These days, I spend lots of time advising my clients on how they can address climate risks; measure the carbon intensity of their portfolios; and make changes to better align their strategies in today’s changing world. That set me thinking – how well do I do personally? And what can I learn from measuring my own carbon footprint?
The views in this blog are my own but the conclusions I reached have wider relevance and application.
Ok, so I know I’m probably a little behind on this one, but I spent some time digging into my own carbon footprint.
Now I’ve got an Electric Vehicle and a renewable energy electricity tariff, so I’ll admit I was feeling pretty smug going into this and getting ready to aggressively pat myself on the back…
I was shocked. But let me tell you what I learnt, and what it means for investors.
Not only was my footprint assessed as well above average, but I was also in the worst category of “climate villain” according to one site. But why was my footprint so high and importantly, what did this exercise show me that is useful for investors?
The two biggest individual contributors to my c24 tonnes / per year footprint were gas central heating (3t) and flights (11t).
I based this off 2019 activity where I took about 8 flights, one of which was long haul, and the rest shortish hauls of 1-3 hours (within Europe), for a total of 44 hours flying time.
I re-ran this for my 2020/2021 level of flying (almost none) and obviously, the contribution from flying came way down - though I’m still not much better than average thanks to the gas heating and general tendency to buy stuff (you know you love those Amazon deliveries too).
*The figure for the UK includes adjustment for greenhouse gases other than C02. The figures for the other countries do not, as these are not so readily available.
Consumer habits in terms of shopping also had an impact, even though we have started to make some better choices with more sustainable and local produce in our household. Meat eating was among the significant smaller contributors.
I took away six lessons:
1. Some sectors will be hard/impossible to fully abate – that’s why we say “Net” Zero
I do quite like eating meat and while I can commit to consuming less, I’m not honestly sure I’m ready to give it up yet. I imagine many others are in the same boat. Given meat production has a significant carbon footprint this shows us that some sectors will need to continue to produce GHGs for decades (hence the need to think in terms of Net Zero, with some other sectors having negative emissions).
2. Do the easy stuff before worrying about how hard the hard stuff is
This is as good a principle as any to live by. But especially in this area.
I’ve found this when looking at portfolios too, the 80/20 rule is your friend here - you can be pretty sure that most of your carbon footprint/carbon risk comes from just a few activities or positions. This makes it easy to get started on making progress and setting targets if you can focus on these rather than worrying about how hard it is to measure the hard stuff. So when it comes to the portfolio don’t obsess over measuring total emissions exactly, how hard it is to footprint your alternatives portfolio. Focus on understanding and engaging the key emitters, and what you could achieve moving to low carbon benchmarks in equity or credit.
For my personal carbon footprint the place to start is clearly flights, so no need to calculate the carbon footprint of my coffee beans, the real question at hand is really how can I reduce the time I spend on aeroplanes each year, anything else is just avoiding the issue. The same will be true for many corporates who clock up a lot of exec flight-miles, especially as business class travel is far more carbon-intensive than economy. A good question to ask companies in low carbon-intensity sectors. Another key risk question here is for infrastructure manages who own airports: what are their forecasts for demand?
The different websites I used did give different answers on my overall footprint, but worrying about which one is “right” misses the point; the actions were clear either way.
3. Offsets are dubious – the tension in Net Zero
At the end of all my footprint estimates, I was given the option of purchasing offsets. This was where it all got a bit dubious for me. For the relatively small sum of £20/month, I could in theory offset the rest of my household emissions. Some offsetting is in theory better than none, but the behavioural “damage” the idea can do could be far worse. For context, the UK does now have a carbon price: around £50 per tonne.
This seemed too easy (and if I’m honest way too cheap). As a very fortunate and relatively well-off member of the developed world it’s not good overall for me just to pay a relatively small sum to make my guilt go away and keep consuming in more-or-less the same way I was before (most of the sites I visited did also try to coach me to reduce emissions too, but the option to buy offsets for the remaining amount, however high, was always there).
Many of these offset practices are fundamentally flakey, or at least not close to being scalable to the whole world. It would be deeply unfair for us well off, developed world consumers to pay a tiny tax, use up all the capacity of the easiest offsets and keep going on our unsustainable, highly carbon-intensive lives while chiding the developing world for their carbon footprint while they merely try to follow the same development path that we have.
The transition needs to be a lot more collaborative and fair than that. I don’t have all the answers by any means but letting rich world consumers pay a few pounds to get developing world countries to plant a few more trees doesn’t seem like the right solution here at all. Asset owners need to beware of the same thing. You don’t want all the companies in your portfolio to rely on offsets when they really could and should be reducing their real-world emissions.
That’s the uncomfortable tension of the “Net” in Net Zero.
4. The energy sector is key
It’s clear that the energy and power sectors need to decarbonise before households, or any other sector can meet their targets. Right now it would be possible but difficult and costly for me to replace my gas central heating system with something less carbon-intensive by myself (such as a heat pump). And from an overall perspective, it probably makes sense for a system-wide change to happen rather than have each consumer make their own choices.
I was pleased to see this getting picked up in the recent widely-covered IEA report on the pathways to Net Zero, with the idea that no new gas boilers should be installed as soon as 2025. From an investment perspective this also brings some of the shorter-term climate risks into sharp focus: firms dependent on manufacturing or installing gas boilers for example might be facing an uncertain future, as well as their supply chains. There will be hundreds of other similar examples to be found as established ways of doing things right across the economy get phased out much quicker than previously thought.
This needs to be a system-wide change. What’s great is that several governments, including the UK, have already set out clear plans for an ambitious decarbonising of the power sector, changes which pave the way for one of the largest capital flows in history running into the hundreds of billions.
It’s going to be fascinating - and important - to be a part of that change and we wrote more about that here.
5. Things get complicated and you do have to make assumptions & get familiar with the detail
I spent a long while pondering this point about flights. Was it really right? I did some reading. One point made that resonated with me is that while flying produces 3-5% of global emissions (a big chunk, but far from a majority) the issue is this is concentrated in just a tiny proportion of the world’s overall population (probably most people reading this blog are in that tiny proportion). So for people flying frequently, this is a huge part of their individual emissions.
There’s assumptions to make and adjustments to be done. I read that emissions made by planes are released high into the atmosphere that makes them worse, so an additional loading factor is applied to the carbon footprint. You also have to adjust for all the inefficiencies in refining and transporting the fuel, not to mention all the peripheral building and infrastructure around flying itself. One blog I read arrived at the same figure (a quarter tonne of C02 per hour flown) two different ways.
There is also potential quibbling over where emissions “sit”. For example, the petrol powering those Amazon deliveries, are they on my carbon footprint or Amazon’s? And how should we split them? What about my flights for work-related travel? All good questions to solve, but don’t insist on perfect answers to everything before getting started.
For an asset owner, there needs to be familiarity and a fluency in the language of emissions estimates, attribution methodologies and pathways at some level of the governance chain. Usually, this won’t sit at the top board level, but perhaps in a Responsible Investment specialist or sub-committee, and certainly with the asset managers. There is a required skill and knowledge level to properly tackle this area which asset owners need to think about as they begin that journey.
6. There is potential injustice at the heart of Net Zero
In cutting down my flying and pushing others to do the same I’m implicitly denying some consumers in the developing world a chance to enjoy the sort of experiences that I have had for these last 20 years. Is that really right? We have to give ourselves a long hard look in the mirror in developed countries and be prepared to pull more than our fair share, sacrifice more and show developing countries a pathway by which they can enjoy some of what we have, but in more sustainable ways rather than just tut-tutting them for the amount of coal and oil they burn right now. That’s why the importance of a just transition is also being discussed more and more.
Turns out Net Zero is about much more than Greenhouse Gas Emissions
Having gone through my own footprint I now realise that Net Zero is about far more than measuring an emissions footprint, and moving to electric vehicles and renewable energy. Yes, these are important and also the more eye-catching exciting changes, but there is so much around consuming and behaving more sustainably that I realised has been so under-appreciated. Making sure your house is properly insulated to prevent heat-waste, recycling and minimising food waste, eating locally and seasonally to reduce the energy costs of food. Consuming in a more circular way – buying second-hand things or selling our own used goods where these can be re-used. GHG use is just one measure of sustainability but once you start focusing on it, you realise how much of our lives and global economy can and should be re-framed.
Now, about those flights…