Using Avoided Emissions To Build the Case for Investing in Climate Change

Activities that help companies avoid emissions are an attractive investment opportunity, according to Templeton Global Equity Group Portfolio Manager Craig Cameron. By actively seeking opportunities to reduce emissions, he says investors can align themselves with sustainability goals that contribute to a low-carbon economy.

In the current environment when climate activities are at the forefront of investments, we believe companies that are contributing toward climate change mitigation and adaptation will stand out. While focusing on a company’s own scope 1, 2, and 3 emissions1 is important, it often misses the mark when thinking about investment impact. In many cases, companies have a much larger impact on the environment by providing the products, materials, and services that are needed for the transition. One of the ways that we think this can be measured is known as avoided emissions.

What have avoided emissions?

When building a climate-change portfolio, there are numerous tools and metrics that can be used to measure efficacy and ensure that each holding is having a meaningful impact on climate change mitigation or adaptation. One such gauge is to calculate “avoided emissions,” which means estimating the CO2 reduction impact that the solutions of a given business contribute.

In other words, avoided emissions are emissions that would have been released if a particular action or intervention did not take place.3 Emissions can be avoided using a more efficient product or service. Since this still depends on consumer or market behavior, we refer to them as potentially avoided emissions.

One means of achieving avoided emissions is through the generation of low-carbon energy as a substitute for high-carbon energy generation. Using local or global emissions factors per unit of generation as a baseline, companies can estimate avoided emissions from the difference in greenhouse gas (GHG)4 emissions between the baseline and scenario where the low-carbon energy is used.