Portfolio Carbon Footprint
Definition
Portfolio Carbon Footprint is the total Carbon Footprint of a Portfolio owned or managed by an Entity. The portfolio might composed e.g., of financial contracts of various types, procurement contracts or other economic contract or asset.
Objectives
Establishing a portfolio’s carbon footprint fullfils the following objectives (depending on the entity's business model and objectives):
- Produce an objective attribution measure of the portfolio to GHG Emissions.
- Appraise a large number of positions to identify relative hot spots (Climate Risk Concentration).
- Manage Carbon Price Risk.
- Assess potential Reputation Risk and Operational Risk due to carbon related regulations.
- Evaluate the effectiveness of and entity's Sustainable Portfolio Management approach.
- Design allocation strategies towards lower-carbon portfolios and meeting decarbonization targets.
Scope
- Portfolio Scope delineating the portfolio from an entity's organizational / legal structure.
- GHG Emission Scope clarifying the role of direct / indirect emissions.
Metrics
- Weighted Average Carbon Intensity
- Total Carbon Emissions
- Carbon Emissions to Value Invested
- Carbon Emissions to Revenue Intensity
Methodology
Given the variety of possible portfolios there is no universal methodology. Carbon footprinting of a portfolio is in general related to the corporate / project carbon footprinting approach of the GHG Protocol. Under the assumption that the portfolio consists of individual assets or contracts and that all of these have an individually defined carbon footprint the carbon footprint of a portfolio corresponds simply to the sum of all individual carbon footprints.
Adoption
- PRI Montreal Pledge
- UNEP-FI/CDP Portfolio Decarbonization Coalition.
Issues and Challenges
- Methodologies for assessing carbon footprints of individual portfolio components may vary significantly thereby potentially limiting the comparability of measures.
- The footprint terminology might be somewhat ambiguous as to the precise scope of emissions that is being included. In some contexts the term aims to indicate that it includes the upstream (Scope 3) emissions in the supply chain of the entity being financed whereas in other contexts the most important emissions might be downstream Scope 3 emissions.
