducoulombier, Scientific Beta, February 2020.

About Scientific Beta:
Scientific Beta aims to be the first provider of a smart factor and ESG/climate index platform to help investors understand and invest in advanced factor and ESG/climate equity strategies. Established by EDHEC-Risk Institute, one of the top academic institutions in the field of fundamental and applied research for the investment industry, Scientific Beta shares the same concern for scientific rigour and veracity, which it applies to all the services that it offers investors and asset managers.

On January 31, 2020, Singapore Exchange (SGX) acquired a majority stake in Scientific Beta. SGX is maintaining the strong collaboration with EDHEC Business School, and principles of independent, empirical-based academic research, that have benefited Scientific Beta’s development to date. Since 2015, Scientific Beta has also been offering highly advanced strategies in the area of ESG and climate change, whether involving options integrated into smart beta indices or pure ESG or climate benchmarks.

As a complement to its own research, Scientific Beta supports an important research initiative developed by EDHEC on ESG and climate investing and cooperates with V.E and ISS ESG for the construction of its ESG and climate indices.

Scientific Beta, 1 George Street, #15-02, Singapore 049145. For further information, please contact:, Web:

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