Climate change is already having a measurable impact on human and natural systems. Minimising future impacts and limiting the rise in global temperature to well below 2°C above pre-industrial levels, in line with the requirements of the Paris Agreement, is only feasible if total emissions stay within the carbon budget compatible with this target. As this budget is quickly being used up, rapid and aggressive emission reductions are necessary if the target is to remain achievable.

In response to a growing need for climate action, investors are increasingly required and expected to measure, report and manage the greenhouse gas emissions for which they are responsible. Based on best practice from the Task Force on Climate-related financial Disclosures (TCFD) and the Partnership for Carbon Accounting Financials (PCAF), this includes using a suite of complementary carbon accounting metrics to characterize portfolio emissions:

1. Total financed emissions to set baselines and track emissions evolution


2. Carbon footprint to compare portfolios and perform attribution analyses


3. Carbon intensity (revenue-based) to perform cross-sector comparisons and evaluate exposure to carbon-intensive companies


4. Carbon intensity (physical activity-based) to perform sector-specific deep dives

Our paper, Understanding carbon exposure metrics, provides a detailed analysis of these metrics, their calculation methodologies and the information that each provides. The paper demonstrates how the combined use of these metrics in a hierarchical approach can provide a more complete picture.

Approaches to carbon accounting are likely to continue evolving, especially given the changing regulatory landscape. It is important to keep monitoring the evolution of greenhouse gas emissions reporting standards and metrics to minimize risk and develop further insights on the emissions characteristics of investments.