The carbon footprint or carbon intensity and the underlying CO2 emissions are a key figure for sustainable investors, in particular for institutional investors. Family offices and asset managers must present clear, data-based values to their clients in order to show why certain companies are more sustainable than others and how this sustainability relates to turnover. Investors are increasingly interested not only in returns but also in the environmental impact of their investments. A key aspect of this is the CO2 footprint of companies and entire portfolios.
In this article, we look at how the carbon footprint can be integrated into portfolio analysis using the Bavest API and why this is of great importance for sustainable investments.
The carbon footprint comprises total greenhouse gas emissions that are directly or indirectly linked to the production and consumption of goods and services. These emissions are a major contributor to climate change, and companies are under increasing pressure to reduce their carbon footprint. For investors, this means they should prefer companies that not only offer financial stability but also pursue environmentally friendly practices. Companies and portfolios with a high carbon footprint could face stricter regulations, higher costs and reputational damage in the future, which could affect their financial performance.
1. Data collection & evaluation
The first step is to obtain reliable data on the carbon footprint of companies. With Scope 2 data, transparency among energy providers is critical, and differences in reporting processes can lead to incorrect assessments. Scope 3 covers the broadest category, which is why cooperation along the entire supply chain is necessary. Today, collecting this data is not automated and only through complex searches.
2. Comparison with industry standards
It is important to compare the carbon footprint of a company and an entire portfolio with that of their industry peers. Some industries, such as energy and heavy industries, naturally have higher emissions than others. The comparison should therefore be industry-specific in order to enable fair and meaningful assessments.
3. Trend analysis
A look at historical emissions data can provide information about how seriously a company takes its climate responsibility. Companies that continuously reduce their carbon footprint signal commitment and willingness to innovate. Such trends can be positive indicators of future environmental performance and overall corporate strategy.
4. Taking climate goals & strategies into account
Companies that set clear and ambitious climate goals and publish detailed strategies to reduce their carbon footprint show proactive management. Investors should check whether these goals are in line with international standards such as the Paris Agreement and whether there are credible plans to implement them. At portfolio level, they should also ensure that the aggregated goals of the invested companies contribute to reducing the overall carbon footprint.
5. Assessment of financial impact
Reducing the carbon footprint can involve significant costs, but it can also result in savings through energy efficiency and access to new markets and funding. Investors should assess the financial impact of emission reduction measures and incorporate them into their decision making. Portfolios that successfully reduce costs and at the same time reduce their carbon footprint could be more competitive in the long term and be exciting for sustainable asset owners or family offices.
Bavest provides an embedded carbon intelligence solution that enables developers to automate the calculation of greenhouse gas emissions based on verified scientific models.
With the Bavest API, you can analyze the carbon footprint for individual stocks (small, mid & large caps) and the entire portfolio. Let's take a look at how it works with the Bavest API. If you would like to test our ESG and would like an API key, write to us at service@bavest.co.
Go to the endpoint in the API documentation”Carbon Footprint” - there you will find the GHG emission data Scope 1, Scope 2, Scope 3, with which you can carry out the carbon footprint evaluation of individual stocks as well as your entire portfolios.
Request to the Bavest API:
1import requests
2
3url = "https://api.bavest.co/v0/esg/carbon_footprint"
4
5payload = { "symbol": "AAPL" }
6headers = {
7 "accept": "application/json",
8 "content-type": "application/json"
9}
10
11response = requests.post(url, json=payload, headers=headers)
12
13print(response.text)
Bavest API response:
1{
2 "name": "Apple Inc.",
3 "symbol": "AAPL",
4 "isin": "US0378331005",
5 "carbon_footprints": [
6 {
7 "scope1": 11343,
8 "scope2": 139164,
9 "unit": "metric_tons",
10 "scope3": 0,
11 "year": 2011,
12 "carbonFootprint": 1.3904
13 },
14 {
15 "scope1": 12566,
16 "scope2": 154273,
17 "unit": "metric_tons",
18 "scope3": 0,
19 "year": 2012,
20 "carbonFootprint": 1.066
21 },
22 {
23 "scope1": 13727,
24 "scope2": 133479,
25 "unit": "metric_tons",
26 "scope3": 0,
27 "year": 2013,
28 "carbonFootprint": 0.8613
29 },
30 {
31 "scope1": 28490,
32 "unit": "metric_tons",
33 "scope2": 63210,
34 "scope3": 0,
35 "year": 2014,
36 "carbonFootprint": 0.5017
37 },
38 {
39 "scope1": 28100,
40 "unit": "metric_tons",
41 "scope2": 42460,
42 "scope3": 0,
43 "year": 2015,
44 "carbonFootprint": 0.3019
45 },
46 {
47 "scope1": 34370,
48 "unit": "metric_tons",
49 "scope2": 41000,
50 "scope3": 304000,
51 "year": 2016,
52 "carbonFootprint": 0.3495
53 },
54 {
55 "scope1": 47050,
56 "unit": "metric_tons",
57 "scope2": 36250,
58 "scope3": 293000,
59 "year": 2017,
60 "carbonFootprint": 0.3634
61 },
62 {
63 "scope1": 54590,
64 "unit": "metric_tons",
65 "scope2": 8730,
66 "scope3": 520000,
67 "year": 2018,
68 "carbonFootprint": 0.2384
69 },
70 {
71 "scope1": 52730,
72 "unit": "metric_tons",
73 "scope2": 0,
74 "scope3": 521000,
75 "year": 2019,
76 "carbonFootprint": 0.2027
77 },
78 {
79 "scope1": 47430,
80 "unit": "metric_tons",
81 "scope2": 0,
82 "scope3": 287000,
83 "year": 2020,
84 "carbonFootprint": 0.1728
85 },
86 {
87 "year": 2021,
88 "carbonFootprint": 0.1585,
89 "scope1": 55200,
90 "scope2": 2780,
91 "scope3": 23130000,
92 "source": "https://www.apple.com/environment/pdf/Apple_Environmental_Progress_Report_2022.pdf",
93 "tags": 0
94 },
95 {
96 "scope1": 55200,
97 "unit": "metric_tons",
98 "scope2": 3000,
99 "scope3": 265800,
100 "year": 2022,
101 "carbonFootprint": 0.1476
102 }
103 ]
104}
Here are, for example, the GHG emissions data from Apple and BASF:
If you now have a portfolio consisting of stocks and bonds, for example, and evaluate all stocks individually, you can determine the entire carbon footprint of the portfolio based on turnover and carbon footprint data:
Based on Outlier data, you can also analyze and evaluate which stocks or bonds in the portfolio may need to be sold and which are more suited to the portfolio strategy and sustainable strategy:
You can also use the Bavest API to monitor carbon footprint not for the existing portfolio, but also when selecting companies:
These are now very simple examples - in the end, a number of diverse quantitative models can be implemented that include financial and sustainability data. With the Bavest API and ESG data, versatile tools, analyses and evaluations can be created, ranging from data pipelines and screener dashboards to detailed reports.
A key issue in environmental, social and governance (ESG) investments is the limited availability of Scope 1, Scope 2 and Scope 3 data for small and mid-cap stocks. Many platforms focus on larger companies that have more comprehensive reporting options, often neglecting smaller companies. Small and medium-sized companies may not have the necessary resources or face the same regulatory pressure to publish detailed emissions data. This information gap can prevent investors from fully incorporating environmental aspects into their decision-making processes, resulting in an incomplete assessment of a portfolio's sustainability. Closing this data gap is critical to increasing transparency and enabling investors to include a wider range of companies in their sustainable investment strategies.
In the era of advanced AI, particularly with large language models and transformer architectures, there is newfound potential to overcome the challenge of collecting Scope 1, Scope 2, and Scope 3 data, even for small and medium-sized businesses. Innovations in data extraction and analysis, powered by AI, can automate the collection of environmental data from various sources and provide a more comprehensive and standardized data set. At Bavest, we illustrate this approach by using AI technologies to compile and present CO2 emissions data, even for companies with limited reporting options. The ability of AI to sift through huge data sets, interpret unstructured information, and recognize patterns makes it a valuable tool for improving the accessibility and reliability of environmental data for investors.
At Bavest, we use the transformer model to extract comprehensive amounts of financial and ESG data from various documents and different file formats. With the transformer model, we are able to analyze and process this data from a variety of sources. You can read exactly what our AI technology at Bavest looks like here: Bavest Blog - Power of Transformers
Capital markets play a crucial role in managing corporate strategies and therefore have a significant indirect impact on the environment. Investment decisions can result in companies receiving incentives to act in a more environmentally friendly way or to continue high-risk environmentally damaging projects.
Management through cash flows
Investors have the power to direct capital flows. By choosing to invest in companies that pursue environmentally friendly practices, investors can provide positive incentives. Companies that benefit from sustainable investors are encouraged to improve their environmental strategies and reduce their carbon footprint. This mechanism is supported by the increasing trend towards ESG (Environmental, Social, and Governance) investments.
Influence on business decisions
Large institutional investors, such as pension funds and insurance companies, often have considerable influence on corporate governance. They can use their voting rights to promote changes in corporate policy. For example, they can push for companies to publish transparent reports on their carbon footprint and take concrete measures to reduce emissions.
Risk and opportunity assessment
Capital markets are increasingly taking environmental factors into account when evaluating risks and opportunities. Companies that cause high environmental burdens are considered to be more risky, which can result in higher capital costs and lower valuations. This creates an economic incentive for companies to reduce their carbon footprint and operate more sustainably.
Fostering innovation and green technology
Investments in green technology and innovative solutions to reduce the carbon footprint are crucial for tackling climate change. Capital markets can make a significant contribution by providing capital to start-ups and companies working on sustainable technologies. This promotes the development and dissemination of technologies that can reduce the global carbon footprint.
Market development and regulations
Capital markets also have an influence on the development of markets and regulations. By promoting sustainability standards and supporting regulations that require transparent reporting and emissions reductions, investors can help create an environment that rewards green business strategies.
Taking the carbon footprint into account in portfolio analyses is an important step towards sustainable investments. By integrating environmental aspects into financial analysis, investors can not only make their portfolios more environmentally friendly, but also achieve stable and sustainable returns over the long term. However, it requires careful research, comparison, and evaluation to make informed decisions. Sustainability and financial performance must go hand in hand to protect and promote both the planet and the investment portfolio.
Our proprietary AI models and data pipelines enable us to collect and aggregate a comprehensive range of data from various sources to provide you with a wide range of climate data. We also offer fund-based ESG and climate reporting solutions for funds using artificial intelligence. Are you interested in how you can benefit from our solutions? Then arrange a demo and talk to us. We're looking forward to talking to you!
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