This paper was co-authored by Andrew Howard, Global Head of Sustainable Investment, Schroders; Mervyn Tang, Head of Sustainability Strategy, APAC, Schroders; Low Ping Yee, Head of Institutional Business/Sustainability Lead, Southeast Asia, Schroders; Rachel Teo, Head of Futures Unit and Senior Vice President, Economics & Investment Strategy, GIC; and Wong De Rui, Vice President, Economics & Investment Strategy, GIC.
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.
Conventional measures only inform us of the emissions companies generate from their own operations and value chains. However, the 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.
Avoided Emissions provide an additional lens by capturing companies’ contribution to emissions reductions through the substitution of high carbon activities with low carbon alternatives, as these are not reflected in their conventional Scope 1, 2 and 3 metrics.
We have developed an Avoided Emissions framework to capture these emissions savings, which are calculated relative to a baseline where low carbon technologies had not been deployed. These represent real emissions reductions and will be vital to global decarbonisation efforts. Our framework is based on a proprietary systematic value chain approach, drawing on academic and industry literature to capture the contribution of a broad set of industries to Avoided Emissions, with an emphasis on investability and scalability.