Partner Insight: Broader scope can bring wider opportunity for decarbonisation investors

In the journey toward a low carbon economy, Scope 4 emissions play a critical, but often overlooked role, says Raj Shant, managing director at Jennison Associates.

Sarka Halas
clock • 2 min read
Partner Insight: Broader scope can bring wider opportunity for decarbonisation investors

For investors with sustainable or net-zero mandates, navigating the complexities of a company's carbon footprint has become second nature. Scopes 1, 2 and 3 – a well-worn framework for quantifying direct emissions, energy purchases, and broader value chain impacts – are now entrenched in ESG analysis. Yet, a crucial element remains largely unexploited: Scope 4, the oft-overlooked metric that captures a company's potential to avoid emissions.

Raj Shant, managing director at Jennison Associates, sees that as a fundamental flaw in the investment category. Shant says that ignoring Scope 4, as most traditional decarbonisation strategies do, is tantamount to neglecting opportunities to reduce emissions that in many instances can exceed Scopes 1, 2 and 3 combined. His firm maintains that a broader embrace of Scope 4 would accelerate carbon-reduction progress while enhancing the decarbonisation investment universe.  

"To focus only on the supply side of the decarbonisation journey is missing a massive part of the overall solution, which is also thinking about demand," says Shant. "When you start thinking about demand, if we want to live in a world where there are eight billion people with similar standards of living to today but where the carbon emissions are much lower, we're going to need to do a ton of things in a really different way, in a much more carbon-efficient way."

To be sure, solar, wind, and electric vehicles play important decarbonisation roles. Still, according to a 2020 Princeton University report, spending on these solutions represents only an estimated 40% of the capital needed to get to net zero by 2030.

Jennison believes the path forward is clear: Investors need to embrace many solutions beyond renewables and electric vehicles to recognize the complexity of the decades-long challenge of reducing carbon emissions while maintaining and improving living standards.

Click button to access focus guide.

Find out more

More on Investment

Partner Insight:  Bonds look as attractive as ever. Being nimble will be key

Partner Insight: Bonds look as attractive as ever. Being nimble will be key

Aegon Asset Management
clock 13 November 2024 • 2 min read
Partner Insight: Niches - Searching for roads less travelled

Partner Insight: Niches - Searching for roads less travelled

In this article, Richard Perrott from the MSIM’s International Equity Team, explains the team’s approach to finding potential investment opportunities within unexpected areas.

Richard Perrott, Executive Director International Equity Team @ MSIM
clock 12 November 2024 • 4 min read
Partner Insight: Deciphering liquidity - Understanding the mechanics of new funds investing in private markets.

Partner Insight: Deciphering liquidity - Understanding the mechanics of new funds investing in private markets.

As more private investors choose to allocate to private markets, Peter Sankey, Product Manager, Private Assets at Schroders sheds light on how the liquidity mechanisms of new fund structures work

Peter Sankey, Product Manager, Private Assets at Schroders
clock 12 November 2024 • 4 min read
Trustpilot