Decomposition carbon indicators

A better understanding of the exposures of the financial sector to the risks associated with climate change, but also of the role of financial institutions in financing the transition, requires statistical indicators on, amongst others, the CO2 emissions associated with their portfolios. The compilation of those indicators is however hampered by a lack of data and methodological challenges. In this paper we tackle one of those challenges, namely to better understand the mechanisms through which CO2 emissions associated with asset portfolios may change over time. Such an understanding is relevant as society aims for ‘net zero’ in 2050, and the different mechanisms of change may be caused by, or result in, different policy measures. For example, changes in CO2 emission indicators may be driven by choices of the financial institutions (for instance by divestment trades or exclusionary screening, or even by an engagement strategy) or more general ‘greening’ (reduction in CO2 emissions) of the underlying assets.