This will motivate colleagues and assist when getting any formal support and approval you might need. For an asset owner, a good place to start is by communicating the above trends during meetings with your board, trustees, investment committee, CIO and portfolio managers. For an investment manager, discussions with clients will be important, as well as internal discussions with your client relationship managers, CIO and portfolio managers.
If you just want a snapshot of your portfolios’ carbon footprint to build internal knowledge, focus on a single portfolio (e.g. equities) or even a portion of a portfolio, such as a specific geographic region. For a fuller picture, measure across multiple portfolios to include more asset classes.
We recommend measuring repeatedly, such as annually, to monitor changes, but you need to match this to your budget and capacity to regularly review the findings.
You may be able to do this using existing resources: if you are an asset owner, ask your portfolio managers if they can measure a carbon footprint for you; if you are an investment manager, check what analytical tools your organisation has. Alternatively, you can use a service provider – some providers are listed on the Resources page. (The PRI does not endorse these providers and we strongly recommend investors conduct their own due diligence).
Methodologies and data quality vary. Data is typically drawn from company sources such as annual reports, but where companies do not supply emissions data, providers may estimate or model emissions, and there are different ways to do this. Standardisation efforts are growing: in 2015 the Greenhouse Gas Protocol and UNEP FI will issue guidelines on good practice.
When choosing a provider, decide if any factors particularly matter to you such as whether to:
The key to picking a provider is that you understand the strengths and weakness of the methodology they use, and that you can clearly and transparently communicate their findings to your stakeholders. We also recommend sticking to a single provider across all portfolios to provide consistency and comparability.
Analysing the data: Be aware of any normalisation undertaken prior to the carbon footprint being measured, and of any factors that were specific to your portfolio (e.g. sector selection, stock selection, underweights, overweights, exclusions). Also be aware of where a lack of company data has caused providers to use estimates.
Depending on the method used, you will be able to see factors such as your portfolio’s carbon intensity compared to a benchmark, or the highest emitting company or sector within the portfolio.
A carbon footprint gives a quantitative view of emissions at a particular point in time; portfolio managers may want to consider additional qualitative factors, such as regulatory risks/opportunities and a company’s climate strategy.
Discuss internally: Consider your portfolio’s contribution to climate change and your climate change strategy. Consider expanding carbon footprints to measure all of your portfolios, or consider developing a plan to do this within a timeframe.
Discuss externally: If you are an asset owner, discuss with your investment manager how to factor climate change into financial analysis, active ownership and investment decisions. Discuss with companies their emissions, disclosure and climate strategy, either directly or through your portfolio manager. If you are an investment manager, discuss with your clients the findings and next steps.
We recommend publicly disclosing your carbon footprint annually, on your website and/or within regular reports to clients or beneficiaries. Stakeholders may also want to know your view of the findings, how you will address heavy emitters and how you will develop your overall approach to climate change.
Be clear on what has been measured, name any providers used and give a summary or links to the methodology. Add narrative text to provide context. If you have year-on-year data, explain progress and setbacks. Describe any initiatives you’re planning. You may want to include any other environmentally-themed investments you have made.
Offer stakeholders the opportunity to give feedback.
A carbon footprint considers all six Kyoto Protocol greenhouse gases, which are measured in tonnes of carbon dioxide equivalent (tCO2e). This allows for the different gases to be compared on a like-for-like basis relative to one unit of CO2. CO2e is calculated by multiplying the emissions of each gas by its 100-year global warming potential. The six gases are: Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs) and Sulphur hexafluoride (SF6).What are emissions “scopes”?
“Scope” is a term used by The Greenhouse Gas Protocol, the most widely recognised international accounting standard for greenhouse gas emissions, to classify greenhouse gases according to how directly linked their emission is to a company. The three levels are: