Our thinking

The winds of change

26 February, 2021

We are increasingly aware of the impact of our personal investment decisions on global issues such as climate change. Meanwhile, campaigns pressuring financial institutions to divest from the fossil fuel industry continue to gain momentum globally. 

Banks and other financial institutions can reduce their own carbon footprint by shifting investment from emissions-intensive businesses to those with a smaller footprint, as it is the carbon footprint of their investments that comprise the vast majority of their own carbon footprint. 

While a tonne of carbon is a tonne of carbon, when we look under the hood, we see that not all carbon is created equal and that some tonnes of carbon do in fact work to lower greenhouse-gas emissions at a global level, as Credit Suisse’s head of advisory pointed out last week. The example given was that a wind turbine manufacturer would have a higher emissions intensity (GHGs per £ invested) than a media company, even though the knock-on impact of investing in wind turbine manufacturers and helping them expand their capacity will be significantly bigger. “Decarbonising your portfolio isn’t the same as building a portfolio that helps to decarbonise the world,” they wrote.  

We should be careful not to reduce climate impact down to a single figure, or let a measure become the main target. There is of course no free pass to continue pumping money into fossil fuels, but what this example highlights is that reducing the carbon footprint of investment portfolios is an effective but not perfect way to manage climate impact in the financial sector. As ever, seeing the bigger picture is the key to success. 

By Patrick Bapty