The Carbon Footprint of Capital Investments - adelphi

010 adelphi • The Carbon Footprint of Capital Investments adelphi • The Carbon Footprint of Capital Investments
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Figure 2: Average breakdown of the greenhouse gas intensities of various industrial sectors
For some product categories, such as pension
schemes, corporate bonds and closed funds, it is
not possible to calculate the emissions intensity
as no reliable data could be collected in relation
to them.
Calculation of the emissions financed by private
investors is based on the assumption that
investors finance businesses and projects through
the capital they provide by way of the financial
market. The greenhouse gas intensity of capital
investment products is a measure of the financed
emissions of a capital investment product in the
course of a year (in CO 2 equivalents) relative to
the investment volume. The greenhouse gas
intensity, calculated in grams of greenhouse gas
emissions (gGHG) per euro, can thus be applied as
a comparative between various capital investment
products. This takes into account the fact that
investors only provide the portion of the finance
for which their capital serves as a source of
financing to the capital recipients. Consequently,
depending on the form of financial investment,
either the share of the capital in financing of the
equity through company shareholdings or of the
borrowings by way of bank loans or bonds is taken
into account. For the various financial investment
products there also exist different means by which
private investors finance emissions with their
capital. This financing logic is stringently pursued
across all calculation methods, which is why the
term "financed emissions" is repeatedly used. 10
To calculate the product carbon footprint of stock
funds, a method was devised by Trucost which
is already in use by a number of investment
companies and banks (Trucost 2009a/2009b).
Utopies and Centre Info 11 – in cooperation with
Groupe Caisse D’Epargne, a French savings bank –
devised a method applicable to other capital
investment products (Utopies/Groupe Caisse
D‘Epargne 2008) and together produced a report
on their experience in calculating emissions
intensity (Centre Info/Utopies /Groupe Caisse
D’Epargne 2008). Their method permits Scope
3 emissions to be integrated into the calculation
alongside Scope 1 and 2, thereby mapping the
complete value creation chain of the enterprises
and projects financed by the various financial
products.
The greenhouse gas emissions data for this
study is taken from the INrate envIMPACT®
database, which comprises all three emissions
categories of the GHG Protocol 12 . This for the
first time applies a differentiated methodology
which also incorporates Scope 3 emissions of
financed enterprises and projects to calculate the
greenhouse gas intensity of capital investments.
Only 33 % of the German companies participating
in the Carbon Disclosure Project (CDP) currently
report their Scope 3 emissions (CDP 2009, p. 37).
Consequently, the INrate envIMPACT® database
utilises material input/output analyses of various
industrial sectors along the value creation chain. 13
This means envIMPACT® differentiates between
active and passive products, indicating the extent
to which a product does or does not have a
significant impact on the environment when in use.
For many products, the influence of their usage
phase is much greater than that of their production
and supply chain (Utopies/Group Caisse D’Epargne
2008). Figure 2 shows that in industrial sectors
such as oil and gas, and in car manufacturing,
Scope 3 emissions represent a particularly high
percentage of the emitted greenhouse gases.
If Scope 3 emissions were not included in their
analysis, those sectors would be classed as
very low-intensity greenhouse gas emitters.
At present, envIMPACT® holds emissions data
from 1,800 companies and has calculated averages
for 500 industrial sectors. It should nevertheless
be considered that the recording and reporting of
corporate greenhouse gas emissions, in particular
with regard to Scope 3 data, is still in need of
some improvement. The same is true of national
greenhouse gas inventories. The inaccuracies
in calculating the greenhouse gas intensity of
capital investment products are also heightened
by the aggregation of emissions data for individual
sectors. The study therefore makes no claim to
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2,849
Oil and gas
331
Electricity companies
Source: envIMPACT ® , INrate
566
1,965
291
be able to deliver entirely precise figures. The
basic message provided by the calculations is not
decisively influenced by the inaccuracies however.
Most especially, the comparison of investment
products within the individual product categories
set out in the following remains valid.
Double counting of emissions within individual
products is avoided. This happens where, for
example, car manufacturers and oil producers
are listed in the same fund. The emissions of
the fuels produced by the oil companies would
then be counted double when calculating the
emissions arising in use of the vehicles. To avoid
this, the duplicate emissions within an investment
product are cancelled out. As a result, the Scope 3
emissions financed by financial investments can be
collated without producing an unrealistically high
figure due to multiple counting. However, based
on the current methodology applied when creating
average capital investment portfolios, double
counts between different product categories
cannot be entirely avoided. Consequently, with
regard to the overall portfolio it is a fact that
the absolute carbon footprint figures for capital
investment portfolios include double counts which
cannot be precisely stated.
Airlines
Car manufacturers
Building materials
manufacturers
634 400 50
Semiconductor
manufacturers
Food producers
IT service providers
Scope 1
Scope 2
Scope 3
In calculating the carbon footprint, the study
records the emissions financed by the investor
or lender pro rata along the entire value creation
chain. For the sake of transparency, an industrywide
consensus should be found with regard to
system limits in determining the carbon footprint
of capital investment products.
10 In
addition to the financing logic, other approaches may also be pursued. It may, for example, be argued that investors in stocks bear a greater
responsibility than investors in bank deposits because the former actual become co-owners. For the sake of comparability of the product
forms, however, strict application of the financing logic is the most useful approach.
11 Centre Info recently merged with INrate.
12 The
GHG Protocol emerged from an initiative of the World Business Council for Sustainable Development (WBCSD) and the World Resources
Institute (WRI). It is regularly updated in cooperation with companies in various industrial and business sectors.
13 envIMPACT ® utilises input/output analysis data from the Green Design Institute at Carnegie Mellon University in Pittsburgh (comprising
426 business sectors and recording the emissions data of 50 greenhouse gases) as well as the life cycle inventory (LCI) of industrial systems
from the ecoinvent database and the life cycle assessment (LCA) data of specific products (e.g. The International Journal of Life Cycle Assessment).