Net Zero Carbon at WHEB
What is Net Zero Carbon (NZC)?
NZC means cutting all greenhouse gas (GHG) emissions to as close to zero as possible, with any remaining emissions reabsorbed from the atmosphere, by oceans and forests for instance.1
Why does it matter?
In order to avoid the worst impacts of climate change and maintain a liveable planet, global temperature increase needs to be limited to 1.5°C above pre-industrial levels. The earth’s atmosphere is already about 1.1°C warmer than it was in the late 1800s, and emissions continue to rise.
How does WHEB’s strategy contribute to NZC?
Five of WHEB’s investment themes are focused on companies that sell products or services that enable other parts of the economy to reduce GHG emissions and/or adapt to inevitable climate change. This includes companies that manufacture renewable energy equipment, components for battery electric vehicles, heat pumps and other technologies that improve energy efficiency and reduce resource use.
WHEB portfolio NZC targets
Portfolio Scope 1 and 2 emission targets and reductions
The Scope 1 and 2 emissions associated with WHEB’s investments (known as financed emissions) can change in two ways. First, investing in and divesting from companies will change the total tonnes of CO2e associated with the strategy. For example, in 2021 we sold China Everbright Environment Group, which dramatically reduced our financed emissions.
The second way is through actual real-world changes in annual emissions from portfolio companies. Our reporting is intended to reveal both of these dynamics, as shown in Figure 1.
In 2022 financed emissions remains well ahead of target. Actual emissions, however, ticked up 4.7% year-on-year.
Figure 2 shows the extent to which portfolio companies have set and published NZC targets and/or absolute emission reduction targets. In 2022, three years earlier than originally expected, we achieved our original target of having more than 50% of portfolio companies committed to NZC by 2050.
Consequently, we have set a new target to have 85% of portfolio emissions covered by a NZC target by 2025 and 100% by 2028.
Portfolio carbon emissions
2020 - 2022
Approximately 60% of WHEB’s investments provide solutions to climate change. At the same time, all the investments in the strategy generate GHG emissions in their day-to-day operations. We work with the management of our investee companies to encourage them to set demanding NZC targets and then to assess these targets and monitor the absolute CO2e reductions across the portfolio on an annual basis.
Many of WHEB’s portfolio companies have announced commitments to achieving NZC emissions. Over 90% of portfolio companies with targets have already had these approved – or are committed to having them approved – by the Science Based Targets initiative (SBTi). We plan to further scrutinize the credibility of these targets in 2023.
Furthermore, the thematic structure of our strategy means that we are entirely absent from parts of the economy such as fossil fuel exploration and production that are most at risk from a transition to a NZC economy.
The data over the past three years across Scopes 1-3 for the FP WHEB Sustainability Fund is reported in the bar charts below.
Scope 12+23 carbon total emissions (tCO2e)
Total amount of carbon that is associated with WHEB’s investments in portfolio companies.
Small increase in financed emissions due to selling lower emitting companies in 2022 and investing in more energy intensive companies. Of companies held over 2021 and 2022 we saw an average increase in scope 1+2 emissions of 4.7%.
Carbon footprint (tCO2e/£1m invested)
Total carbon emissions for a portfolio normalised by the market value of the portfolio.
Slight increase due to increase in scope 1 and 2 financed emissions, and small decrease in assets under management.
Carbon intensity (tCO2e/£1m sales)
Measure of average carbon intensity of investee company operations.
Because sales increased faster than emissions we saw an average decrease in carbon intensity at company level of 4.45 tonnes CO2e.
Weighted average carbon intensity (tCO2e/£1m sales)
Measure of a portfolio’s exposure to carbon-intensive companies by including the portfolio weighting in carbon-intensive companies.
Companies which showed the greatest improvement in carbon intensity were DSM, Silicon Laboratories and ICON.
Scope 33 carbon total emissions (tCO2e/£1m sales)
Measure of the carbon intensity of the whole value chain (incl. product) emissions.
Our investment in Trane Technologies was the main cause of the year on year increase, contributing to 50% of WHEB’s financed scope 3 emissions. The remainder of the increase comes from more companies reporting more categories for scope 3.
1 Net zero carbon is different to carbon neutral for example because carbon neutral can cover a defined part of business operations and typically accounts only for CO2
emissions, but not other greenhouse gases. Net zero on the other hand means that a company reduces all greenhouse gas emissions across its whole supply chain.
2Scope 1 emissions. Covers emissions from sources that an organisation owns or controls directly.
3Scope 2 emissions. Are emissions that a company causes indirectly i.e buying energy.
4Scope 3 emissions. Are emissions that are not produced by the company itself, and not the result of activities from assets owned or controlled by them. Scope 3 emissions include all sources not within the scope 1 and 2 boundaries.