Carbon reduction: Moving away from carbon footprint towards carbon footpath

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As concerns surrounding climate change continue to intensify, equity investors increasingly need to understand how this could impact their investment portfolios. In addition to obvious financial concerns related to future fundamentals, the shift is being driven by policies and legislation, as well as climate data itself. On the legislative front, the most ambitious example is the Action Plan on Sustainable Finance in the EU, a series of sweeping rules, some of which are expected to come into effect as early as April 2020. This could include the establishment of labelling law for two new categories of regulated climate benchmarks that aim to reduce carbon by 30-50%, and mandatory ESG disclosure by benchmarks for every asset class to demonstrate alignment with carbon reduction. As for the data, in a recent research paper1 AXA Investment Managers’ climate experts explain that about 420 gigatonnes of the global carbon budget is left before hitting the 1.5⁰C warming threshold irreversibly. This represents only about eight years of annual emissions based on the level recorded for 2017 – 50 gigatonnes carbon dioxide equivalent (GtCO2e) according to specialised data from Carbon Delta.