Sustainability experts have reached an agreement on an objective approach for calculating avoided CO₂ emissions. On Thursday, a dozen asset managers introduced a harmonized, open methodology that allows for meaningful comparisons of economic activities and investments in this area. Until now, parties were able to use vastly different reference scenarios in such calculations.
The so-called Avoided Emissions Platform (AEP) is a market-wide initiative, supported by several major data providers and large corporations. The “strategic founding partners” include asset managers Robeco, Mirova, and Edmund de Rothschild Asset Management. Other involved asset managers include Amundi and Natixis. Among the data providers are Morningstar Sustainalytics and Sustainable Fitch, while companies such as EDF, Panasonic, and Veolia are also on board. The independent scientific committee that oversaw the development of the new methodology includes representation from the World Business Council for Sustainable Development (WBCSD), which already provides guidance on the calculation of emissions of large companies. The AEP built upon this method.
Robeco’s “climate strategist” Lucian Peppelenbos has been closely involved with the AEP. Speaking with Investment Officer, he expresses optimism that the new platform will help bring climate goals closer within reach. “Sustainable investors don’t just want to avoid carbon-intensive activities—they also want to invest in alternatives. But comparing those alternatives in a meaningful way has always been difficult,” Peppelenbos says.
“You want to know which investment avoids the most emissions ‘per euro’. But to reliably and consistently determine that, there has been a lack of transparency—and a lack of data.”
Licensing
The AEP aims to fill that gap. It consists of a database with the underlying data and assumptions to calculate avoided emissions of many of the climate mitigating activiteis mentioned in the EU Taxonomy. The databases is supplemented with a protocol explaining how to apply this data at the company level. Users may include financial institutions, investors, companies, consultants, regulators, or academics. A license is required to access the database. Peppelenbos explaines, “The fees are not commercial. The revenue from those licenses should be enough to maintain and further develop the database. They serve no other purpose.”
Asset owners looking to use the platform can work with it directly. So what should a pension fund expect if it wants to map the avoided emissions of a multi-billion-euro portfolio? “Most funds have access to a data scientist. I estimate that such a person would need a few weeks,” according to Peppelenbos. There are also plans to allow data providers access to the database, so they can develop plug-and-play services. However, commercial terms for this access still need to be negotiated.
The chicken and the egg
Work on the AEP began a year and a half ago. The driving force was dissatisfaction with the large discrepancies that often existed in avoided emissions reporting. “It was always a chicken-and-egg situation,” says Peppelenbos. “You need a robust methodology, with clear, scientifically grounded choices. But by definition, that has to be an open source methodology. So you invest—and then you essentially give the outcome of that investment away.”
But the work needed to be done, believed the founding partners Robeco and Mirova—the latter a subsidiary of Natixis with approximately 32 billion euros in assets under management. Recent developments, such as political resistance to sustainable investing and major (especially American) asset managers shying away from the topic, have only strengthened that conviction.
Peppelenbos sees this reflected in client conversations as well. “It’s clear that the outlook isn’t improving. Reaching the Paris Agreement targets is getting harder. But I also see clients committed to their sustainability goals. They’re constantly asking how they can improve their sustainable investment strategies—how to make them smarter. And that’s where the AEP can help. Should I invest in—say—an offshore wind farm in the North Sea or a solar park in India? Now it’s possible to reliably and consistently calculate the avoided CO₂ emissions of both projects. This leads to better-informed investment decisions.”
Own investment funds
Robeco will apply the methodology to its own investment funds, and the AEP partners plan to promote adoption among as many other investors as possible. The goal is twofold: to enable comparison of their own investments and to compare various sustainable solutions. How communication with clients will take shape is still to be determined.
“There’s still plenty of work to do,” says Peppelenbos. “We also need to continue discussions around governance for the platform’s further development. But the initial focus will be on collecting use cases. This initiative will only succeed if it gains broad support.”