Why does carbon footprint not tell us the whole story?

DNB Renewable Energy’s Portfolio Managers invest in sustainable solution providers for a better environment. Identifying the companies delivering such benefits requires deep, bottom-up analysis.

- People are increasingly interested in investing both for a better environment and for good returns. It is therefore important to demonstrate how we select companies which contribute with solutions to environmental challenges, whilst also creating value for shareholders, says Laura McTavish, Analyst in DNB Renewable Energy.

She says that the Portfolio Managers, Christian Rom and Stian Ueland, seek to build a portfolio of companies that contribute to a better environment, and which also deliver a good return on investment.

Her team works to continuously document the impact that the companies have on the climate and environment. The team analyses the companies they invest in and wish to be transparent with clients about how that analysis is conducted. Typically, carbon footprint is used as a metric to tell us about how companies impact the climate, and, subsequently, how exposed they are to transition risk.

- Whilst carbon footprint is important, it does not tell us anything about the positive climate impacts that a company delivers. Understanding positive contributes requires complex analysis which goes beyond carbon footprint, says McTavish.

McTavish says that more and more people want to invest in funds that invest in companies delivering environmental benefits. She points out that the companies that deliver the solutions needed to deliver the green transition also emit carbon when their products are produced.

- The carbon that the companies emit must be considered against what the companies potentially contribute with potential avoided emissions. For example, when renewable energy capacity is installed, it will provide low-carbon energy for decades to come, she continues.