Carbon Handprints: A New Approach to Climate-Focused Equity Investing
What You Need to Know
Investors are strengthening their commitment to help combat climate change. But as inflows to climate-focused funds accelerate, more questions are being asked about the investing approaches of these portfolios.
What type of companies are held in climate-focused portfolios? Can you fully assess a company’s impact on the environment by looking at its carbon emissions metrics alone? And how does a climate-focused fund contribute to global efforts to accelerate decarbonization?
Investors often seek simple metrics to determine which companies are “good actors” in the fight against climate change. The most common metric for evaluating a company’s environmental impact is the carbon footprint—total greenhouse gas (GHG) emissions generated by business activities. But a carbon footprint doesn’t tell the whole story of a company’s impact, and can also be misleading. There are many other ways for companies to promote a transition to a low-carbon world that simply won’t register in carbon footprint data. And there are many ways for companies to lower a carbon footprint that don’t help in tackling climate change.
So how can investors gain confidence that an equity portfolio is invested in companies that are really helping to address climate risk? Instead of focusing exclusively on a company’s carbon footprint, we believe investors should look at a company’s carbon handprint. In contrast to a carbon footprint, which measures the negative impact of a company’s operations on the environment, a carbon handprint measures the positive impact, or carbon avoided, by using a company’s products. These products represent the positive solutions to global climate challenges created by a company. From clean energy to recycling, transportation to energy efficiency, diverse companies with a big carbon handprint are making major contributions to solving the world’s climate crisis.