Net Zero Carbon Metrics

74 Pages Posted: 16 Feb 2022

See all articles by Théo Le Guenedal

Théo Le Guenedal

Amundi Technology

François Lombard

Amundi Asset Management

Thierry Roncalli

Amundi Asset Management; University of Evry

Takaya Sekine

Amundi Institute

Date Written: February 13, 2022

Abstract

This research project is both an update of the analysis on carbon emissions trajectories proposed by Le Guenedal et al. (2020) and a companion study of the climate risk measures defined by Le Guenedal and Roncalli (2022). While Le Guenedal et al. (2020) use carbon intensities, we extend the track-record projection approach by considering absolute carbon emissions. In particular, we propose a carbon budget approach that incorporates novel metrics for measuring the carbon emissions reduction targets and the relative positioning with respect to the net zero emissions (NZE) scenario. Indeed, current carbon emissions data are not sufficient to build portfolio alignment. The purpose of this paper is then to define net zero carbon metrics, which are necessary to enhance the disclosure and the debate on corporates' emissions (Créhalet, 2021; Le Meaux et al., 2021). These carbon metrics can be divided into two families. The static measures are NZE duration, NZE gap, NZE slope and NZE budget. They can be computed using a target scenario or the linear trend model. The dynamic NZE measures incorporate the past trajectory and the future scenarios of carbon emissions. For instance, we break down the carbon budget by error and revision time contributions. We also propose a velocity measure of the carbon emissions trend and two main dynamic NZE measures that are necessary to assess the performance of an issuer compared to the NZE scenario: the zero-velocity scenario and the burnout scenario. These different measures can then be used to define the PAC framework, that analyzes the participation, ambition and credibility of issuers' NZE policies. Finally, we apply this framework to the CDP database. Empirical results show that net zero carbon emissions are challenging for many issuers for two reasons. The first is that some issuers have a lack of ambition concerning their NZE scenario. The second is that some targets are not compatible with past trends.

Keywords: Climate change, net zero emissions, reduction scenario, carbon budget, carbon trend, carbon reduction target, participation, ambition, credibility, portfolio alignment, decarbonization

JEL Classification: G11, Q5

Suggested Citation

Le Guenedal, Théo and Lombard, François and Roncalli, Thierry and Sekine, Takaya, Net Zero Carbon Metrics (February 13, 2022). Available at SSRN: https://ssrn.com/abstract=4033686 or http://dx.doi.org/10.2139/ssrn.4033686

Théo Le Guenedal

Amundi Technology ( email )

Paris
France

François Lombard

Amundi Asset Management

90 Boulevard Pasteur
Paris, 75015
France

Thierry Roncalli (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

University of Evry ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

Takaya Sekine

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

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