What Are Scope 4 GHG Emissions?
Institutional investors are making pledges to reduce the emissions in their portfolio of investments. Most often the goals are tied to their scope 1 and 2 emissions (those controlled by a company they invest in). Occasionally, scope 3 emissions are also included in their goals (indirect emissions from a company’s value chain).
While it is not common today, this podcast explains why scope 4 (also called avoided emissions) should be considered in green investment goals. Scope 4 emissions consider the big-picture impact by capturing the emission benefits when a company’s products are used.
For example, take an energy-intensive insulation manufacturer that has relatively high scope 1 and 2 emissions. These high emissions could cause investors with strict requirements around reducing scope 1 and 2 emissions to not invest. However, when insulation is used in buildings, the emissions reductions are large. These long-term emissions reductions from using the insulation are scope 4 or avoided emissions. This example demonstrates how, by considering the scope 4 emissions, investors can see the big picture of their investment’s climate impact.
This week our guests tell us more about the state of emissions reporting, including scope 4 emissions. We are pleased to welcome Erica Coulombe, Vice President at Millani, and Marcus Rocque, Senior Research Analyst at ARC Energy Research Institute to the podcast.
Content referenced in this podcast:
- Report that outlines the GHG emission reduction goals of various Canadian pension funds “Building Climate Resilience In Canada’s Pension Funds” by Smart Prosperity Institute
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Episode 193 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Well, welcome back. So Jackie, do you ever have those mornings that you just wake up jarred with the alarm clock and you just go, “Oh my God, I just didn’t get enough sleep.”
Jackie Forrest:
Well, normally I’m up before my alarm clock, but I still feel like I didn’t have enough sleep.
Peter Tertzakian:
It’s just one of those mornings for me. I got to be honest, I just felt like cashing in my pension and just rolling over and going back to bed.
Jackie Forrest:
Yeah.
Peter Tertzakian:
Well, we’re going to talk pensions, aren’t we?
Jackie Forrest:
We are. We want to talk about pension funds and some pensions. They have their stakeholders as pensioners in many cases who want them to reduce their emissions. And so especially in Canada, we’ve got a whole bunch of pension funds that have decided that they’re going to use their capital to reduce emissions. And they’ve made pledges for how they’re going to reduce their emissions, how they’re going to measure them, and that’s a really big thing that’s going on right now in the pension world.
Peter Tertzakian:
So pensions themselves, the employees are not the emitters, but it’s the companies, the stocks, and bonds of companies that pension plans own that some of them have emissions, and many of them do. And that the objective of the pension plans is to have a portfolio where the companies are reducing their emissions.
Jackie Forrest:
Exactly. And so they’re saying for all over, they call it financed emissions, but the emissions that are their equity share of all the companies they own, how are they going to be reduced over time? And they’re making goals like net-zero 2050 and goals that are closed as well.
Peter Tertzakian:
So the pension plans only want to invest in companies that make pledges to net zero by 2050 or are demonstrating leadership and reducing emissions and other environmental social governance ESG.
Jackie Forrest:
Yeah, I mean in some cases they’re doing that. In some cases, they’re still sugaring out how they’re going to measure it to do that. In some cases, they’re saying, “We’re going to divert part of our portfolio to really green solutions as a way to help with climate.” But there are some problems with this. It could be that to reduce the emissions in your portfolio, you could just divest high-emitting things and buy low-emitting things like banks and IT companies, but you maybe haven’t contributed to reducing emissions. Do you remember when John Graham came on our podcast last month?
Peter Tertzakian:
CEO of the Canada Pension Plan Investment Board,
Jackie Forrest:
Yeah. And he made an insightful quote, which we did put out on social media. We do not focus on reducing financed emissions, we focus on financing emission reductions. Because you could reduce your financed emissions pretty quickly, just devest all your high-emitting companies. Yeah.
Peter Tertzakian:
Yeah. That’s still the easiest way to quote decarbonize your portfolio of companies is just to say, “Okay, I’m going to sell my oil and gas companies. I’m going to sell my fertilizer companies and high emitting steel companies, aviation, and so on.” And pretty soon all you have, as you say, is a bunch of companies that are service-oriented and you’ve decarbonized, but you haven’t optimized necessarily your returns for your pensioners.
Jackie Forrest:
No. Nor have you changed anything because you just sold those assets. They still exist, they’re still emitting CO2. You just don’t own them.
Peter Tertzakian:
So I mean, this is becoming quite a contentious topic in the United States, especially in states like Florida and Texas where there’s a backlash in terms of the oversight of ESG. We’re going to talk about Canada, dominantly correct?
Jackie Forrest:
Yes. Yep.
Peter Tertzakian:
Yeah. And so we’re delighted to have a special guest who is an expert in this subject from Montreal. We are delighted to have Erica Coulombe, who is vice president at Millani, which is an ESG advisory firm for investors. So bonjour and welcome.
Erica Coulombe:
Bonjour. Thank you so much for having me. I’m thrilled to be here with you guys.
Jackie Forrest:
We also have here from Calgary, our own Marcus Rocque, who’s the senior research analyst at ARC Energy Research Institute, one of our own. So welcome Marcus.
Marcus Rocque:
Yeah. Thanks, Jackie. Happy to be on the podcast. I have to listen as part of my job, but I’m a fan as well, so it’s great to be on.
Jackie Forrest:
Yeah, and Marcus helps us out a lot, even has to do some checking on the podcast. So this time he’s on it. So this is exciting. And the reason we invited Marcus is Erica and he both worked together on a project around a new thing, which is called Scope 4 Emissions. And we’re going to get into what that is.
Peter Tertzakian:
Three trees weren’t enough.
Jackie Forrest:
No, no. We need four. A warning to our listeners. This is a pretty technical topic and it may not be for everyone. We’re going to try to make it high-level and easy to understand, but we think it’s an important topic and that’s why we wanted to talk about it.
Peter Tertzakian:
Well, it is because achieving decarbonization merely by divesting emitting companies doesn’t green the economy, and that certainly is an issue. So this whole area of scope 4 is related to providing incentives for pension plans and other financial institutions to invest on the green side of the ledger, which is also not necessarily happening as fast as people would like.
Jackie Forrest:
And it helps them understand what their impact is on the green and clean side. It may not be the way we normally measure it, but there is an impact on the climate, for investing in some of these companies that you don’t see by looking narrowly at just the scope 1 or 2 emissions, which we’ll get into.
Peter Tertzakian:
So Scope 1, 2, 3, I mean, right off the bat, we’re into the jargon, and we want to demystify the jargon. We’ve done that in previous podcasts when we’ve had people who are familiar with carbon emissions and carbon trading and so on. But I think it’s worth a review, and our own Marcus here is going to tell us what Scope 1 and Scope 2, and 3 are before we even get to 4.
Marcus Rocque:
Sure, sure. Yeah. So Scope 1, 2, 3, a few corporate emissions reporting 101. Scope 1 is the most narrowly defined emissions. So those are the emissions that your company produces in its own owned assets. So using the example of an oil and gas producer, if you just draw a bubble over their producing site, it’s all of the emissions that come out as they burn fuel, as they flare gas, and as they release methane. Scope 2 is a little broader. It’s the emissions that come from the electricity that you’re consuming. Every emission that was generated in producing that electricity.
So if a coal plant or gas plant had to fire to produce that electricity, those fall in your Scope 2. And then scope 3 is the broadest category. It’s everything else in your value chain. So there are 15 different categories. I won’t go through them all, but it includes the emissions generated in the production of the upstream materials that you’re purchasing, in transporting your products. And for oil and gas companies in particular, the big one is from when your products are being used. So when the ultimate hydrocarbon, the gasoline inner diesel gets consumed in an engine-
Peter Tertzakian:
And combusted, yeah, and the emissions, which is where the bulk of the emissions are. So Scope 3 is overwhelmingly for oil and gas, the largest fraction.
Marcus Rocque:
Yeah, it’s about 80, 90 percent for oil and gas, and even for most other industries, it ends up being one of the biggest categories.
Peter Tertzakian:
Right. Okay. So that’s scope 1, 2, 3, emissions. Let’s talk 4. What’s 4?
Marcus Rocque:
So Scope 4 is looking at how your scope 1, 2, and 3 emissions compare against the actual alternatives in the market. So it’s what product are you displacing? And if you are displacing a higher emissions product, all of those emissions savings are your Scope 4 emissions. So take the example of a solar farm for instance. There are scope 3 emissions as you’re purchasing your panels, and there are scope 1 emissions as you’re putting up your facility and you’re operating it. But the scope 1 through 3 are fairly small. Scope 4 would be now that you are producing that power, some natural gas-fired power plant doesn’t have to fire. So that’s going to turn down. It’s going to avoid emissions. And those fall in your Scope 4.
Jackie Forrest:
All right. Well, we are going to have a whole section on scope 4 in a bit, but I think we should spend a little bit more time on scopes 1, 2, and 3. Because 1 and 2 I think are pretty well established. It’s either your emissions within your gate, as you said, Marcus, or it’s the products that you might be importing where there were emissions that were used to get them to you, whether it be electricity or natural gas. But let’s talk a little bit, maybe Erica, a question for you.
Scope 3, I think that’s one that maybe isn’t as well established. Or if I looked at a lot of public companies, would I see scope 3 emissions reported and there’s some controversy? Some people think that this isn’t a valid metric because they say, “Well, a lot of people would double count these scope three.” So one company may have to say these are their Scope 3 emissions, let’s use that oil and gas example. The scope 3 emissions from burning the oil and gas that’s for the oil and gas company if a consumer burns the emissions, but then for the consumer, that’s their scope 1 emission. So the argument is, well, they’re being double or triple counted here so they’re less valid.
Erica Coulombe:
Yeah, I say it’s true that it has a little bit of a stigma around it. It’s more difficult to count because there’s a lot of uncertainty because there are so many players involved with Scope 3, it’s upstream, it’s downstream to your operations. So it’s just so much wider. So it’s difficult to grapple with it. And you rely a lot on the data of others to be able to know what is your own scope 3. And there is indeed some double counting because on one side, your procurement parties that are involved in your supply chain, have Scope 1 and Scope 2 emissions and these fall into your Scope 3 emissions. So it’s saying that there will be multiple parties targeting the same emissions that we’re trying to reduce, but others would also say that it’s a good thing that these are being double counted because the solution doesn’t just come from one player in the sense that if we’re all just focusing on our own scope 1 and 2 emissions, we may be missing out on where a lot of other emissions are happening.
So if we take the example of oil and gas, and let’s add to this a car manufacturer, at the end of the day, the gas being burned in the car that’s being used by a driver falls into the Scope 3 of both of these organizations. But if both of these just focus on their Scope 1s, we would never actually address the emissions coming out of the car doing its usage period. So the fact that there’s a bit of crossing, I think helps to avoid these blind spots within where emissions happening.
Peter Tertzakian:
So 10 years ago, roughly, we were mostly just talking about Scope 1 and even the measurement of Scope 1 was fairly inaccurate, then we started talking about Scope 2 and now it’s onto 3. Let’s just go back and say, have we even reconciled accurate measurements of 1, let alone 2, 3, and all the rest of it?
Erica Coulombe:
It’s a great question. And I was thinking about that a little bit. I think that maybe 20 years ago when this whole climate conversation started, the thought was that it would be impossible to find a metric to even have a comparable understanding of how each organization is addressing climate change. And then we came up with the measurement of Scope 1, 2, and 3, this carbon equivalent indicator. Now it’s been a few years, and I think we’re getting better at measuring our scope 1, getting more specific, more precise, and I would say every day we’re seeing new technologies coming out in the market that are allowing us to get even more specific on these measurements and having accurate data.
The same goals for Scope 2, I would say, because now it’s about the energy that we’re consuming so we’re getting better at measuring and understanding, and scope 3 where it’s a little vaguer, but we’re seeing more and more organizations doing it. In our most recent study where we assess the ESG disclosure of the TSX, companies listed on TSX in Canada, we had almost up to 40% of organizations disclosing on Scope 3. So although it’s challenging, people are trying to address that. And I think it’s by trying and getting more comfortable with the data that we will get more accurate and identify where the blind spots are again so that we can get more accurate data.
Jackie Forrest:
Now, when it comes to scope 3, I understand that the regulators in the United States are planning to require this. What’s the status of this impossible timing, and do you think Canadian public companies, I mean many of them are listed in the US so imagine they’re going to have to do that? How are people viewing this? I mean, there are some people I think that are viewing it quite negatively, especially in the case of oil and gas, where you have a very high scope 3 number potentially.
Erica Coulombe:
Yeah. So I would say that right now the US has suggested making Scope 3 part of reporting requirements, Given the current situation we’re not sure if this is going to stick through what is going to be proposed and what’s going to be passed. That being said, here’s what’s happening in the US but there’s also what’s happening globally. So there are these international sustainability standards boards known as the ISSB that are putting out disclosure requirements with everything related to ESG, and these are going to be mandatory disclosure requirements for public companies. And they have said that Scope 1 and 2 will be mandatory, and they’re planning to include scope 3. We should find out; these final standards should be coming out within the next few months. And what we’re hearing is that Canada and the US all want to align to that. So, this is probably going to be the trickle effect of once they’ve published their disclosure standards, everybody’s going to align. And it’s what we’re hearing in Canada too, is that regulators want to align to the global standards so that it’s just simpler.
Jackie Forrest:
So Marcus, let’s just talk about the Canadian pension funds. What are some of the goals that they have made? I know they’re in progress, but what are some of the examples of what they’re working on?
Marcus Rocque:
Sure. Yeah, as you said, they are in progress, but there is a lot that’s out there already. And the Smart Prosperity Institute put out a pretty good document on this outlining the goals. So we’ll put that in the show notes. But at a high level, there’s a difference between short-term and long-term goals. In the long term. Of the seven pension funds that they talk about, which are the biggest in Canada, six of them have a net-zero goal in the long term.
And on those long-term goals, are some of them looking at least from Scope 1 through 3, and some are limited to 2, but as you start getting more in the short-term goals, the short-term focus is really on the scope 1 and 2 goals. But some of them are pretty ambitious. If you look at the public sector pension fund or PSP investments as they’re called, has a 20 to 25% reduction goal by 2026. And as you start getting out, some of them have 2030 goals. But suffice it to say that there are some quite ambitious goals out there that are driving a lot of their decision-making internally.
Jackie Forrest:
Well, let’s come back to the quote we started with from John Graham from Canadian Pension Plan CPP, his quote on the podcast, we do not focus on reducing financed emissions, we focus on financing emission reductions. What are your thoughts on that quote considering it looks like most of these are focused on big reductions in scope 1 and 2, which could imply that you divest of some of those higher emitting companies, and you don’t necessarily cause their emissions to go down, you just sell them to someone else.
Marcus Rocque:
Yeah, I think that that certainly is a risk, particularly with the targets that are focused more on scopes 1 and 2 as it drives that decision-making where you just get out of the high carbon industries, and you’re not focused on the impact that your investments have. A lot of the pension funds do have another bucket called green and transition investment targets, which does address that point where they’re trying to allocate certain amounts of capital to these different areas. CPP, so the Canada Pension plan, in which all Canadians are invested, has a goal to increase investment in green and transition assets from 67 billion currently to at least 130 billion by 2030. So, there are institutions that are taking that approach.
Jackie Forrest:
All right, well let’s come to the Scope 4 emissions. Because another way to look at it is to say, “Yeah, we’re going to be continuing to improve on our scope 1 and 2, and we’re going to continue to hold these companies and ask them to reduce their emissions, but we also want to contribute positively to climate change, and we may want to invest in some green areas.” And we introduced Scope 4, Marcus did a great job of describing that so people can understand the concept more. Maybe a question for you, Erica. Would scope 4 emissions for a company like Tesla be all the gasoline that they’ve displaced? So, for every electric car on the road that they’ve ever manufactured, all the gasoline that would’ve been consumed if those had been combustion engine vehicles, is that what Scope 4 emissions would be?
Erica Coulombe:
Yeah, I think in a more tangible way of thinking of it, yeah, that’s how I would picture it. And I would invite Marcus also to comment on this, but I think it’s the easiest way to grapple with the concept.
Marcus Rocque:
Yeah. And I think that is mostly right. I mean, the way that I would think about it is that you also have to take into account the emissions that Tesla’s putting out into the world. So, they do have their value chain emissions. Some batteries go into the cars that are quite energy intense. They still have to manufacture the vehicle. But the gasoline that they’re displacing net of the emissions they’re adding would be their scope 4.
Jackie Forrest:
Okay. Would it be fair to say, you said they were net? Would it be fair to say that Tesla is a negative emissions company, yes, they produce emissions to make all these batteries, but those cars are also resulting in a lot fewer emissions going into the atmosphere from transportation. So, could they say that they’re negative emissions?
Marcus Rocque:
I think it would be fair to say that they are impactful in climate. I would be cautioning against using the language of net zero. That has connotations out there in terms of what people think of when net zero is said, and generally, it’s conceived of as your net zero on your scope 1, 2, and 3 bases. So, there are no emissions in your value chain. If you have a lot of avoided emissions, it’s a great news story and it helps determine where you fit maybe within the energy transition. But calling yourself a net-zero company is challenging. And we’ve seen people get in trouble with this in the past and have accusations of greenwashing.
Peter Tertzakian:
Yeah. Yeah. And if you think about Scope 3 on Tesla, there certainly is a constituent out there that would argue the upstream emissions of mining and so on is pretty substantial.
Marcus Rocque:
And that’s certainly true. And they are quite far from being a net-zero company currently on that scope 1 through 3 bases.
Peter Tertzakian:
Getting back to Scope 4, and using this example, Erica, is this a way for financial institutions to be able to justify keeping aviation stocks because they can say, “Well, I’ve got a portfolio of a few airline companies, I need them in my portfolio because I need exposure to travel and I’ve got the scope 4 to offset it, so it’s not coming down 45% in aviation, but I’ve got all these credits from my Scope 4 investing in a solar panel company, so therefore in aggregate I can carry on.” Is that partly what this is about?
Erica Coulombe:
I would say yes and no. So, in this sense that I think what’s important to keep in mind with Scope 4 is that it’s comparable, it’s not an absolute data point, unlike Scope 1, 2, and 3. And so, depending on what your baseline reference is to calculate this delta of emissions, it will influence the result of the Scope 4 calculations. So, I think that’s important to keep in mind in having this conversation, and therefore that’s why it can’t be seen as an offset or a credit opportunity because it’s an intangible value in a way. And so, I think for portfolios that are looking to have this diversity of exposure and demonstrate that their investments may still contribute to climate change, it’s more complimentary. So yes, you are exposed to more emitting sectors, but at the same time, you’re encouraging them to invest in different technologies that can therefore demonstrate reductions as a way of demonstrating these reductions you can speak to Scope 4 and in parallel or as a complement of you can be invested in other sectors that are displacing these different emissions as well.
Peter Tertzakian:
So, in summary, you’re arguing that the dominant driver of this whole scope 4 accounting is to encourage financial institutions like pension plans to invest in more, we’ll call them green-oriented tech companies.
Erica Coulombe:
I think it’s to make an informed decision on whether different technologies and different organizations are having the impact that they’re claiming around emissions and using that as a way to demonstrate it. Yeah, it’s the offset the argument of, I’m going to divest from emitting sectors, I’m just going to invest in sectors that are low emitting like tech, and I’m going to call it a day. That’s going to be my transition plan. Well, the reality is that is not it. There was a great article a couple of weeks ago, I think in the Goldman mail that was about, it was pushback on ESG indexes saying that in reality some of them were more like tech indices, but the charge of their premium because of the word ESG. And I think that highlights nicely the issue that we’re having now with some of these approaches to reducing your financed emissions is that by just being invested in that one sector that’s lower emitting, you’re not contributing to emission reduction and climate change. So, this is where scope 4 comes in nicely.
Jackie Forrest:
Well, and Marcus, maybe a great example would be if we looked at an insulation company, why Scope 4 might be important in that case.
Marcus Rocque:
Sure. Yeah, no, I like that example because I think it lays out a few of the problems by just looking at scopes 1 and 2. But yeah, so if you look at an insulation manufacturer, the actual process of producing insulation is quite an energy intense, you know, have to melt the glass. There’s spinning of the fiberglass insulation. It has pretty high scope 1 and 2 emissions and maybe even higher than an oil and gas company if you’re normalizing it on a revenue basis.
But the entire purpose of producing this insulation is to go into a consumer’s house to prevent heat from leaking out or heat from coming in the summer and to ultimately reduce the energy consumption and the emissions that are generated as you’re trying to climate control a house or a commercial building. And those emissions savings far outstrip what is generated in the life cycle of producing this insulation. But if you were just to look at your scope 1 and 2 emissions, you wouldn’t capture any of that. You might say, “Oh, this investment screens poorly. I’ll sell that and I’ll buy Facebook.” But that’s not driving any sort of transition to a lower carbon economy.
Jackie Forrest:
So, it just highlights some of those companies that may have high scopes 1 and 2 but are still contributing in a big way to helping the climate problem.
Peter Tertzakian:
So, I think that’s a great example. The question I have is, okay, let’s take this insulation company and it produces all this insulation that has an R-value. So, who is doing the calculations to compute the heat that is kept in a home? Do you know what I’m saying? That’s a complex calculation. Is that what you do Erica or who does this? And how do we get a standard for these sorts of things? I mean, these are complex physics-type things that have to, I guess, ultimately come into an accounting firm.
Marcus Rocque:
Yeah, for sure. Well, maybe I can touch on it, and then Erica, if you want to elaborate because this is the crux of what we’ve been working on because it is a challenging problem, as you say. And there are standards out there that are developing that point to the principles that you should bring to bear when you’re thinking about these. But there isn’t the same way that there are in Scopes 1 and 2 where there’s a factor that you multiply by. It’s not quite that simple. So, you do have to dig down and find out what you think the appropriate business-as-usual case is. What would’ve happened if you hadn’t produced that insulation? And it is to a certain extent, a bit more of an art than a science. There’s a lot of uncertainty in these calculations, but completely ignoring that wedge of emissions isn’t a solution either.
Erica Coulombe:
Yeah. And I would say with time, we got more sophisticated with our different calculations with Scope 1, 2, and 3. So I think the same is going to happen with Scope 4. I wouldn’t be too concerned about that. And who knows, maybe as we get a better understanding of Scope 4, because it seems to be such a case-by-case calculation, maybe we’re going to have methodologies that will be sector-specific over time so that these different calculations are less arbitrary and more standardized in that way. I’m purely speculating here, but you know.
Peter Tertzakian:
And help us out with, okay, so we calculate the scope 4 value, I’ll call it. This goes into the reporting of the publicly traded insulation company that then the pension plan can read through the disclosure and say, “Oh, okay, so I got a scope 4 here.” And then adds it to or subtracts it from their portfolio of scope calculations. Is that how it works?
Marcus Rocque:
So, we have done a lot of work on this already because we at ARC are investing in energy transition opportunities, and we wanted to understand better what the avoided emissions could be across different types of energy transition companies. So, we stepped back and we did a lot of this work with Millani to understand what the avoided emissions case is for each of these energy transition areas. And then ultimately when it comes to reporting, you’re placing these avoided emissions alongside your scope 1, 2, and 3 calculations.
So, you can see, okay, this is an insulation manufacturer, I see it as high 1 and 2 emissions. Okay, it’s got some scope 3, but here’s what scope 4 looks like. Okay, I can get my head around that this is a transition asset, I can get comfortable with the fact that it has higher scope 1 and 2 emissions. Now, maybe that’ll decarbonize over time, but it fits in a transition portfolio. What we can’t do though is add or subtract. In general, you’re showing both of them alongside each other to give the full picture, but it can’t be used to subtract and give a sort of net-zero implication to get to net zero by 2050. Those scope 1 and 2 and 3 emissions have to come down.
Jackie Forrest:
All right. Well, I think I’ve learned a lot about Scope 4. I mean; to be fair, I’ve learned a lot because of Marcus and Erica’s work over the last many months on this. But I did want to say there have been cases where people have been accused of greenwashing using this information. A very high profile one was, I think Mark Kearney got himself into some trouble by saying that these avoided emissions or scope 4 emissions were offsetting his other emissions. Can you just explain that and maybe caution how people use these numbers?
Marcus Rocque:
So, this was Mark Kearney and his role at Brookfield at a conference commented that Brookfield was a net-zero asset manager because they did have some coal and oil investments, but they had a large renewables portfolio that had a big swath of avoided emissions that they could call themselves net-zero. He subsequently had to walk that back because as we’ve talked about, that doesn’t fit what people are describing as net-zero. So, as we’re doing this work, we’re certainly very careful not to say that it makes you a net-zero company or investor, it’s more about understanding where your investment portfolio fits in the energy transition.
Peter Tertzakian:
Well, we’re going to wrap up here in a few minutes. I’m getting close to that. It’s been a great conversation. But Erica, maybe you can tell us about Millani and its annual survey of investors on ESG.
Erica Coulombe:
Yeah, absolutely. So, we started doing this semi-annual ESG sentiment study of institutional investors back in April 2020, so during COVID, and at the time, the goal was to understand if COVID is affecting the ESG movement. And we’ve been doing these studies now for the past three years, and it’s been interesting to observe how these trends have been fluctuating. One of the key questions that we kept asking is, has the approach towards ESG changed for these investors? And it’s been really interesting to see that through all the different market turbulence that we’ve been having over the past three years, the answer has always been no.
And so, I think this speaks to the fact that ESG has been a long-term approach. And coming back to some of the comments we’ve had before between divestment or engagement, most of our investors are taking this position of engaging. And so, whether the energy sector is fluctuating, the fact is that investors are behind them, and they want to support them in this transition because the grander scheme of it is to contribute the climate change. And this is why I think, again, it fits nicely with the idea is to understand the contribution of, and I think that’s where Scope 4 plays an interesting added value here.
Peter Tertzakian:
Well, if I may rack pop on a few things here, I mean guess my view of this Scope 4 conversation is that there’s no question we know behind the scenes in the financial industry, this is a trend. I get it. I understand the motivations in terms of trying to get the capital to flow and figure out this new carbon economy as we go forward. I must say that I am very concerned about the complexity of all this. Scope 3 wasn’t enough. We’ve got to go to scope 4, take your insulation example. Okay, what if the insulation company puts solar panels on the roof? Is that scope 5? But anyway, I guess that’s the conversation topic for next time. And in the meantime, thank you very much. Erica Coulombe from Montreal at Millani, really great to have you with us, and keep up the good work, especially with our own Marcus Rocque from ARC Financial. Thanks so much for all the work and the thought leadership that you’ve been doing with us. So, with that, Jackie, I think it’s time to say goodbye.
Jackie Forrest:
Yeah, and thanks to our listeners, if you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
For more ideas and insights, visit arcenergyinstitute.com.
