BNP Paribas Investment Partners (BNPP IP) has published the carbon footprint of its 95 open-ended equity funds after having done this for 26 of its funds last year.
Article 173 of the Green Growth Energy Transition Act, passed on 17 August 2015 in France, stipulates that as of 2017 investors must publish a “measurement of greenhouse gas emissions associated with the assets they hold.” The law also requires an evaluation of the exposure of investment portfolios to climate risk and the definition of a low-carbon strategy. This article illustrates the method that BNPP IP has adopted for carbon footprint measurement, so as to clarify the issues and constraints related to this process after the publication of the carbon footprint of our portfolios for the second year in a row. It only addresses the carbon footprint, as the other aspects are covered in the BNPP IP climate change policy outlined in the last SRI newsletter.1
BNPP IP began measuring and publishing the carbon footprint associated with its SRI
(Sustainable and Responsible Investment) range in 2011. The company also signed the Montreal Carbon Pledge2 in 2015, which commits it to gradually measuring and publishing the carbon footprint of all its portfolios. This work was completed for 26 of its open-ended equity funds in November 2015. One year later, in November 2016, almost 100 portfolios are now covered by these efforts.
What do we mean by carbon footprint?
A company’s carbon footprint represents the greenhouse gas emissions it generates. The Greenhouse Gas Protocol (GHG Protocol)3 defines measurement standards for the six major greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), halocarbons (HFC and PFC) and sulphur hexafluorides (SF6). These emissions are measured in CO2 equivalent (CO2e), i.e. in terms of global warming potential using CO2 as a basis for comparison. Because methane has a global warming power of 100 years that is 21 times higher than for CO2 4, one ton of methane is equivalent to 21 tons of CO2e. Emissions are divided into three categories known as “scopes”. Scope 1 comprises companies’ direct emissions of greenhouse gases. Scope 2 covers emissions related to electricity consumption, and Scope 3 includes all other indirect emissions. Scope 1 and 2 carbon emissions are marginal for asset administrators. Their business does not include industrial processes that emit greenhouse gases, and their consumption of electricity is limited. An asset administrator’s primary climate impact lies in its indirect contribution to climate change via its investments in companies that emit GHGs or are large consumers of electricity. This is why transparency expectations around climate impacts in our sector are focused on the carbon footprint of asset portfolios.
Unfortunately, there is currently no unanimously accepted method for calculating a portfolio’s carbon footprint. The various calculation methods that do exist tend to focus on Scope 1 and 2 emissions; calculation of Scope 3 emissions is not viewed as sufficiently robust or uniform to be applied. There is also a desire to move towards a calculation of intensity, i.e. to measure companies’ emissions as a ratio to a common unit such as revenue, market capitalisation or total balance sheet. The asset classes covered and the final format also vary. Such diversity of methods is not inherently problematic. It is even desirable to the extent that it pushes players to position themselves on this issue, which fosters research and has educational value. Problems can arise, however, when the results of these reports are taken into account without considering the diversity of methods used or the meaning of the figure being measured. All the methods have limitations that are important to point out.
Eighty percent of direct and indirect GHG emissions for a generalist index such as MSCI Europe are derived from three areas: electricity generation, fossil fuel production and cement production. A portfolio’s carbon footprint will depend above all on its exposure to these sectors.
By design and due to the lack of available data, carbon measurements are limited to direct
emissions and those related to the consumption of electricity. They generally pass over
emissions related to purchasing, induced third-party emissions and emissions avoided through the use of products sold by the companies. Thus, a firm that has outsourced its industrial production, but sells products with a negative impact on the climate, would contribute to reducing a portfolio’s carbon footprint.
Lastly, the carbon footprint does not express exposure to climate risk or carbon risk, i.e. a risk caused by the effects of climate change or by fighting against climate change. A company that has no or few GHG emissions, but whose business depends solely on carbon extraction, is strongly exposed to a carbon risk, and the carbon footprint does not express or measure this risk.
Our calculation methodology
BNPP IP decided to develop its own methodology for measuring the carbon footprint of its
portfolios. At the same time, it has developed a tool that allows managers to monitor the
carbon footprint of their portfolios. Scope 1 and 2 emissions are added together, and this
sum is divided by the market capitalisation of each of the securities present in the portfolio.
The result is weighted in line with the weight of the security in the portfolio, to calculate
an intensity per euro of market capitalisation. The intensities of the different securities in
the portfolios are then added together. We thus obtain a measurement of direct carbon
emissions and those related to the consumption of electricity associated with investment in
the portfolio. BNPP IP’s approach, like all current carbon footprint measurement methods,
contains inherent biases. The footprint is strongly correlated to changes in securities’ market prices. Monitoring the carbon footprint over time is meaningless due to its volatility. While it only takes into account Scope 1 and 2 emissions, and passes over induced third-party emissions and those prevented by products sold by the companies, it does provide useful information. Measuring portfolios’ carbon footprint helps to raise awareness and educate fund managers. It improves understanding of the impact of sectoral allocations and of selecting securities based on their associated carbon emissions.
Measuring the carbon footprint is an exercise with educational value, but must never be viewed as an instrument for managing carbon risk. It is a crucial first step, but not enough to meet the expectations of our customers, nor the provisions of Article 173. Other jurisdictions are likely to have similar requirements in future. That is the current direction being taken by the Financial Stability Board (FSB) on climate-related financial disclosures (TCFD).5 Consideration of climate risk cannot be limited to measuring the carbon footprint. That is why, for our SRI funds, we place a strong and systematic focus on climate topics in the analysis of the ESG performance of the companies in which we invest. This analysis goes beyond the footprint. As part of our 2°C strategy, our aim is to strengthen the pertinence of this analysis and to extend it to other management areas.
Extra-Mile Water Conservation Efforts Amidst Shortage
While some states are literally flooding due to heavy rains and run-off, others are struggling to get the moisture they need. States like Arizona and California have faced water emergencies for the last few years; water conserving efforts from citizens help keep them out of trouble.
If your area is experiencing a water shortage, there are a few things you can do to go the extra mile.
Repair and Maintain Appliances
Leaks around the house – think showerheads, toilets, dishwashers, and more – lead to wasted water. Beyond that, the constant flow of water will cause water damage to your floors and walls. Have repairs done as soon as you spot any problems.
Sometimes, a leak won’t be evident until it gets bad. For that reason, make appointments to have your appliances inspected and maintained at least once per year. This will extend the life of each machine as well as nip water loss in the bud.
When your appliances are beyond repair, look into Energy Star rated replacements. They’re designed to use the least amount of water and energy possible, without compromising on effectiveness.
Only Run Dishwasher and Washer When Full
It might be easier to do a load of laundry a day rather than doing it once per week, but you’ll waste a lot more water this way. Save up your piles of clothes until you have enough to fully load the washing machine. You could also invest in a washing machine that senses the volume of water needed according to the volume of clothes.
The same thing goes with the dishwasher. Don’t push start until you’ve filled it to capacity. If you have to wash dishes, don’t run the water while you’re washing. Fill the sink or a small bowl a quarter of the way full and use this to wash your dishes.
Recycle Water in Your Yard
Growing a garden in your backyard is a great way to cut down on energy and water waste from food growers and manufacturers, but it will require a lot more water on your part. Gardens must be watered, and this often leads to waste.
You can reduce this waste by participating in water recycling. Using things like a rain barrel, pebble filtering system, and other tools, you can save thousands of gallons a year and still keep your landscaping and garden beautiful and healthy.
Landscape with Drought-Resistant Plants
Recycling water in your yard is a great way to reduce your usage, but you can do even more by reducing the amount of water required to keep your yard looking great. The best drought-resistant plants are those that are native to the area. In California, for example, succulents grow very well, and varieties of cactus do well in states like Arizona or Texas.
Install Water-Saving Features
The average American household uses between 80 and 100 gallons of water every single day. You obviously can’t cut out things like showering or using the toilet, but you can install a few water-saving tools to make your water use more efficient.
There are low-flow showerheads, toilets, and faucet aerators. You could also use automatic shut-off nozzles, shower timers, and grey water diverters. Any of these water saving devices can easily cut your water usage in half.
Research Laws and Ordinances for Your City
Dry states like California, Arizona, New Mexico, and Nevada must create certain laws to keep the water from running out. These laws are put into practice for the benefit of everyone, but they only work if you abide by the laws.
If you live in a state where drought is common, research your state and city’s laws. They might designate one day per week that you’re allowed to water your lawn or how full you can fill a pool. Many people are not well versed in the laws set by their states, and it would mean a lot to your community if you did your part.
Cyprus is the Forerunner for Ecotourism
When I was looking for a second citizenship, I happened to see One Visa’s offer on Cyprus Citizenship by investment program. I had heard about Cyprus being a beautiful country, but I did not know much else, so I decided to start my own research about this gem of a place.
After I did some research, I discovered that Cyprus is a popular destination for tourists. Unfortunately, heavy tourism and the associated development affected villages here and there, with some communities being slowly abandoned. To avoid this from happening any further, Cyprus went into ecotourism, and today, it is the forerunner in this arena. Let’s look in further detail at ecotourism in Cyprus here.
How was it started?
It all started in 2006 with the launch of the “Cyprus Sustainable Tourism Initiative.” This program has the sole scope of promoting ecotourism developments in the tourism industry. It concentrates on those areas which require conservation and environmental safety. At the same time, it helps develop social, as well as economic statuses in the rural parts of Cyprus. Through this program, the government was able to acknowledge that ecotourism will play an essential role in the future of Cyprus, with the concept gaining momentum among tourists from all over the globe.
How to go about it?
So, now you are interested in going for an ecotourism vacation in Cyprus. How will you go about it? I would immediately say that everyone should visit the quaint Cypriot villages spread throughout the island. These communities have a smaller population, and not many tourists visit. They make for a great relaxing spot. Enjoy seeing the bustle of village life go by where simple pleasures abound. Most hamlets are linked by specific minibus tours which ferry tourists to these havens. These trips will have a regular schedule, aimed at promoting ecotourism further. Such tours will be regulated to ensure that while the villages can benefit and develop, they do not get overpopulated or overcrowded with tourists. Therefore, you can be sure to enjoy the beautiful sceneries that nature has to offer here.
If you are wondering if there are any activities to do here, my answer would be: “Yes, plenty.” You can go for some guided walks across various regions here. Here you will be able to explore the diversified natural beauty and wildlife of the area. Several agritourism activities and services are planned to open shortly. Once launched, you will be able to engage in picking olives, milking goats, and several other such events here.
What can be learned?
Although we are aware that natural resources need to be preserved, we do not always remember it in real life. When we go on tours such as these, we can realize the significance of protecting nature. Also, when more and more people visit these places, the concept of ecotourism will become popular among more people. Awareness about ecotourism is set to grow and spread throughout the world. Subsequently, sustainable tourism will gain popularity around the globe with Cyprus being the forerunner for ecotourism .