Investment companies want to develop a global standard for calculating avoidable emissions

This database is intended to standardize and make transparent the calculation of emissions prevented by various low-carbon or sustainable technologies. The initiative is supported by ten founding partners with a total asset value of over USD 2 trillion.

A global standard for assessing avoided emissions

The energy transition requires a shift away from carbon-based activities, so decarbonized alternatives must also be available. While the data currently reported by companies on their direct greenhouse gas (GHG) emissions and estimated indirect emissions (Scope 2, Scope 3) is based on a solid methodological foundation, other metrics are needed to identify the respective contributions and compare solutions. If it is important to consider all the resources and recyclability of components that play a role in the production of an electric vehicle, it is also important to understand and measure the carbon emissions that can be avoided by an electric vehicle in a transportation sector that is still heavily dependent on internal combustion engines.

The development of a standard for a global database of emission avoidance factors is an important step for many economic players. For the financial sector, this initiative will provide estimates of the emissions avoided by the activities financed and make them transparent and comparable. If such estimates are implemented in a standardized way for a wide range of solutions, they will make it possible to direct investments towards the solutions with the greatest potential for decarbonization, depending on where they are located. For companies, project sponsors or financiers and consultants, this database should enable transparent calculations that refer to a recognized external standard. The database should enable data providers to estimate avoided emissions for a wide range of investments, complementing existing measures of climate impact that are currently too imprecise or binary.

A standardized and transparent database

The database, created by I Care by Bearing Point and Quantis, will initially include 80 specifically defined low-carbon solutions (energy from biomass, recycled plastic, low-carbon concrete). The geographical differentiation of the reference scenarios considered for each solution and the different links in the value chains of these solutions should lead to the creation of approximately 9,600 different abatement factors in the first phase, which will end in Q4 2024.

The creation of a standardized and transparent database of abatement factors should make it possible to quantify, compare and verify the emissions prevented by companies and projects and thus promote the redirection of financial flows into investments that drive decarbonization.

Each emission factor contains details of the assumptions made, in particular:

• The functional unit used
• The carbon footprint of the solution
• The reference scenario used
• The service life of the solution
• The time value of carbon
• The rebound effect

Precise specifications are to be provided for all these parameters and updated annually. The database should also enable more detailed calculations, depending on the extent of access to the data. For example, a company that has carried out a "life cycle" analysis of its solution could change the parameters to obtain a more accurate abatement factor. The scope of the database will be gradually expanded to include many other low-carbon or environmentally friendly solutions. The development of the database and the selection of methodologies will be overseen by a technical committee made up of the key organizations behind the current avoided emissions standards.

The development of the database should have started in January 2024 and a first version should be made available to all stakeholders who need to calculate avoided emissions - including companies, consultants, impact measurement software developers, financial institutions and data providers. The data providers that calculate emissions at company and asset level will be involved in building the factor database and will need to follow a protocol for its application.

Lucian Peppelenbos Climate and Biodiversity Strategist at Robeco comments: "Avoided emissions are the missing piece of the puzzle when it comes to facilitating the financing of change. At a global level, much more capital needs to flow into climate solutions. This metric can help direct capital flows to companies that offer the most effective climate solutions. With broad support for this initiative from investors, academics and other stakeholders, we hope to establish the avoided emissions metric as a standard that can be used alongside alignment metrics to identify companies that are critical to the net zero transition. We look forward to working with Mirova, I Care and Quantis, as well as the 12 other sponsors, to achieve this goal."

Source: www.robeco.com