Schroders and GIC bolster climate portfolio analysis with strategic research collaboration on Avoided Emissions framework

1 December 2021

Schroders, in collaboration with Singapore’s sovereign wealth fund GIC, has published a joint research paper, detailing how an Avoided Emissions framework can complement conventional carbon metrics in investment and portfolio analysis.

Climate change will be a defining investment theme for the coming decades. As governments’ and societies’ decarbonisation commitments translate into tangible policies and actions, giving rise to winners and losers in the green transition, the importance of meaningful and comprehensive carbon measures is higher than ever. Yet investors currently lack a robust framework to systematically assess the opportunities this transition will bring, and the impact it will have on their portfolios.

Conventional Scope 1, 2 and 3 measures focus on the emissions companies generate from their own operations and their value chains. However, leaders in the decarbonisation race are doing more than reducing their own emissions; they are developing products and services that can drive significant reductions in economy-wide emissions outside of their own value chains, which are not captured in these conventional carbon measures. This underscores the importance of analysing Avoided Emissions to identify these market shifts and opportunities in a low carbon future.

The Avoided Emissions framework aims to quantify the emissions saved through the substitution of high carbon activities with low carbon alternatives. These savings – relative to a baseline where these technologies are not employed – represent real emissions reductions, and will be vital to global decarbonisation efforts.

For institutional investors, the implications of the multi-decade climate transition are immense. The framework is built with the objective of direct application to investment analysis, sharpening managers’ abilities to identify and assess an extended set of winners from the green transition. It is a pivotal step forward by enabling a more integrated and holistic analysis of climate risks and opportunities at the portfolio level, providing ease of comparison with Scope 1, 2 and 3 emissions under a common unit of measurement.

Source: Schroders