The Long and the Short of Carbon Accounting

 

The meaning of “net zero” for investors is still evolving, and while there are no universally accepted standards, frameworks are emerging to help guide investors. The Net-Zero Asset Owner’s Alliance,  The Institutional Investors Group on Climate Change (IIGCC) and The Investor Agenda provide frameworks for investors to achieve net-zero portfolios. While those frameworks lack detailed guidance on achieving such objectives, two main elements of a net-zero investment strategy are clear:

  • Decarbonization of portfolios
  • Investment in climate solutions

What is not clear is how short positions should be treated within the construct of these frameworks. Can investors reach net zero goals by shorting high carbon emitters?

This position piece by FFI Advisors CEO Christopher Ito discusses why emissions from shorts should be counted in the portfolio carbon footprint, and how it can benefit decarbonization.