Updated: Jun 21, 2021
If you walk or cycle to work, and you work out that a taxi would have not only cost you $50 but burned $10 of diesel, should you get karma points from society, even if you would never have intended to spend that kind of money on a daily cab ride? An environmental loyalty card, stamped when you chose not to inflict carbon and particulate matter on the atmosphere that day?
High-profile climate change campaigner and former central banker Mark Carney got in trouble this year for suggesting as much. The former Bank of England governor, who now toils for Brookfield, the $600 billion Canadian infrastructure investor, said at a conference in February that his employer was “net zero” on carbon emissions.
Brookfield might be best known for its flagship office towers in New York and Toronto — and more recently, Carney’s advocacy of environmental, social and governance (ESG) issues. But it also invests in fossil fuels and natural-gas pipelines, and climate experts quickly seized on Carney’s remarks, accusing him of greenwashing: conveying a false impression of a company’s environmental soundness. He had to walk back his remarks.
Carney originally used a controversial catchphrase to explain his rationale: “avoided emissions.” Brookfield might have a lot of money placed in environmentally unfriendly industries, but it also invests in renewable energy. These virtuous investments, Carney’s argument implies, mean that Brookfield’s 5,234 green power facilities deserve numeric recognition for the problematic alternatives they theoretically displaced.
Brookfield Place, Carney’s Toronto HQ
The Holtwood hydro-electric plant Brookfield runs in Pennsylvania powers homes in an area where a surprising number of people still heat their homes inexpensively with the state’s historic economic cash cow: coal. In theory, multiply 100,000 homes by the carbon dioxide released by all that Appalachian anthracite, and voila: avoided emissions.
In the world of greenhouse-gas analysis, this is a concept sometimes also referred to as “Scope 4.” It’s not broadly accepted. Carney had to backtrack, stressing that avoided emissions don’t count towards “net zero science-based targets.”
Carney’s misstep shows how the investment community is still lacking basic, standard definitions as the push into sustainability analytics and ESG data gathers pace. Many of the world’s biggest asset managers and pension funds only want to do the right thing, but there is no equivalent of a generally accepted "environmental credit rating" out there. To strike a parallel: financial markets still need S&P and Moody’s credit benchmarks and rating scales, even after they came in for heavy criticism after the financial crisis.
Financial-technology companies that can shine a light on this dark muddle of partial information and disputed interpretations in ESG ratings have an opportunity to add real value.