iShares MSCI USA Quality Factor ETF | QUAL

What is the Implied Temperature Rise (ITR) metric? Learn what the metric means, how it is calculated, and about the assumptions and limitations for this forward-looking climate-related metric.

Climate change is one of the greatest challenges in human history and will have profound implications for investors. To address climate change, many of the world’s major countries have signed the Paris Agreement. The temperature goal of the Paris Agreement is to limit global warming to well below 2°C above pre-industrial levels, and ideally 1.5 °C, which will help us avoid the most severe impacts of climate change.

What is the ITR metric?

The ITR metric is used to provide an indication of alignment to the temperature goal of the Paris Agreement for a company or a portfolio. Scientific consensus suggests that reducing emissions until they reach net zero around mid-century (2050-2070) is how this goal could be met. A net zero emissions economy is one that balances emissions and removals.

How is the ITR metric calculated?

The ITR metric is calculated by looking at the current emissions intensity of companies within the fund’s portfolio as well as the potential for those companies to reduce its emissions over time. If emissions in the global economy followed the same trend as the emissions of companies within the fund’s portfolio, global temperatures would ultimately rise within this band.

Note, only corporate issuers are covered within the calculation. A summary explanation of MSCI’s methodology and assumptions for its ITR metric can be found here.

Because the ITR metric is calculated in part by considering the potential for a company within the fund’s portfolio to reduce its emissions over time, it is forward-looking and prone to limitations. As a result, BlackRock publishes MSCI’s ITR metric for its funds in temperature range bands. The bands help to underscore the underlying uncertainty in the calculations and the variability of the metric.