Summary
How can investors gain confidence that an equity portfolio is invested in companies that are really helping to address climate risk? Focus on a company’s carbon handprint, which measures the positive impact, or carbon avoided, by using its products. By combining an assessment of carbon handprints with research of business fundamentals, we believe investors can create a portfolio of companies with superior long-term return potential that are providing solutions to the world’s biggest climate challenges.

Investors are strengthening their commitment to help combat climate change. But as inflows to climate-focused funds accelerate, more questions are being asked about the investing approaches of these portfolios.

What type of companies are held in climate-focused portfolios? Can you fully assess a company’s impact on the environment by looking at its carbon emissions metrics alone? And how does a climate-focused fund contribute to global efforts to accelerate decarbonization?

Investors often seek simple metrics to determine which companies are “good actors” in the fight against climate change. The most common metric for evaluating a company’s environmental impact is the carbon footprint—total greenhouse gas (GHG) emissions generated by business activities. But a carbon footprint doesn’t tell the whole story of a company’s impact, and can also be misleading. There are many other ways for companies to promote a transition to a low-carbon world that simply won’t register in carbon footprint data. And there are many ways for companies to lower a carbon footprint that don’t help in tackling climate change.

So how can investors gain confidence that an equity portfolio is invested in companies that are really helping to address climate risk? Instead of focusing exclusively on a company’s carbon footprint, we believe investors should look at a company’s carbon handprint. In contrast to a carbon footprint, which measures the negative impact of a company’s operations on the environment, a carbon handprint measures the positive impact, or carbon avoided, by using a company’s products. These products represent the positive solutions to global climate challenges created by a company. From clean energy to recycling, transportation to energy efficiency, diverse companies with a big carbon handprint are making major contributions to solving the world’s climate crisis.

Applying the Carbon Handprint Principle

There are different ways to quantify a carbon handprint for each solution group. But across solutions—among them agriculture, clean energy, transportation and energy efficiency—the unifying principal that anchors our analysis is how much carbon is avoided.

This metric becomes the lens for identifying and evaluating a carbon handprint. For example, clean energy companies will be judged on the amount of zero-carbon energy generated, while resource efficiency companies are ranked on their ability to save energy for other companies and entities.

In this paper, we present case studies that show how to apply a carbon handprint analysis. Consider Schneider Electric, a French multinational company that provides energy management systems to help buildings, data centers and industrial facilities reduce their emissions. These technologies helped companies avoid 45 million metric tons of CO2 emissions in 2020—85 times more than Schneider’s emissions during the same year (Display). Vestas Wind Systems, a Danish manufacturer of wind turbines, generated 73,000 metric tons of CO2 through its manufacturing processes in 2020, but will enable its customers to reduce carbon emissions by 45 times more than that annually over the next 20 years.

Disclosure of carbon avoided is not an industry standard. As a result, investors can’t rely on company reports or third-party rating agencies to understand how much carbon is avoided through climate solutions. By actively engaging with management and conducting independent research, we believe investors can obtain the information needed to measure a company’s carbon handprint accurately and convincingly. Establishing a clear carbon handprint metric allows investors to assess how a company is contributing to the fight against climate change, and how its contribution is evolving over time.

Past performance, historical and current analyses, and expectations do not guarantee future results.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.

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About the Authors

David Wheeler, CFA
David Wheeler is a Portfolio Manager for the Sustainable Climate Solutions Portfolio and Senior Research Analyst for the Sustainable Thematic Equities Portfolios, covering the energy, industrials and materials sectors for the portfolio team. Prior to joining the firm in 2008, he was a managing director, analyst and portfolio manager at Neuberger Berman. Before that, Wheeler worked at J.P. Morgan as a research analyst for the energy sector. He holds a BA in economics from Middlebury College, and is a CFA charterholder. Location: New York

AllianceBernstein

AllianceBernstein

AllianceBernstein (AB) is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals, and private wealth clients in major world markets. We believe corporate responsibility, responsible investing and stewardship are intertwined. To be effective stewards of our clients’ assets, we strive to invest responsibly—assessing, engaging on and integrating material issues, including environmental, social and governance (ESG), and climate change considerations in most of our actively managed strategies. We also believe that strive to hold ourselves as a firm to similar practices that we ask of issues. Our stewardship practices, investment strategy and decision-making are guided by our purpose, mission and values.

Our purpose—pursue insight that unlocks opportunity—inspires our firm to act responsibly. While opportunity means something different to each of our stakeholders; it always means considering the unique goals of each stakeholder. AB’s mission is to help our clients define and achieve their investment goals, explicitly stating what we do to unlock opportunity for our clients. We became a signatory to the Principles for Responsible Investment (PRI) in 2011. This began our journey to formalize our commitment to identify responsible ways to unlock opportunities for our clients through integrating material ESG factors throughout most of our actively managed equity and fixed-income client accounts, funds and strategies. AB also engages issuers where it believes the engagement is in the best financial interest of its clients.

Because we are an active manager, our differentiated insights drive our ability to deliver alpha and design innovative investment solutions. ESG and climate issues are important elements in forming insights and in presenting potential risks and opportunities that can have an effect on the performance of the companies and issuers that we invest in and the portfolios that we build.

Our values provide a framework for the behaviors and actions that deliver on our purpose and mission. Values align our actions. Each value emerges from the firm’s collective character—yet is also aspirational.

• Invest in One Another means that we have a strong organizational culture where diversity is celebrated and mentorship is critical to our success. When we invest in one another, we empower our employees to reach their potential, so that they can help our clients realize theirs. This enables us to partner with clients to design and deliver improved investment outcomes.
• Strive for Distinctive Knowledge means that we collaboratively identify creative solutions to clients’ economic, ESG and climate- related investment challenges through our expertise in a wide range of investment disciplines, close collaboration among our investment experts and creative solutions.
• Speak with Courage and Conviction informs how we engage our AB colleagues and issuers. We seek to learn from other parts of our business to strengthen our own views. And we engage issuers for insight and action by sharing ideas and best practices.
• Act with Integrity—Always is the bedrock of our relationships and has specific meaning for our business. Unlike many other asset managers, we’re singularly focused on providing asset management and research to our clients. We don’t engage in activities that could be distracting, or create conflicts—such as investment banking, insurance writing, commercial banking or proprietary trading for our own account. We are unconflicted and fully accountable.

As of September 30, 2023, AB had $669B in assets under management, $458B of which were ESG-integrated. Additional information about AB may be found on our website, www.alliancebernstein.com.

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