Two key tools for climate risk management
The carbon (or CO2) footprint is a measurement of direct and indirect greenhouse gas emissions. It can be calculated for an activity (such as a flight), a production process or a product, depending on the specific area in question. The product carbon footprint (PCF) and corporate carbon footprint (CCF) are particularly relevant when assessing the climate risks associated with a particular company. The footprint measures not only CO2 emissions, but all emissions that affect the climate – the greenhouse gases.
1. Product carbon footprint (PCF)
The product carbon footprint (PCF) measures the greenhouse gas emissions generated by a product, such as a car. The calculation takes into account the entire lifecycle of the product, from the extraction of the raw materials, its manufacture and use through to disposal or recycling. This makes it possible to compare the climate effects of different products. The more attention business customers and end consumers pay to the effects a product has on the climate, the more important the PCF will be in the purchase decision. Products with a comparatively greater PCF would then be at a competitive disadvantage. Furthermore, the manufacturers of these products would be more severely affected by the possible introduction of regulatory measures to reduce emissions.
2. Corporate carbon footprint (CCF)
The corporate carbon footprint (CCF) covers all greenhouse gas emissions that a company’s business activities generate within a specific period of time. This is usually measured over one year. Three different types of emission, known as scopes 1 to 3, are taken into account in the calculation of the CCF. The CCF provides a starting point from which companies can analyse the impact they have on the environment. It lays the foundations for concrete measures to reduce climate-related risks. At the same time it gives an indication of the energy performance and greenhouse gas emissions of individual companies, and is therefore also a guide to climate-related transformational risks.
Background: Scopes 1–3
Greenhouse gases (GHG) are often measured using the methodology defined in the Greenhouse Gas Protocol. There are three different types of emissions:
|Scope 1||Scope 2||Scope 3|
|Direct GHG emissions generated directly at the company site. E.g. emissions from on-site heating boilers or chemical processes||Indirect GHG emissions linked to energy generation by energy suppliers, particularly electricity||Other GHG emissions, including those generated by products and services during their use. E.g. electricity used by a washing machine, petrol used by the end customer’s car|
Carbon intensity – an approach for improved comparisons
While the carbon footprint looks at absolute greenhouse gas emissions, the carbon intensity approach compares these values to another reference value, such as the turnover, number of employees or market capitalisation of a company. For example, the figure may tell you how much greenhouse gas a company has emitted to generate a million euros in turnover. This makes it easier to compare emissions and climate-related risks across different companies.
Financial investments also come with a CO2 footprint
The carbon footprint approach is increasingly being applied to financial investments. The basic premise of this concept is to calculate the greenhouse gas emissions generated by the companies listed in a particular fund or portfolio. The emissions reported by each company are recorded and assigned to a share portfolio based on the proportion of shares held in the company.
For example, if a company emits 100,000 tonnes of greenhouse gases a year and an investor holds 2% of the company’s capital in their share portfolio, then 2000 tonnes of emissions are allocated to this portfolio. The overall carbon footprint for the portfolio is the sum total of all of the greenhouse gas shares of all of the parties in the portfolio. Carbon footprints can also be calculated for other types of investment, including property. In accordance with section 173 of the French Energy Transition Act, larger institutional investors in France are already required to report the carbon footprint of their portfolio on an annual basis.