Climate data in the investment process: Challenges, resources, and considerations

This report examines how climate-related data are used across the investment process and why data quality is central to assessing climate risks and opportunities. Investors, lenders, insurers, and service providers increasingly integrate climate considerations into valuation, portfolio construction, engagement, and product design. Demand has risen sharply: 72% of CFA Institute members surveyed in 2022 reported clients asking for more climate analysis, up from 45% in 2020. At the start of 2022, an estimated USD30.3 trillion of assets were managed under sustainable investing strategies.

Climate-related data in the investment process

Climate data are used to assess physical and transition risks, value assets, set engagement priorities, and meet investor preferences such as low-carbon or net-zero strategies. Multiple intermediaries rely on these data, including credit rating agencies, index providers, ESG rating agencies, valuation firms, and sell-side researchers. However, methodologies and data inputs vary significantly, often with limited transparency, reducing comparability and reliability. Survey evidence shows more than half of respondents already incorporate climate risk into portfolio risk analysis, highlighting the growing importance of decision-useful climate data.

Data challenges

A central barrier is limited availability and reliability of corporate disclosures. In the 2022 CFA Institute survey, 46% of respondents rated data gaps as a significant obstacle to investing for net zero. Climate data are sourced from company disclosures, direct engagement, public agencies, NGOs, and third-party providers, and are available as raw, processed, or analysed data. Raw disclosures are inconsistent across firms in scope, definitions, timing, and assurance. Only around 50% of MSCI ACWI constituents report Scope 1 or 2 emissions, and just 37% report some Scope 3 emissions. Larger firms disclose at far higher rates and are more likely to seek external assurance. Processed data, including estimated emissions, help fill gaps but rely on assumptions that are often undisclosed. Coverage is weaker for small, private, and emerging market companies, and estimation errors can materially affect portfolio risk or sustainability labels. ESG ratings, as analysed data, further suffer from weak alignment across providers; high environmental scores often reflect disclosure capacity rather than actual decarbonisation performance. Regulators have begun addressing transparency and oversight of ESG data providers in response to these issues.

GHG emissions

Greenhouse gas emissions underpin most climate metrics used in investment analysis. Scope 1 and 2 emissions are generally more reliable, while Scope 3 emissions—often the largest source for many sectors—are complex, estimated, and prone to error. Financial institutions illustrate this challenge: most of their emissions are financed Scope 3 emissions, which are difficult to measure due to limited disclosure of lending and investment exposures. The Greenhouse Gas Protocol notes that Scope 3 data are not designed for company comparisons or portfolio construction. Accordingly, the Task Force on Climate-related Financial Disclosures recommends metrics such as weighted average carbon intensity based on Scope 1 and 2 emissions to improve reliability, while acknowledging the resulting underestimation of total emissions.

2023 Milestones in regulations and standards

The report highlights 2023 as a turning point for climate disclosure. The International Sustainability Standards Board issued IFRS S1 and IFRS S2, establishing a global baseline for financially material sustainability and climate disclosures, including Scope 1, 2, and material Scope 3 emissions. In parallel, the European Union advanced the Corporate Sustainability Reporting Directive and European Sustainability Reporting Standards, which apply double materiality, require assurance, and cover around 50,000 companies, including large non-EU firms with significant EU activity. The US and California also introduced new climate disclosure laws, expanding coverage and enforcement. Despite progress, differences in materiality, scope, and assurance mean global comparability remains limited.

Data strategies: What can investors do?

Until standards converge, investors are encouraged to apply disciplined data practices similar to those used for imperfect financial data. Suggested actions include cross-checking data against original sources, understanding provider methodologies, diversifying data sources, and supplementing quantitative inputs with qualitative judgement. Investors should remain conscious of data limitations while continuing to use climate data, engage with issuers, and participate in standards-setting to improve future disclosure quality.