Carbon intensity of investments

Our approach

As an asset manager committed to net zero emissions in our investment portfolios by 2050, we recognize the importance of understanding, disclosing and reducing the carbon footprint of our portfolios. A key metric we use to assess the climate impact of our investments is carbon intensity. This article provides a brief overview of how we calculate and disclose the carbon intensity of our investments and funds.

Climate emission metrics in the SFDR

Greenhouse gas (GHG) emissions include not only carbon dioxide (CO₂) but various other gases. To provide a standardized measure of their overall impact on climate change, emissions of the different gases are converted into CO₂ equivalents (CO₂e) based on their global warming potential. (Since CO₂e is used to report all kinds of GHG emissions, we use the terms “carbon intensity” and “GHG intensity” interchangeably.)

The EU's Sustainable Finance Disclosure Regulation (SFDR) requires financial institutions to report on their financed emissions, using several metrics: total financed GHG emissions, carbon footprint, and GHG intensity of investee companies. These metrics are defined in Regulatory Technical Standards for the SFDR Delegated Regulation. The SFDR requires GHG disclosures to include scope 1, 2, and 3 emissions:

• Scope 1: Direct emissions from owned or controlled sources.
• Scope 2: Indirect emissions from the generation of purchased energy, such as electricity used by the company.
• Scope 3: Indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream activities.

What is Carbon Intensity?

As defined by SFDR, carbon intensity measures the amount of GHG emissions produced by a company relative to its revenue. Specifically, it is calculated as the ratio of a company’s GHG emissions (in tons of CO₂ equivalents) to its revenue (in millions of Euros, as per SFDR, but can be calculated for any currency). This metric indicates how efficiently a company operates with regards to its GHG emissions and is useful to compare companies of different sizes and to monitor developments over time.

The carbon intensity of a fund and our entire investment portfolio is determined using the Weighted Average Carbon Intensity (WACI) methodology. The carbon intensity of a portfolio is equal to the sum of all positions’ portfolio weight multiplied by the company carbon intensity. This approach illustrates one aspect of climate risk associated with each fund’s investments, as well as aggregated for all our investments.

Carbon intensity score with and without Scope 3

In compliance with the SFDR, we include scope 1, 2, and 3 emissions in our disclosure of carbon intensity in our entity-level annual statement on principal adverse impacts (“PAI statement”) and our fund-level SFDR reports. This calculation uses revenues in Euro.

However, assessing portfolio carbon intensity in this way can be problematic, due to challenges associated with scope 3 emissions data.  According to the Institutional Investors Group on Climate Change (IIGCC), current emissions accounting and reporting standards lead to fragmented approaches in scope 3 calculation by different companies and data providers. There is also a risk of double counting when aggregating emissions of multiple companies in a portfolio, as in most value chains one company’s scope 1 emissions are another company’s scope 3 emissions.

For these reasons we also disclose a carbon intensity score for our funds and entire portfolio, which only includes scope 1 and 2 emissions. This metric uses revenues in NOK but can also be provided in any other fund currency. The same approach is used to measure progress towards Storebrand’s target of reducing carbon intensity of investments by 32% from 2018 to 2025.

We believe that focusing on scope 1 and scope 2 in our climate target progress reporting and our fund reports provides a more consistent and reliable assessment of the carbon intensity of our investments at this time. However, transparency is ensured by the inclusion of Scope 3 in our SFDR reporting.

The Role of scope 3 emissions in future reporting

Despite data challenges, scope 3 emissions are very important to understanding companies’ climate impact and exposure to climate risk. Asking companies to report their scope 3 emissions and to set science-based emission reduction targets is a key part of Storebrand’s climate strategy.

As the quality and availability of Scope 3 data improve, we will continue to evaluate how best to integrate these emissions into our reporting practices. Our commitment to transparency and sustainable investing means that we are constantly adapting our methodologies to provide the most accurate and meaningful information to our clients.

Sources of emissions data

Storebrand uses emissions data provided by S&P Global Trucost, Sustainalytics and Stamdata by Nordic Trustee.