The analysis is based on a translation of this climate scenario into “2°C benchmarks” for investment portfolios, focusing on a 5-year window: 2016-2021. Such a 2°C benchmark for the TOPIX represents the relative amount of energy/technology which TOPIX companies should produce/use to achieve the 2°C target under the IEA 2°C scenario. If the TOPIX index, based on its current composition, follows this production and capacity benchmark, it would then be “2°C-aligned”.
TOPIX was chosen for this analysis because it is the largest index in Japan, encompassing the popular ‘Nikkei 225’ stock market index. Therefore, the TOPIX index provides financial institutions with a relevant proxy of the investing universe in Japan. The assessment is performed on three main sectors that represent most of the full index exposure to climate change issues: Power production, Automobiles, and Fossil fuels. The output of the assessment is the discovery and explanation of an energy and technology gap. The gap quantifies the over and under exposure of those three TOPIX sectors to energy and technology under a 2°C trajectory.