Interpreting Carbon Emission Data
The availability of carbon emission data and its quality vary widely across sectors and regions. European companies and high-emission sectors, such as utilities, tend to have more comprehensive reporting. These reports often contain outliers, however, affecting both absolute emissions and intensity metrics. This variability, the authors assert, underlines the need for investors to approach data interpretation carefully to account for regional and sector-specific differences.
This paper covers the two main metrics that help investors interpret emission data—absolute emissions and emission intensity. Absolute emissions provide a total GHG measure that reflects a company’s environmental footprint, whereas emission intensity normalizes emissions against business metrics (e.g., emissions per dollar of revenue). This normalized metric allows for easier comparison among companies of varying sizes, while absolute emissions offer a clearer picture of total environmental impact. While emission intensity sheds light on how efficiently a company manages emissions, absolute emission figures provide a more comprehensive environmental assessment.
To fully understand a company’s emissions, it’s essential to account for all sources, including Scope 3 emissions from its value chain. The paper explains that while current analysis emphasizes Scope 1 and 2 emissions, Scope 3 is increasingly recognized as critical due to its significant contribution to overall carbon output. Accounting for Scope 3 emissions is becoming mandatory under many regulations, including European laws and California’s requirements starting in 2025. This paper highlights Scope 3’s importance, examines its differences from Scope 1 and 2, and uses S&P Trucost data for detailed insights.
The paper also covers forward-looking emission data from the Science Based Targets initiative (SBTi), which offers insights into a company’s future emission reduction trajectory. These projections, aligned with the Paris Agreement, enable investors to assess how companies’ projected emissions may evolve in alignment with climate goals. As with historical emission data, however, SBTi projections involve certain biases and limitations that require careful evaluation by investors to ensure a realistic understanding of future emission pathways.
Overall, investors pursuing net-zero goals need to use available emission data to make informed decisions about capital allocation to drive substantial carbon reductions. Despite improvements in emission reporting, current data are far less standardized than traditional financial metrics, creating challenges for interpretation. Investors must, therefore, thoroughly understand emission data, considering limitations in data collection, reporting, and the relationship between different emissions scopes.
By emphasizing a complete view of the emission chain and future emission trajectories, investors can support progress toward net-zero targets, ultimately helping achieve climate goals through transparent, accountable, and effective investments.
The Paper’s Authors
Robert Furdak, CFA, Chief Investment Officer, Responsible Investment, Man Group, Boston
Tracey Nilsen-Ames, Associate Portfolio Manager, Man Numeric, Boston
Anna-Marie Tomm, Data Science Analyst, Man Group, London
Jeremy Wee, CFA, Senior Portfolio Manager, Man Numeric, Boston
Valerie Xiang, CFA, Associate Portfolio Manager, Man Numeric, Boston
BY KIIGSOFT TECH CEO NYESIGA NABOTH
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