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Why climate change measures do not make sense
and how we can fix them

If asked to list climate change solutions, many of us would start with renewable energy. It is obviously a key one given the use of fossil fuels for energy is the largest contributor to greenhouse gas emissions globally. However, beyond that we may soon get stuck, particularly if asked to focus on how much specific technologies or social changes can potentially contribute to decarbonising the economy; harder still if trying to identify a group of solutions which will be enough to achieve the goals of the Paris Agreement.

Many research providers and standard-setting bodies have been working on climate measures and disclosures for investors with mixed success. A key gap is that no current standard, when considered across a portfolio of listed-equity investments, covers the essential questions of how much of a contribution can different solutions make and whether collectively they are enough.

Some approaches focus on splitting ‘green’ and 'unsustainable’ revenues, being revenues from sustainable activities like renewable energy as opposed to unsustainable ones like burning fossil fuels, mostly based on industry involvement. More ambitious efforts like the Paris Agreement Capital Transition Assessment (PACTA), a collaboration between the 2° Investing Initiative (G13) and the Principles for Responsible Investment (G9), goes further and looks at the capital investment plans for companies in some sectors and whether they are aligned with Paris targets.

The European Union’s sustainable finance taxonomy (G6) has undertaken the significant task of setting thresholds for different activities to draw a line between what can and cannot be called sustainable. While the TCFD (Financial Stability Board Task Force on Climate-related Financial Disclosures) (G12), rather disappointingly, has suggested portfolio level carbon intensity should be the primary metric for investor disclosure and presumably management of climate risks.

Climate change is unquestionably a complex issue, more so when considered alongside the speed and scale of change required to prevent the worst impacts of this environmental crisis unfolding. It is understandable then, that attempts to measure the implications of this issue for an investment context will also carry a degree of complexity and that it would be impossible for any single metric to capture this complexity.

While the various approaches should be useful for some investor types in some contexts, as an active, global, sustainable development (G10) focused, listed-equity investor (G1), we have found current approaches near meaningless and often misleading. While regulators around the world expect investors to communicate to clients in plain and understandable language, our industry has built an incomprehensible jumble of information and ratings to describe climate change risks and opportunities.

For us, issues broadly fall into four areas:

Measuring the wrong things

Because of our focus on sustainable development, many of the companies in carbon-intensive sectors or with highly polluting products and services, are never going to be investible and so footprints and capital expenditure plans (G3) are not helpful beyond confirming what clients would already expect. For other investors who wish to tweak around the edges of benchmarks or who choose to stay invested and engage with highly polluting companies, carbon footprints and tools like PACTA will be very useful, it is just not for us.

Drawing too narrow a frame

Climate change is a systemic problem, yet too often the investment implications are looked at too narrowly.
A significant part of our investment philosophy revolves around the idea of sustainability positioning, which we often refer to as headwinds (G7) or tailwinds (G11). The tailwinds we are looking for relate to the products or services provided by the company and so the climate impacts are often downstream from the company itself.

The difficulty in calculating the emissions these products and services help avoid, is part of the issue, but for us the issue runs deeper because the supply chains which support solutions are not taken into account. Take for example companies like robotics manufacturer FANUC, liquids dispensing company Nordson and semiconductor manufacturer Taiwan Semiconductor (TSMC). All these companies provide essential technologies for the development of electric vehicles, but none would be classified as a solutions company.

Looking upstream reveals similar challenges. For example the role that large buyers of wood products, such as pallet business Brambles or consumer goods company Unilever, can have on reducing deforestation and promoting forest protection is significant, but none of these important contributions would be recognised in traditional climate change assessments.

Backward looking

While PACTA considers capital expenditure plans, these look out only over five years and in a few sectors. All other approaches effectively look backwards at either emissions or revenue splits. We are long-term investors and try to take at least a ten-year view, which is why sustainability considerations are so important to the way we invest. Part of looking forward is understanding how big the opportunity is likely to be years into the future, which is too often undefined in the context of investing for climate solutions.

False precision and hiding real insight through aggregation

Notwithstanding caveats in the fine print, all the approaches to measuring and describing climate change related investments, invariably offer a number at the portfolio level, often with multiple decimal places, as ‘the’ answer. Our investment approach relies on qualitative and subjective analysis in the understanding of quality. While what gets measured might get managed, we believe that not everything that gets measured matters and that not everything that matters can be measured. This includes holistically understanding company relationships, competitive dynamics, stewardship and reputation to name a few. As bottom-up investors (G2), aggregation of climate metrics hides the stories of the companies we invest in and obscures real world impacts with abstraction.

Taken together these issues have made reporting on climate change particularly challenging for us. When considering our Worldwide Sustainability strategy, we can take the TCFD suggested intensity metric and find that the portfolio is 75% less carbon intensive than the benchmark, but what does this really tell us about the future prospects for portfolio companies, which as investors is what we should be focused on?

Conversely, the PACTA tool, which covers a handful of carbon-intensive sectors found that only one company we invested in was relevant to the analysis. Similarly, with green/unsustainable revenue splits, MSCI finds that we have 0% exposure to unsustainable revenues but only 2.5% exposure to ‘green’, a number we can only reconcile if we take an extremely narrow view of what ‘green’ is.

In response to this, many active asset managers have created their own approaches to measuring their climate impacts. While we are sure they have done so for the right reasons and applied appropriate rigour, how can stakeholders really tell? The tension between the standardised model, not reflecting reality, and the bespoke one, lacking independent validation, is a real one.

Fortunately there is another way. Project Drawdown was founded in 2014 by Paul Hawken and Amanda Ravenhill to uncover the most substantive solutions to stop climate change and communicate them to the world. Using rigorous analysis and review, the initiative published the bestselling book Drawdown in 2017 which catalogued 80 climate change solutions with the potential to meet the Paris Climate change goal of holding global warming to well below 2°C. By estimating the emissions reductions possible from scaling each solution, the initiative not only catalogues practical solutions for emissions reductions, but how large each may become in the future. In 2020, Project Drawdown published a major review which updated the solutions to account for technological progress.

Some of Project Drawdown’s solutions would be expected, for example onshore wind and utility scale solar have the greatest potential to contribute to emissions reductions – over 260 gigatons of CO2e between them. While other solutions like refrigerant management and finding alternative refrigerants are more surprising, both making the top ten, with a potential contribution of over 105 gigatons. What is most striking about the list of solutions, is not the big ticket items, but the diversity of solutions.

We mapped the products, services and practices of the companies in the Worldwide Sustainability portfolio to 35 different climate solutions. These solutions are as diverse as distributed solar energy, supporting female education and a shift to plant-rich diets. In our analysis we have not attempted to isolate revenue shares for solutions as this is not always relevant, although we have only included activities which we believe are meaningful and growing.

For long-term, bottom-up investors like ourselves, this approach allows for fresh insights into the potential size and types of end-markets the companies we invest in will be serving. Coupled with full portfolio transparency, which we provide through this microsite and interactive map, we are able to layout a balanced picture of how companies are impacting the climate by referencing a thoroughly-researched, but simple to understand, set of solutions with real potential to solve the climate crisis.

To see examples of how companies are contributing to drawdown solutions click here.


G1 Active investors: investors who purchase shares in companies and continuously monitor the performance of the companies in order to provide returns, as opposed to passive investors who buy shares based on index weighting.

G2 Bottom-up: analysis of a company focused principally on its management, franchise and financials rather than the broader industry in which it operates, or macroeconomic factors, such as economic growth.

G3 Capital expenditure: commonly known as capex, is expenditure applied by a company to acquire, upgrade, and maintain physical assets such as property, buildings, industrial plant, technology or equipment.

G4 Circular economy: is an economic system aimed at eliminating waste and the continual use of resources.

G5 Deep culture: fundamental culture across an organisation.

G6 European Union’s sustainable finance taxonomy: a tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy.

G7 Headwinds: conditions which slow company growth.

G8 Paris Agreement: The Paris Agreement sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. It also aims to strengthen countries’ ability to deal with the impacts of climate change and support them in their efforts. The Paris Agreement is the first-ever universal, legally-binding global climate change agreement, adopted at the Paris Climate Conference (COP21) in December 2015.

G9 Principles for Responsible Investment: a United Nations-supported international network of investors working together to implement its six aspirational principles. Its goal is to understand the implications of sustainability for investors and support signatories to facilitate incorporating these issues into their investment decision-making and ownership practices.

G10 Sustainable development: economic and social development without using up the world’s natural resources. It aims for high human development with a sustainable environmental footprint.

G11 Tailwinds: conditions favourable to a company’s growth.

G12 TCFD: The Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) is a market-driven initiative, set up to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures in mainstream filings.

G13 2° Investing Initiative: a leading global think tank on sustainable finance, developing the regulatory frameworks, data, and tools to help align financial markets with climate goals.

G14 Utility-scale solar photovoltaics: solar power generation at a large scale.

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