FAQ – Why, what and how

CO2 AVOIDANCE

 

You refer to CO2 Avoidance. What about Greenhouse Gas (GHG) in general?

Clima’s vision is to use CO2 avoidance as a key metric for decarbonization impact. CO2 avoidance is part of the GHG emissions reduction strategy. CO2 is the common unit for measuring global warming impact and GHG impact is measured as CO2 equivalent (the amount of CO2 that would have the equivalent global warming impact). Please refer to our CO2 in Numbers Factsheet [link to the blog post] for more information on GHGs and CO2 avoidance.

Your CO2 Avoidance is focused on 2019 figures. Drawdown refers to CO2 avoidance until 2050, CRANE by Prime Coalition to product level avoidance. Why 2019 figures?

The global goal is to reach net-zero by 2050 to limit the rise of global temperatures by 1.5 to 2 degrees Celsius above pre-industrial levels. Data on total emissions in 2019 helps us know if we are on target in terms of the CO2 reduction needed. The CO2 avoidance from 2019 gives us more of an indicator of a company’s potential impact today. We believe we need to track our progress on a yearly basis, as you check your balance when going on a diet. Please refer to our CO2 Avoidance Diet Analogy article [link to the diet analogy] for more information on annual CO2 avoidance targets.

What about emissions? Do you take that into account? Is yours a “net” figure?

Ours is not a net figure. We look at the decarbonization (CO2 avoidance) side only, we do not attempt to subtract the carbon footprint imbedded in producing the products and services that enable decarbonisation. iClima Earth focuses on quantifying CO2 avoidance, as we see that as a key metric for impact. We have developed our methodology, closing following the Avoided Emissions Framework as we think it is vital that we focus on the solutions that can decarbonise the planet and quantify how relevant they are. You can find a condensed description of our methodology here (link to the document), and a more elaborate explanation here (link to the document).

Why don’t you publish the raw numbers on avoidance? 

We are disclosing here, open source, our ranges of CO2 avoidance per company, but not the exact potential CO2 avoidance. There are complex assumptions that need to be made when calculating CO2 avoidance. It is in nature a conceptual exercise as you compare a green solution to what would have happened otherwise (e.g., a EV car displacing an internal combustion engine vehicle). We think it is extremely important that CO2 avoidance becomes a key metric used by all stakeholders and we will be sharing the raw data with research institutions as we want to contribute to the improvement of these figures. As the saying goes, if it gets measured it gets managed.

What about cradle to grave and product life cycle calculations?

Life cycle analysis calculates the GHG emissions related to all stages of the life of a product. We are attempting to quantify the potential CO2 avoided by each company in our universe. It is not at product level (like in a life cycle calculation) and it is not for a whole industry (as Project Drawdown estimated). It is for companies, per year.

ESG RATINGS & LOW EMISSIONS ETFs

 

So, does Clima not believe in ESG indicators?

Environment, Social & Governance indicators are a core part of responsible investment. However, ESG methodologies are not standardised. We applaud the idea of holding companies accountable for higher sustainable standards, but it will take a long time for consensus to be created around the different rating systems. The lack of a unified approach can make it difficult for an investor to discern an impactful investment. We think that focusing on CO2 avoidance is a robust approach that has not yet been done. You end up with a very different portfolio if you focus on companies that are scoring high on ESG (whatever the methodology to grade them on E, S & G) or if you actually focus on the companies that can enable the decarbonisation of the planet, quantifying that by calculating CO2 avoidance.

Doesn’t Clima think that companies reducing Scope 1 and Scope 2 emissions are doing something important?

It is imperative that companies reduce Scope 1 and 2, but also Scope 3. Many companies have focused on Scope 1 and Scope 2 emission reducing activities, and that has been a phenomenal development. By the same token, many companies have started to report emission figures under Scope 1 and Scope 2. That has set us on the right path towards climate action reporting. However, we need further development in terms of Scope 3 activities as a next step towards a holistic climate response.

As a reminder, Scope 1 and Scope 2 measure emissions from a company’s operation and energy use. Scope 3 emissions cover the gap – all other emissions that are not directly attributed to a company’s process or energy consumption. Scope 3 encompasses 15 activity types, including supply chain emissions as well as emissions from the use of the sold products (for example the diesel used by the ICE vehicles that Shell sells at their petrol stations).

We think that equity benchmarks and ETFs that focus only on companies reporting reduced Scope 1 & Scope 2 emissions are not necessarily impactful. Why? Because they are missing Scope 3. Moreover, if you build a portfolio with companies that are reducing their carbon footprint you are gaining exposure to shares of companies doing “less harm”.

Companies with high ESG scores and/or lowering emissions are in theory more sustainable, better corporate citizens, likely to obtain lower cost of capital. We applaud that, but we are proposing a different focus: to focus on the companies that directly enable the decarbonisation of the planet.

 

SEGMENTS

 

How did you select the 29 segments that can decarbonise the planet?

All companies that are part of the index make a meaningful contribution towards the decarbonisation of the planet, defined as a positive CO2 avoidance from the products and services sold. Please find the description of our segments here. [link to the sector document]

How does that relate to the EU Taxonomy?

We followed the guidelines of Project Drawdown and triangulated their mapping of climate change solutions with the recommended list of economic activities and technical screening criteria prepared by the Technical expert group on sustainable finance (supported by Principles for Responsible Investment (PRI), of which we are a signatory).  The Taxonomy identifies activities that are environmentally sustainable. We took the liberty of adding solutions that we deem material and not part of Drawdown and/or PRI’s recommendations, like Green Financing. It is important to highlight that with the current information disclosed by companies it is currently very hard to follow the guidelines of the Taxonomy.

Why Project Drawdown is such a big reference for you?

Project Drawdown’s top-down approach identifies key sectors and technologies that could help reduce GHG emissions and avoid catastrophic climate change. They describe 100 existing solutions that can bring the world to net zero by 2050. It is a solid roadmap and reference to how to get to net zero. We attempted to bring that approach to a more granular level: companies that are active in these 100 spaces, quantifying their contribution on a yearly basis.

 

THE COMPANIES

 

Do you endorse the companies in your universe of securities?

We do not. We do not provide financial advice, nor do we recommend shares. We provide information, describe our fact-based approach, and share our methodology to assess if a company can enable CO2 avoidance. We propose a different angle, a different way of determining what companies can contribute to solving climate change.

What do I do if I like a company and would like to buy shares?

We encourage investors to do a lot of research. We want to help and facilitate individuals that want to invest for green impact to find information on the companies that can enable the decarbonisation of the planet. If you feel strongly about an investment, please look at brokers and investment firms so you can trade and build a portfolio that is in line with your beliefs, risk appetite and financial situation.

If a company is on top of the distribution of CO2 avoidance you calculated, does that make them a better investment?

Not necessarily. We are not publishing raw data CO2 avoidance, but four ranges of potential CO2 avoidance. Companies listed in our universe of securities are not ranked according to CO2 avoidance level. We aim to showcase companies that have technology and products that facilitate CO2 avoidance.

We hope that the focus on these investment options will lead to greater disclosure on CO2 avoidance. Also, by identifying the companies enabling material decarbonisation we also want to analyse the delivery risk for these companies (the risk that they do not deliver a material CO2 avoidance the world needs).

Please explain the analogy to shovels and gold rush. What do you mean by that?

The expression from the Californian Gold Rush conveys the idea that it is very hard to know who will strike gold but one can make a more certain profit by selling shovels. We do not know who will strike gold (in our case what companies can really reduce emissions in a material way or what companies indeed command stellar ESG scores), but if we focus on the companies selling shovels (enabling CO2 avoidance through their products and services) we can gain exposure to the companies more likely to benefit from the transition to a low carbon economy.

We believe that our approach of looking at the companies that can enable the transition to a low carbon economy is a very robust one.

You talk about funding the green transition. Am I directly contributing to that?

No, you would be indirectly contributing to that. The securities that we cover all trade in the open market (secondary market). At some point when the companies first went public, they raised funds from the first investors that bought shares (at a process called Initial Public Offering, IPO), that directly raised capital to the “climate champions”. However, by gaining exposure to shares of companies enabling decarbonisation you would channel capital to green investments, which helps lower the cost of capital for the relevant companies. Increased interest in truly green companies would make it easier for companies in these segments to go public and raise funds in a primary share offering.

 

THE TEAM

 

Who is the team behind all this?

The three co-founders are finance professionals with decades of experience in equity capital markets, project financing and infrastructure investments. They all went to the Wharton School in the USA and currently live in London, UK. The team directly working on the sustainability analysis all hold a MSc in Climate Change, Management & Finance from Imperial College, also in London.  The work has been done under the guidance of our Climate Change advisor that has two decades of experience in carbon market. Please check our LinkedIn Company Page for more information on the team and on Clima’s advisors.  

Are you hiring?

We are not currently hiring but will soon. We are always keen to meet talented professionals, so please contact us if you are interested in an opportunity at iClima Earth.

 

THE SUBSCRIPTION 

 

Is the subscription really for free? What is the catch?

Yes, those that sign up in 2020 will have access to all information we generate for life for free. There is no catch. We want to share our approach, our methodology with all individuals that care about climate change. We want to contribute to the solution to the problem of how to quantify impact, with a laser focus on the decarbonisation of the planet.

What do I get if I subscribe to the platform?

If you subscribe you get access to our Discovery page, that has a very robust filter function that allows you to see our (almost) 200 securities with CO2 enabling potential, according to five categories. You can do countless combinations of the categories to find companies that may be of interest to you (according to size, geography, type of security, subsegment and strategy). Moreover, you will receive our weekly “comparables”, an invaluable tool that compares all the companies in our universe, showing their weekly share price performance and key financial metrics.

Are you a not for profit?

We are a for profit company. We own an equity benchmark that is the basis for our revenue generating strategy. We are working very hard towards launching a series of unique ETFs, that will track our own indices. We will not market our ETFs in this platform. This website is our open source contribution to those that care about climate change, want to avoid greenwashing, and want to invest for quantifiable impact.

Author: iClima Earth
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