AXA IM: Sustainably-minded investors should integrate avoided emissions

AXA IM: Sustainably-minded investors should integrate avoided emissions

October 17, 2024

ESG-investing Energy Transition
Klimaat (07) CO2

We believe sustainably-minded investors should absolutely integrate avoided emissions in their analysis when this is relevant, AXA IM Head of Climate Research, Olivier Eugène writes.

'Avoided emissions are emissions which have not been generated because an individual or company has used a product or service which is less emission-intensive than the product or service it would have used otherwise – for example driving an electric vehicle instead of a petrol or diesel-powered car,' Eugène explains.

Reasons whyinvestors should integrate avoided emissions:
  • It provides a more comprehensive view of a company’s role and contribution to the energy transition. It may provide alternative perspectives on a company with rising emissions if it grows thanks to a successful low-carbon solution. Once again, thinking in terms of enlarged value chain and overall society’s benefits is the right approach.
  • Such companies may be potentially attractive investment cases and potential growth stories. This is however far from guaranteed, and investors should carry out the traditional financial and operational analysis.

When factoring in avoided emissions, investors should also:
  • Analyse and assess the company within its broader transition strategy. For any company, helping to deliver avoided emissions should not be treated as reason to avoid tackling emission reduction, and it should set a credible and robust strategy to do so.
  • In addition, as already mentioned earlier in this note, avoided emissions should be accounted for in parallel to scope 1, 2 and 3 emissions. There should be no netting.
  • Ask for transparency and disclosure of the methodology used to calculate avoided emissions. Given the challenges we described, it is important to do so. We can for instance 4 point at documents published by Saint-Gobain11 or Schneider Electric12. This methodology should be clear and robust, and audited by an outside party.
  • Investors should also apply caution about claims and data, because of the methodological challenges, and also because there are companies exaggerating the benefits of what they do.
  • Be careful when comparing companies, because methodologies will differ and will not yield comparable results, even for companies in the same industry. Also, a company not selling solutions should not be penalised. Its emission reduction strategy should be assessed on its own merits.
  • Think in terms of order of magnitude rather than of precise data. The famous quote about being roughly right rather than precisely wrong applies here.

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