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Key drivers for this year's result and the significant Y/Y improvement includes:
- Lifetime PAE calculations: Shifting to lifetime PAE calculations instead of annual reporting has boosted results for several companies, providing a more representative view of their contributions.
- Portfolio adjustments: Greater portfolio weight in companies with high PAE contributions.
- Volume and capacity increases: Certain companies expanded their capacity and sales volumes during 2023, further enhancing their contributions.
This year’s observed increase in scope 3 is attributed to a shift in revenue calculations. For more detail, please refer to pg. 63 in the report.
Sector-level highlights include:
- Solar and wind remain amongst the largest contributors due to favourable methodologies for technology manufacturers.
- Rising to the second-largest contributor, biofuels saw strong performance from Novonesis, whose significant fund weight at the time of assessment and high PAE were key factors.
- No detractors within the power generation sector were noted this year, thanks to the fund's exit from holdings like Enel.
For more comprehensive detail on the results, please refer to the full report available here.
Evolving perspectives on avoided emissions
Avoided emissions are gaining prominence among investors, with several large investor publishing their own research on how to approach avoided emissions, developing in-house methodologies, or publishing data on avoided emissions of funds. More recently, an initiative led by Robeco and Mirova aims to standardise methodologies and create a global database of avoided emissions factors. This effort, which seeks to define 80 low-carbon solutions and 9,600 avoidance factors during its first phase, is set to conclude in late 2024. The database aims to enable transparent, comparable and auditable measures, guiding financial flows towards impactful solutions.
Corporate engagement in avoided emissions is also increasing, with self-reported figures now comprising 34% of ISS-ESG's evaluations, up from 13% in 2021. This trend reflects enhanced credibility and methodological rigor. Additionally, the Partnership for Carbon Accounting Financials (PCAF) is expanding avoided emissions guidelines, proposing guidelines that enable financial institutions to claim avoided emissions through impactful financing. We believe these developments are positive, but caveat that the metric and its insights must be applied with care and transparency so as not to be misleading and not lead to reduced efforts to decarbonise.
Complementary focus on carbon footprints
While avoided emissions are central to the fund's strategy, managing and reducing carbon footprints remains a critical measure of success. A shrinking carbon footprint is a tangible indicator of progress toward decarbonisation, reflecting the immediate impact of emission reduction efforts. Our fund engages actively with portfolio companies, delivering on our annual commitment to engage with at least 80% of the portfolio by weight on net zero target setting since 2021. This year, 69% showed positive development in their net zero work, with progress often driven by setting SBTi-approved net zero targets.
COP29: Aligning Global Action with Fund Strategy
We also follow outcomes of key events like COP, as this provides critical context for environmental investing. Key developments of COP29 include:
- Developed nations agreed to provide $300bn annually in grants and low-interest loans to vulnerable nations –triple the current level but far below for $500bn-$1trn sought by developing countries. A broader $1.3trn annual target by 2035, mostly from private and innovative sources, was also set.
- After nearly a decade, Article 6 rules on carbon markets were finalised, enabling regulated international country-to-country carbon credit trading. New rules ensure robust accounting, prevent double counting, and support decarbonisation efforts in developing nations. Concerns over over-crediting persist.
- No agreement was reached on last year’s “global stocktake”, with text committing to transition away from fossil fuels and triple renewable energy removed from the final text due to opposition from petrostates. The final text vaguely referenced past deals, undermining the credibility of the outcome.
- A global energy storage and grids pledge calls for increased energy storage capacity to 1,500GW by 2030 and to add or refurbish 25m km of grids by 2030. This highlights a recognition that the grid will play an important role in de-bottlenecking energy transition, particularly given the COP28 commitment to triple renewable energy capacity by 2030.
- 31 countries have so far committed to triple nuclear capacity by 2050.
These outcomes reaffirm the importance of scaling private capital to bridge the financing gap, ensuring the necessary resources for impactful climate action.
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