There is increasing interest from investors and regulators in net zero and firms’ understanding of their own and their investment portfolio’s carbon emissions. More firms may be considering whether to make net zero commitments and the process of calculating carbon footprints and becoming carbon neutral. In April, AIMA held a webinar to help support members who may be starting to think about this process and below are some of the key takeaways from the session.

Have an achievable goal and be clear about your intentions

When calculating carbon footprints at both firm and investment portfolio level, it is important to be clear about the driver for undertaking the calculation and what you hope to achieve. Goals will be different for different firms depending on the frameworks (e.g. GHG Protocol) being used and the regulatory standards firms are aiming for. As a starting point, firms will need to establish the biggest sources of carbon emissions in their organisation and where the carbon risk is in their portfolio.

At portfolio level, it is important to make the distinction between assessing carbon risk and achieving net zero. The former accounts for the carbon risk of a portfolio whereas the latter aims to achieve an actual reduction of emissions in the real economy. It is important to note that firms making a net zero commitment are aiming to reduce carbon emissions in the real economy.

Get employee buy in

Calculating carbon footprints should be an ongoing process and not a one-off action. Goals are more likely to be achieved if they are embedded within companies’ processes; and this can only be done with the support of employees and stakeholders. This is particularly the case when calculating a firm’s own scope 3 emissions. It is important to have employees on side as data will need to be collected from home, for example, to work out scope 3 emissions of working from home.

Be transparent about calculations

One of the first steps to calculating an organisation’s and investment portfolio’s carbon footprint is to establish what emissions data is available. Gap analysis can be undertaken to establish where there are gaps. Where data is not available on a metric which a firm may wish to measure then assumptions can be made. If this is the case, then any assumptions which are made should be clearly stated and written down so that they can be referenced, and an audit trail is established.

Depending on the asset classes within a portfolio, it may be difficult to establish the carbon footprint as there are different ways investments (such as short selling, derivatives) can be measured and accounted for. This is an area where there has been significant industry debate. In these cases, it is important to be transparent with information to investors so they can decide how they would like to account different assets.

Ensure credibility

Once a firm has collected the data and calculated its carbon footprint it may wish to have an external verifier check the calculations. At firm level, organisations will need to decide how they wish to offset their emissions (if they wish to go carbon neutral). This can be done through buying carbon credits. If firms use carbon credits, it is important that they work with a credible carbon auditor who has access to credits that are assured (i.e. that they physically exist). This ensures that offsets can be verified and adds assurance that a firm has achieved net zero.

At portfolio level, if a firm is only considering the carbon risk of its portfolio, emissions can be offset by exclusions and short selling. However, if the intention is to reduce emissions in the real economy, a firm will also need to consider other steps, including its engagement approach.

The full webinar can be viewed by all AIMA members here.