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If carbon footprinting is the answer, then what is the question?

If carbon footprinting is the answer, then what is the question?

A group of asset owners reflect on current practice in carbon reporting.

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There are expectations on institutional investors (asset managers, asset owners, insurance companies) to report on the carbon footprint of their investment portfolios. These expectations have grown following the ratification of the Paris Agreement and the publication of the final recommendations from the FSB Task Force on Climate-Related Financial Disclosures (TCFD). In 2017, a group of European asset owners and their managers met to discuss the use of carbon footprinting as an investment management tool. Those participating included: AP1, AP2, AP3, AP4, the Church Commissioners, the Church of England Pensions Board, EAPF/Brunel Pensions Partnership, MN, PGGM, RPMI RailPen, TPT Retirement Solutions, USS, and West Midlands Pension Fund. Members of this group have, over the years, tracked the evolution of carbon footprinting, and, depending on the organisation, done the following:

  • Commissioned carbon footprint studies, although in most cases this has been confined to listed equities;
  • Supported the development of carbon footprinting methodologies across a range of asset classes;
  • Reviewed the carbon footprint studies prepared by eternal asset managers;
  • Used carbon and carbon footprinting data in their investment research and decision-making; and
  • Engaged with their stakeholders on carbon footprinting and related issues.

While each organisation had different experiences, we found that our conclusions and perspectives on carbon footprinting were strikingly similar. There was consensus on the value of carbon footprinting as a portfolio management and communications tool, but that its usefulness may be limited because of methodological and data issues.

In this short article, we summarise the group’s views on the value of carbon footprinting, we offer practical suggestions to other asset owners, asset managers and other stakeholders on the role that carbon footprinting might play in modern portfolio management, and we highlight some priorities for research and action. A more detailed paper looking across asset classes can be found in the linked paper: “If carbon footprinting is the answer, then what is the question? Asset Owners’ reflections on current practice in carbon reporting” Link to report

Carbon footprinting can provide a range of valuable benefits to investors
These, depending on the details of the carbon footprint, can include:

  • Supporting or informing their investment analysis and decision-making, including risk management, engagement/voting and identifying opportunities.
  • Delivering on their responsibility commitments (e.g. as set out in investment beliefs and ESG policies).
  • Communicating with stakeholders – including beneficiaries, regulators and wider society – about their practices and performance.

Carbon footprinting can also provide other benefits. These include: building knowledge on climate change (both within the organisation and across the investment system); understanding carbon exposure across an investment portfolio; providing a basis for discussions between asset managers and their clients about how climate change-related risks and opportunities are managed in investment portfolios; and encouraging better disclosures across the investment chain and from the underlying companies and other assets.
Methodological challenges and data issues?

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