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HSBC AM selects Carbon4 Finance to reduce GHG

Last week, HSBC announced its ambition to align with Paris Climate Agreement’ objectives, and for the transition to a “prosperous economy” – to use the words of its CEO – it will rely on the expertise of Carbon4 Finance.

Launched in 2016, the French company Carbon4 Finance provides the financial sector with a complete set of climate data solutions covering both physical risk (CRIS methodology: Climate Risk Impact Screening) and transition risk (CIA methodology: Carbon Impact Analytics).

These proprietary methodologies allow financial organisations to measure the carbon footprint of their portfolio, assess the alignment with a 2°C-compatible scenario and measure the level of risks that arise from events related to climate change.

An approach that convinced HSBC Global AM announcing a collaboration with Carbon4 Finance to refine its analysis of the climate impact and achieve the goal of zero carbon emissions for all of its customers by 2050; a transformation that will require the banking group between 750 billion and 1 trillion dollars of financing to help its customers to succeed in their energy transition.

«Our net zero ambition represents a material step up in our support for customers as we collectively work towards building a thriving low-carbon economy.»

Noel Quinn CEO HSBC

Today, the climate impact of companies is assessed through a static indicator: carbon intensity, which measures, at a given moment, the company’s carbon emissions.

To achieve the 2°C target of the Paris Climate Agreement, it is also necessary to look at the reality of a company’s strategic and financial commitment to a low carbon transition. The metric developed by Carbon4 Finance makes it possible to quantify this commitment using an indicator measuring “carbon emission savings”.

«While measuring the carbon footprint is now quite common, measuring the real impact of companies in the medium to long term is proving difficult. However, we believe that the measurement of ” avoided emissions ” developed by Carbon4 Finance is an excellent way to assess the climate trajectory of companies and that is why we have chosen to integrate it. This new climate metric may over time play a significant role in our overall process of integrating ESG factors, covering all geographies and all asset classes »

Xavier Desmadryl, Global Head of ESG Research & PRI, at HSBC Global Asset Management.

What are ‘carbon emission savings’ and why are they so important to consider?

In order to evaluate the alignment of a portfolio with the low-carbon transition, it is necessary to look beyond the carbon footprint and identify the opportunities and real actors of the climate transition: for example, by evaluating a company’s capacity to reduce its emissions, by enabling its customers or suppliers to decarbonize theirs, etc.

Carbon4 Finance developed an additional indicator within its transition risk methodology, Carbon Impact Analytics, to calculate the emissions savings (scopes 1, 2 and 3) of a company to steer investments towards solutions for a decarbonized economy

For Jean-Marc Jancovici, one of Carbon4 Finance partners “to appreciate to what extent a company is resilient, or even favoured by, a low carbon transition, calculating avoided emissions is unavoidable”.

A company operating in a highly carbon intensive sector could contribute significantly to decreasing emissions by creating a disruptive product or process. For example, an insulation manufacturer or a bicycle manufacturer can emit a massive volume of greenhouse gas when looking only at the direct emissions, but nevertheless have a very positive contribution to the climate transition over the whole lifetime of their products.

The inclusion of emissions savings is crucial in order to help understand how disruptive a company is, either through more efficient processes, or through low carbon products or services.

Emissions savings are calculated by adding up the “avoided emissions” (comparing the company to the trajectory of its sector) and the “reduced emissions” of a company (comparing the company with itself over 5 years):

avoided emissions are the emissions that are avoided by the company’s products and services; they are calculated by comparing the emissions with a sectorial baseline scenario (i.e. an IEA scenario 2°), or with the substitution by low-carbon solutions. A company avoids emissions if there is a positive gain between the induced emissions of the company on the one hand, and the baseline sectoral emissions scenario on the other hand.

– reduced emissions are the volume of emissions lowered through a process efficiency over a period of time: an emissions reduction is a real decrease of the company’s carbon intensity over 5 years. The “emission savings” indicator is key to understand the real impact of a company.

This indicator is a powerful tool in order to identify the companies that have already entered into the climate transition and to measure the company’s action for the low carbon transition, providing figures that are much more meaningful and tangible than all the companies statements that claim carbon neutrality.

Article: Joana Foglia

Post Author: Wealth Monaco