Carolin Schellhorn

Global awareness of the urgent need to decarbonize the economy has been growing. Although legislative and regulatory actions have been lagging, some businesses have emerged as leaders in this process. In particular, financial institutions as information producers and resource allocators play an important role. In order to accelerate the global transition to a low-carbon economy, market participants need to develop the ability to identify and support firms that are leading on climate change action. Using CDP data on ten climate change action metrics for 2013, the authors apply the dichotomous Rasch model to rank the overall climate change action performance of U.S. financial firms across multiple dimensions of this effort. Simultaneously, the results identify the climate change action metrics for which success was most difficult to achieve. The authors show that investors, managers and regulators should consider ranking firms using this more comprehensive methodology rather than the CDP’s Performance Band or the CDP’s Disclosure Score alone when assessing firm leadership in this area. While this study focuses on financial firms, a similar analysis could be conducted for ranking firms in other industries as well. The authors’ results are important for investors, managers and regulators charged with firm performance evaluation and resource allocation in the face of growing pressures to decarbonize the global economy