Responsible investing, ESG and sustainable finance have been gaining much attention, and rightly so. As part of this, many different asset owners and managers have focussed more on minimizing their carbon impact. And so, gaining insights in the carbon footprint of assets has naturally become more important. This further expressed in its representation as one of the PAI Indicators, the relevance of carbon footprints in the EU taxonomy. For us at TAUW, the exercise of providing such insights has intensified, and is now part of our services not only for the ‘frontrunners’ in responsible investing, but often an inherent part of the approach of a large variety of asset owners and managers.
For me personally, this is really exciting, as the opportunity for helping a client in determining their environmental impact is always welcome. And of the large number of types of environmental impacts, carbon footprint is definitely one of the more fascinating. As part of the developments, I’d like to share with you some considerations and background on carbon footprinting, that we’ve been working on these past years.
Determining the carbon footprint of an asset can become quite complex. Luckily, there’s some initiatives that have provided us all with extensive guidelines and terminology, with the Greenhouse Gas Protocol (GHG) as perhaps the most important contribution. As the guidelines and terminology are widely applied, this provides some assurance that there’s coherency in footprints calculated by different organizations. In addition to this, at TAUW we use our expertise in environmental impact analysis (EAI) in general, and Life Cycle Analysis (LCA) in particular, to ensure a sound method and scope for each carbon footprint.
Central to each of our approaches are the activities and emission factors. The activities are simply all activities related to the asset and scope that could result in carbon emissions. Depending on the scope, the activities considered will be restricted to the asset (and possibly its contractors) itself, or involve activities related to the value chain of the asset (such as products and services procured). The emission factors are variables expressing the quantitative relation between the activities and the resulting emissions. They are often predetermined, and sometimes publicly available. Ideally, the used emission factors are region and sector specific, allowing for a more distinguished carbon footprint.
The type of assets considered for a carbon footprint, determine much of the approach. Two types of assets that I’d like to distinguish here are companies and projects. In our experience, companies have traditionally been more subject to carbon footprinting. As such, it is very much in line with the GHG protocol, and many companies have insights in their Scope 1 and 2 emissions especially. In the scoping of projects, the phase of the project is crucial in finding the right approach of carbon footprint analysis. Similar to the LCA methodology, one could define the phases as Production, Construction, Use, End-of-Life and Re-use, all of which would involve different activities and materials.
Depending on the ESG materiality of a project, A project financer might be interested in only one or two of such phases, depending on the investor’s responsibilities. Recently for instance, we’ve helped a client by calculating the expected carbon footprint of only the construction and use phase (and not including production of materials, or decommissioning for instance) of a large infrastructural development project that was still being planned. One can imagine how for a variety of assets, several such aspects are to be considered prior to and during carbon footprinting.
Whether an asset owner, manager, or consultant, we can all expect carbon footprinting to become a (more) inherent part of our activities. Additionally, the analysis will be required to become more specific, with larger scopes and better incorporated decision-making. Much to look forward to, as this will definitely be a great contribution for responsible investing and sustainable finance.
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