Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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Leader in systematic equities across market cap weighted indices, smart beta and active quantitative strategies

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The perils of a narrow lens

Most carbon footprint methodologies focus on direct emissions from owned or controlled sources, plus emissions from the generation of purchased energy. However this focus on carbon footprinting is potentially missing significant risks in portfolios and can even, at times, be misleading.

Infrastructure and utilities are at the epicentre of global efforts to reduce carbon emissions. The power generation and transport sectors, along with the infrastructure that supports them, need to evolve their business models for a two degree scenario to be achievable. Allocating capital appropriately within this space can effect meaningful change in the fight against climate change.

Investors measuring a company’s green credentials with carbon footprinting may be missing significant risks in their portfolios.

Most carbon footprint methodologies focus on direct emissions from owned or controlled sources, plus emissions from the generation of purchased energy. This approach can lead to assets appearing carbon friendly, despite a close association with substantial emissions further along the value chain.

Working through the value chain

Here we compare NextEra Energy (NextEra), which is the largest wind operator in the United States with Enbridge Inc, a Canadian oil pipeline company.

The following chart compares their carbon intensity over time using a traditional (or ‘direct emissions’) approach. On this metric, Enbridge appears to be far less carbon intensive than NextEra.

This is because the emissions associated with the fossil fuels transported by Enbridge are allocated to the transport sector and not to Enbridge itself. However in NextEra’s case, the emissions produced by its power plants are allocated to the utility.

This analysis misses that Enbridge’s assets are responsible for transporting 65% of all Canadian energy exports to the US. It also misses that NextEra is much better positioned for the transition towards a lower carbon economy.

Carbon Intensity Scope 1+2 over time (metric tons/revenue)


As at 30/06/2018. Source Colonial First State Global Asset Management/First State Investments & Bloomberg

Flaws of a single metric

Using carbon intensity as the only form of analysis has the following flaws:

  • It ignores change. Carbon emissions for NextEra fell by 6% CAGR (Compound Annual Growth Rate) over this period, reflecting its investments in wind technology and improved carbon efficiency. The corresponding change for Enbridge is zero.
  • It ignores climate action. An investment premised solely on the metric of carbon intensity supports the use of oil pipelines versus other cleaner resources – thus having no impact on climate action.
  • It ignores stranded asset risk. Following progress in clean energy generation, the disruption of the transport sector could represent the next global wave of decarbonisation. This implies a structural decline in demand for oil, and a risk that infrastructure associated with oil storage and transportation may no longer be able to earn an economic return.

It is crucial to look beyond a single metric when looking at sustainability or decarbonisation, as this approach may not deliver the anticipated outcome.

We encourage people to consider the limitations of focusing on a single metrics like carbon footprinting, and instead consider a suite of factors that provide fuller context and deeper insights into the real risks and opportunities associated with climate change and decarbonisation.