Ethos calculates the degrees Celsius increase in global temperature that a portfolio is aligned with, from 1.5°C or lower to 3.5°C or higher. Through the 2015 Paris Agreement, world governments committed to curbing global temperature rise to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C. 

The calculation is based on the weighted-average of warming potential (in degrees Celsius) of portfolio holdings, including stock and fund holdings.

To assess warming potential of an individual stock (company), we combine several carbon-related metrics:

• Forward-looking emissions reduction targets set through the Science-Based Targets Initiative (SBTI). Has the company set a credible target to align its emissions with a 1.5°C or 2°C global warming path? If the company has set a target through the SBTI (or, in some cases, set a credible target on its own) aligned with 1.5°C, 2°C, or another global pathway, Ethos uses that temperature as one metric. 
• Carbon footprint: Ethos calculates the total carbon emissions of companies in our database, including Scope 1 emissions (direct emissions from owned or controlled sources), Scope 2 emissions (indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the company), and Scope 3 emissions (all other indirect emissions that occur in a company's upstream and downstream value chain). Ethos assigns a ranked score to each company in our database (~7500 companies) for how much its footprint contributes to total global emissions (so the greater the total emissions, the worse the score). This metric lets us penalize the largest contributors to global emissions.
• Carbon intensity: Ethos calculates total carbon emissions (Scope 1, Scope 2 and Scope 3) per $1M USD revenue for all companies in our database, then calculates the global warming pathway (in degrees Celsius) that the intensity is aligned with. To set global warming pathways, we use data from Climate Action Tracker that estimates the total amount of global CO2e that can be released per year between now and 2100 to meet 1.5°C and 2°C scenarios.  For example, a 2°C pathway requires that global CO2e be reduced from the 2020 level of ~48.5 GT CO2eq to ~27 GT by 2040 (based on data from Climate Action Tracker). Given projected global GDP of ~$176T in 2040, average allowable emissions intensity for a 2°C pathway is ~154 metric tonnes per $1M USD sales. 
• Carbon footprint change (reduction): Ethos uses historical carbon data to calculate how much a company reduces its carbon footprint year-over-year. We use this metric as a counterweight to the forward-looking reduction targets; has a company actually demonstrated that it will reduce its emissions over time?
• Climate solutions: Ethos rewards companies that offer "climate solution" products or services as part of their core business model. Examples of products and services that Ethos considers climate solutions include renewable energy, electric vehicle technology, sustainable agriculture, and automation that reduces carbon footprints.

Ethos uses SBTI commitments as its primary way of assessing forward-looking commitments because SBTI is an independent verification method. Companies submitting targets to the SBTI can have their targets validated in line with global warming pathways.

For funds and portfolios, the tool first calculates the warming potential of each holding, then calculates the weighted-average for the fund or portfolio.