Concept of avoided emissions gains ground in Asia-Pacific

By Michael Hurley

Corporates and financial institutions in the Asia-Pacific region are increasingly calculating the ‘avoided emissions’ associated with their products and services, a webinar hosted by Environmental Finance heard.

Japan’s Government Pension Investment Fund (GPIF) – the world’s largest pension fund, with an estimated $1.5 trillion in assets – recently commissioned ICE to assess the avoided emissions associated with its investments in specific sectors, according to Nicolas Stable, the company’s director of sustainable finance data in the APAC region.

“We've seen growing interest from clients globally in the concept and, in particular, an increase in interest here in APAC,” he said.

So-called ‘avoided emissions’ – which some refer to as ‘Scope 4’ – cover emissions avoided when a product is used as a substitute for other goods or services, fulfilling the same functions but with a lower carbon intensity.

Avoided emissions are potentially a key consideration for banks and other financial institutions. Yuki Yasui, Asia-Pacific regional director of the Glasgow Financial Alliance for Net-Zero (GFANZ), told the webinar that they can help financial institutions form a better understanding of part of their ‘financed or facilitated emissions’ associated with the investments or other services they provide.

Financed emissions are estimated to represent as much as 700 times more than financial institutions’ Scope 1 or 2 emissions, she said.

Financial institution signatories to GFANZ initiatives such as the Net Zero Banking Alliance set a target to reduce their financed or facilitated emissions to net zero by 2050, she noted.

GFANZ is developing work to include additional, forward-looking measures to express potential reductions in financed emissions, which would encompass elements of avoided emissions, Yasui said.

“Financial institutions are encouraged to support the transition of high emitting companies to go green or reach net zero,” she said. “In Asia we have a lot of high emitting assets like coal power plants that are very young, and we want to make sure that they are retired in an accelerated manner to reach the 1.5°C goal.

“On those kinds of things, [current measures of] financed emissions are not great indicators because if you finance a high emitting company today, you cannot really tell the difference between whether you are just supporting that business as usual or supporting their transition.”

Yasui cited the example of an institution providing financing to nickel mining: although a conventional measure might flag high Scope 1 and 2 GHG emissions associated with this, the inclusion of more forward-looking measures could enable investors to say that, “by supporting mining [materials needed for electric vehicles] you are supporting EV companies who will be supporting someone else's Scope 1, 2 and 3 emissions reductions”.

GFANZ published a report, Scaling transition finance and real economy decarbonisation, in which it explored the notion of ‘emissions reduction potential, she noted.

However, ICE’s Stable noted that the calculation of avoided emissions can raise challenges, including corporates potentially overstating their impact, adding that “you want to avoid any type of greenwashing”.

“Some companies may be reporting avoided emissions, but they are actually more like operational efficiency gains,” he suggested.

It comes as an initiative seeks to devise a standard for reporting avoided emissions.

Yasui and Stable spoke on a webinar, ‘Climate risks and opportunities in APAC and tools to identify them’, alongside Olivier Menard atNatixis CIB and Sheng Ou Yong atBNP Paribas Asset Management. A recording will be available here shortly after broadcast.