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It measures the financed emissions of investment portfolios against the world’s carbon budgets and indicates if a portfolio is within the carbon budget limits for 1.5 degrees of warming.
RealZero Check will be provided via a Microsoft Excel file which has been pre-loaded with the One Earth Climate Model (OECM) carbon budget data and a formula which applies the data to an investors portfolio. The investor needs to input their portfolio holdings and associated carbon data of those holdings, along with a benchmark of their choice.
01
Gather and input your portfolio data
Gather your data. Construct your portfolio data with unique identifiers (like ISIN) for each holding, Global Industry Classification System (GICS) identifiers and carbon data for each company. GICS and carbon data can be sourced from data providers such as S&P, MSCI.
Replace the dummy data we have provided in the tool with your portfolio data in the Portfolio tab. We’ve included some de-identified dummy data in RealZero Check to give you an idea of how the tool works and to help you see how data should be formatted.
02
Gather and input benchmark data as at 2020
Gather the same information for the benchmark that is relevant to your portfolio as at 2020. For example, for an Australian shares portfolio, you may wish to use the ASX300 as the benchmark, so you’ll have to gather the ASX300 data from 2020.
The benchmark in 2020 is used to determine the portion of carbon budgets available to each sector via capital markets. 2020 is the calibration year, from which RealZero Check begins applying OECM carbon budgets.
Replace the dummy data we have provided in the tool with your benchmark data in the Benchmark tab.
03
Input parameters of analysis
In the Inputs tab select your comparison year, the year that corresponds to the portfolio data you've uploaded, and name your benchmark and portfolio for your own reference.
Then choose the benchmark valuation measure - market cap or enterprise value to correspond with the data you have entered into the benchmark tab. The default will be market cap.
Input the total value of the benchmark, according to either market cap or enterprise value, in the comparison year, the year that is relevant to your portfolio. So in the example of the ASX300, you’ll have to input the total value of the ASX300 in the year that is relevant to your portfolio. This way RealZero Check can calculate what proportion of the benchmark your portfolio represents and allocate carbon budgets accordingly.
In this tab, you can also select whether to measure either scope 1 or scope 1+2 emissions. For more information why scope 3 emissions are not included, see the FAQs.
04
Compare your portfolio
Go to the Portfolio Compare tab and see how your portfolio compares to the carbon budget. You'll be able to see the over/under allocation to budget for the entire portfolio in the bottom right hand corner.
A breakdown of each sector can be seen in the last column.
A green, or under budget result is good news, meaning that you are within the carbon budget for your portfolio’s holdings in that sector. A red, or over budget, result may be worth investigating in order to make sure that you are on track to meet any net zero commitments.
By using the plus signs on the left of your screen you can see categories below sector level for more information. This might be helpful in identifying where carbon intensity lies, but what is most important is that overall sector and overall portfolio financed emissions are within the carbon budget. Of course, it’s up to your investment expertise to determine whether changes need to be made in your portfolio based on the information from RealZero Check.
In the example below, a 2024 Australian equities portfolio with sustainability screens applied has been compared to the benchmark of the ASX300 in 2020.
From this example, you can see that the portfolio with sustainability screens applied exceeds the carbon budget in its holdings in the health care industry and some other sectors, however is under the carbon budget for its holdings is under the carbon budget for the overall portfolio and in most of the other industries shown.
Australian equities portfolio with sustainability screens applied has been compared to the benchmark of the ASX300
Institutional investors may access carbon data related to their portfolios through third party data providers including S&P and MSCI.
It is common, though not necessarily standard practice yet, for investors to monitor their portfolios’ emissions and to do so they need to access carbon data. The RealZero Check tool has been developed to be used by institutional investors wishing to monitor and report on financed emissions with any data they have access to.
Once portfolio data and benchmark data are input in to RealZero Check, investors will be able to see a breakdown by industry of how the portfolio is aligned to the OECM carbon budgets.
There are a multitude of carbon budget models, each with varying assumptions, granularity, and alignment with sustainable development.
Unlike other models, OECM aligns most closely with Intergovernmental Panel on Climate Change’s carbon budgets, grounds its analysis in economic and technological realities (i.e. does not rely on expensive and currently uneconomical technologies like carbon capture and storage), has the most sectoral granularity, and is most aligned with Shared Socioeconomic Pathway 1.
RealZero Check classifies industries using the Global Industry Classification Standard (GICS).
The tool allows investors to see how different sectors they invest in fit into the OECM carbon budgets. Using this information, financial institutions can analyse and understand which sectors might present problems or opportunities in the journey towards decarbonisation.
In this way, RealZero Check can be used to help investors set targets that consider economic, sectoral, and technological realities. For example, being over budget in energy might best be fixed by investing away from fossil fuels and investing instead in renewables and green energy. Being over budget in aviation may require engagement with companies developing sustainable aviation fuel, since an economically viable alternative hasn’t been scaled up yet.
Investors can choose different parameters to run the RealZero Check analysis for, including the comparison year and emissions scope.
RealZero Check will automatically analyse the portfolio for the chosen year and inform investors whether the portfolio is over or under budget.
A green or under budget result is good news, while a red or over budget result may indicate the need to analyse (and potentially change) portfolio composition to meet net zero goals.
Investors can also estimate whether their portfolios, if entirely unchanged, will be over or under budget for future years by changing the comparison year, allowing some level of short-to-medium term analysis.
Allowing investors to choose between parameters and choose their own benchmark means RealZero Check can be tailored to an investor's specific need.
This website is intended to provide information only and does not take account of your personal objectives, situation or needs. Use of this website it not a recommendation of any financial product or a statement of advice with respect to any decisions, personal or otherwise.
We acknowledge that we operate on sovereign First Nations land. We recognise the ongoing connection Aboriginal and Torres Strait Islander people have with Country throughout this continent since time immemorial. We stand for a future where First Nations people have true justice and redress, and our society has a profound respect, understanding and commitment to acknowledging First Nations perspectives, culture, languages, histories, country, values and ancestors.
This tool and report was developed through research conducted by the UTS Institute for Sustainable Futures, with funding and support from Future Group, who is pleased to make it accessible to other financial insitutions and the public to download.
© Future Group 2024