To avoid a climate crisis and limit the warming of global temperatures to well below 2°, it is necessary to cap and reduce total carbon emissions between now and the middle of the century. To be able to stay within this ‘carbon budget’ it is important to be able to measure emissions globally.
As an investor, to evaluate the environmental impact of our investments and assess the associated climate risk, we need to be able to measure the greenhouse gas emissions embedded in those investments. This measure is commonly called a carbon footprint.
At BNP Paribas Asset Management, we started measuring the carbon footprint of our “Sustainable +” equity funds and mandates in 2011. In May 2015 we were among the first signatories of the Montreal Carbon Pledge, and committed to progressively measure and report the carbon footprint of our open-ended funds. Today we measure the carbon footprint of both equity and fixed income portfolios.
HOW AND WHAT DO WE MEASURE?
To calculate the carbon footprint of a fund, we apply the standards the GHG Protocol provides, which include guidance and tools for measuring Greenhouse gas (GHG) emissions. In 2016, 92% of Fortune 500 companies that reported GHG emissions to the CDP applied GHG Protocol standards to measure and report their GHG emissions.
To be credible, the measurement of GHG emissions should cover the seven GHGs included in the Kyoto protocol: Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), Sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). The measurement scope of GHG emissions should take into account all the emissions associated directly or indirectly with the operations of the company.
Emissions are broken down into three categories (or scopes) that may vary in proportion depending on the company’s line of business.
- Scope 1: Direct emissions from sources that are owned or controlled by the company.
- Scope 2: Indirect emissions linked to the company’s companies’ purchased or acquired electricity, heat, steam and cooling.
- Scope 3: All other indirect emissions, including those related to the use of its products.
To calculate the carbon footprint of a fund, companies’ CO2e emissions are added up and weighted by enterprise value and the companies’ weight in the portfolio. The resulting indicator measures emissions generated for each euro invested in the fund.
Today, the measurement of scope 3 emissions and avoided emissions is not standardised or considered sufficiently reliable to be used in reporting. As a result, the calculation of a company’s carbon footprint currently focuses on scope 1 and scope 2 emissions. As the data and indicators improve, scope 3 emissions calculations will become more reliable and the final calculation will be more relevant.
Given the importance of scope 3 emissions in certain sectors such as car manufacturing where the scope 3 emissions that occur during the life of the car account for 98% of its emissions, we developed an in-house methodology to calculate scope 3 emissions and are currently testing it.
WHERE DO CARBON EMISSIONS COME FROM?
According to the figures of the Intergovernmental Panel on Climate Change (IPCC), greenhouse gas emissions (GHG) are concentrated in a limited number of sectors:
- Electricity and heat production (25%),
- Agriculture and forestry (24%),
- Industry (21%),
- Transport (14%),
- Buildings (6.4%).
These sectors are critical in reaching the target of near zero carbon emissions by 2050. Contributing to the objective not only requires investing in low carbon sectors, but also in companies within the above sectors that are the most innovative and ambitious in terms of GHG emission reductions.
HOW TO INTERPRET THE CARBON FOOTPRINT OF MY INVESTMENT?
One tonne of CO2e is equivalent to:
- 1 round trip Paris, France / Faro, Portugal by plane per person (approximately 3300 km) (or 293g CO2e/km)
- The emissions of an average French car to drive 3800 Km (or 259g CO2e/km)
- Sending 28,571 emails with an attachment (or 35g CO2e/email)
GHG Protocol: international standard for measuring greenhouse gas emissions
Simplified Enterprise Value, the sum of a company’s market cap and total debt is provided through BNPP AM’s Back to Front office tool, BlackRock Aladdin.
The emissions avoided by a company as a result of the sale of products that enable end-customers to reduce their emissions.
Climate Change 2014 Synthesis report
Investment made in these funds are submitted to market fluctuations and risks inherent to securities investment. Value of investments and earned income may record uptrends and downtrends, and investors may not recover the full amount of initial investment. Funds described all contain a certain risk of capital loss.
BNP PARIBAS ASSET MANAGEMENT France, “the investment management company,” is a simplified joint stock company with its registered office at 1 boulevard Haussmann 75009 Paris, France, RCS Paris 319 378 832, registered with the “Autorité des marchés financiers” under number GP 96002.
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