Today, high expectations surround the measurement of carbon impact. Voluntary initiatives and – little by little – legislation push institutional investors to consider the impact that financial portfolios have on the climate and energy transition. However, current methods (of carbon footprint measurement) are not adequate to determine an investment portfolio’s contribution to these issues. Current approaches, which do not take a life-cycle vision of carbon footprinting, have the particular flaw of not accounting for emissions related to companies’ products and services. The impact of these products and services on the climate is, however, crucial in many sectors – whether positively in the case of renewable energy and energy efficiency solutions, or negatively in the case of fossil fuels. Following this observation, Mirova and Carbone 4 decided to create a partnership dedicated to developing a new methodology* capable of providing a carbon measurement that is aligned with the issues of energy transition: Carbon Impact Analytics (CIA).
The CIA methodology focuses primarily on three indicators:
- A measure of emissions ‘induced’ by an issuer’s activity from a life-cycle approach, taking into account direct emissions as well as emissions from product suppliers;
- A measure of the emissions which are ‘avoided’ due to efficiency efforts or deployment of ‘low-carbon’ solutions;
- An overall evaluation that takes into account, in addition to carbon measurement, further information on the issuer’s evolution and the type of capital or R&D expenditures.
For these evaluations, the methodology employs a bottom-up approach in which each issuer is examined individually according to an evaluation framework adapted to each sector.
Particular scrutiny is devoted to companies with a significant climate impact: energy producers, carbon-intensive sectors (industry, construction, transport), and providers of low carbon equipment and solutions. Evaluations are then aggregated at the portfolio level while addressing instances of double-counting.
By adopting a life-cycle vision that accounts for both induced and avoided emissions, the CIA methodology is a reliable tool for measuring the contribution of investments to the issues surrounding the energy transition. Once the diagnostics are made public, financial players will face increasing pressure to improve their carbon performance. Accordingly, in the long term this measure can influence greater action in low-carbon investment strategies. Portfolio carbon footprints are therefore a relevant tool in informing stakeholders, among which asset owners, on climate and carbon emissions risks.
In addition, Mirova is committed to actively communicating towards clients and beneficiaries to raise their awareness on the emissions risk and the need to tackle climate change issues. Its ESG specialists regularly publish research papers, gathered in a semi-annual book, “Mirova Insights”, and publicly available on Mirova’s website**. Some of these publications are related to climate issues. For instance, in 2016, Mirova’s head of RI Research Hervé Guez wrote “Divestment or reinvestment, what role for institutional investors?”, a focus-paper about the role played by investors in the transition towards a low-carbon economy.
*More detailed information is available in the methodology published by Carbone 4 and in Mirova’s research note describing the issues at stake