Carbon Handprints: The secret for a climate positive portfolio

Carbon Handprints: The secret for a climate positive portfolio

How you can have a positive impact on the world and how your investments can help

Sabrina Haumann

Apr 12, 2022

·

15

min read

Do you dream of having a positive impact on the world?

In all honesty, most people do. There are a million and one ways to make a positive impact - from a career that helps people to always giving your change to charities. If you put in the effort, you can surely do something beneficial every day.

Obviously, we at Cooler Future want to encourage you to have a positive impact especially on one area: climate change. It’s the biggest crisis our planet is facing right now, and we have the power to make amends to our earth.

You’ve probably heard about the carbon footprint before (and maybe even calculated your own with one of the dozen calculators out there). If you did so, you might be aware that the term carbon footprint has a bit of a negative association lying underneath. This comes from the fact that the carbon footprint refers to the total greenhouse gas emissions caused by e.g. an individual just like you, so basically it shows how much of a negative impact you have on the environment. Quite depressing, right?

Of course, this is still an important thing to know! Without knowing your current carbon footprint, how would you want to change your habits? So for each and everyone of us, it's the ultimate starting point to start a more sustainable lifestyle. Also, having a carbon footprint is perfectly normal as there are no carbon neutral/negative products out there (yet.)

But did you know you can actually go one step further, and instead of having a negative impact on the environment, you can start having a positive one? Let us explain how and what the term carbon handprint has to do with this.

Speed Read:

  1. Carbon footprint is rooted in measuring and avoiding negative actions while carbon handprint focuses on taking positive actions.  A footprint generally evaluates your activities that contribute to global warming, while your handprint evaluates your actions that help mitigate climate change beyond your own value chain.
  2. Carbon mitigation hierarchies have been used for over a century in natural resource management and include concepts that lead to the best outcomes for people and nature. These mitigation methods include to avoid, reduce and remove emissions.
  3. While there are no standardized and regulated metrics to measure a carbon handprint, investors should try to evaluate the way a company affects the environment positively. These companies may provide some powerful solutions to the world’s climate challenges while offering attractive growth potential.

Carbon Footprint vs Handprint / The offsetting formula

When we talk about carbon footprint, we are normally talking about the footprint of all the greenhouse gasses (GHG) that we produce. In definition, that’s all the gasses we emit that add to global warming, or at least the 7 key gasses or groups of gasses identified in the Kyoto protocol which are generally produced through burning fossil fuels and in various industrial and agricultural processes: Carbon Dioxide, Methane, Nitrous Oxide, Hydro-fluorocarbons, Per-fluorocarbons, Sulphur hexafluoride and Nitrogen trifluoride. In principle it’s simply about working out the total amount of all 7 GHGs that a person, an organization or a product produces in a given amount of time and then working out the corresponding carbon dioxide equivalents (CO2e). That allows us to understand the total effect that the individual, organization or product has on global warming.

A carbon handprint, however, is the opposite of a footprint. It recognises the actions you take to have a positive impact on the climate, instead of summing all the negative contributions you make. If you do enough of these positive actions, they might even outweigh the size of your carbon footprint. Where a footprint evaluates your activities that contribute to global warming, your handprint evaluates your actions that help mitigate climate change beyond your own value chain.

When you have a handprint and a footprint equal in size, you’ve become carbon neutral. You’re not using up more than you’re getting back in. If your handprint continues to grow and becomes larger than your footprint, you’ve become climate positive. 👏

It’s common for people to focus rather on the downside of something than on its positive counterpart. Most info you find on how to incorporate a sustainable lifestyle as well as most corporate lingo tends to focus on decreasing levels of emissions. But why stop there? Why not have a net positive impact on the environment? While avoiding or stopping negative climate behavior is certainly a good step, most of us want to (and let’s face it - have to) go further than just cutting polluters out and instead focus on their carbon handprint.

And it doesn’t even have to be that hard to make a positive impact on our climate. Let us show you some options you can easily implement into your lifestyle.

Examples of handprint metrics:

In general, there are three types of mitigation methods: you can choose to avoid, reduce or remove your emissions (or do all three together).

Avoid: This includes projects which eliminate emissions – for example, renewable energy projects which avoid emissions from the fossil sources they replace. Or you as an individual, could for example, rethink whether you actually need a car or can maybe do without. This way, you would avoid those emissions that would have come from using your car.

Food for thought: Vestas Wind and avoided emissions

In many cases, avoided emissions - also called Scope 4 CO2 emissions - are a good reference point for finding companies that offer climate solutions. Scope 4 represents the avoided CO2 emissions from the use of a product or service. Let’s take a look at Vestas Wind to make this concept a bit more approachable. The company's Scope 1 and Scope 2 emissions - direct and indirect emissions generated during the manufacturing phase of its wind turbines - are dwarfed by the avoided emissions from the use of its products. In fact, the company estimates that each wind turbine helps to avoid 40 times more emissions than are generated during the manufacturing phase.

Reduce: Includes projects which reduce emissions – examples include energy efficiency projects such as low-carbon cookstoves which use less fuel through improved combustion; and, manufacturing process improvements which reduce the use of non-renewable energy. You could also, for example, keep most of your savings in sustainable investments instead of having your money lying in your bank account. With Cooler Future for example, you can easily create your own depot and invest your money with impact, thereby reducing your carbon emissions in comparison to having your money in a regular bank account.

Remove: This includes projects which remove GHGs from the atmosphere. One example would be afforestation, which is the process of introducing trees and tree seedlings to an area that has previously not been forested. You can also take part if you want to - by simply planting a tree 🌳.

Of course, different things you can do or implement into your lifestyle, may contribute to different metrics. In the end, however, all these can then be consolidated into your very own CO2 handprint .

And, of course, we wouldn’t be telling you about all of this if the whole handprint concept could not be applied to investing as well! Before diving deeper into this, let’s take a look at some data out there.

Climate Awareness & Investing

We’ve all witnessed the mobility restrictions imposed to curb the spread of COVID-19 - let us tell you that all of this had at least one  positive consequence: the reduction of more than 5% in GHG emissions. A recent BCG survey of more than 3,000 people across eight countries has found that in the wake of the pandemic people are more concerned about addressing environmental challenges and are more committed to changing their own behavior to advance sustainability and to reduce their carbon footprint. Among the top actions people are doing more consistently are reducing household energy consumption, increasing recycling and composting, and buying locally produced goods.

Source: BCG

Without a doubt, it’s great that more people take advances to reduce their footprint and have more of a positive impact on the environment. However, we are missing one action point in this survey. 😢 It is still the case that, despite the fact that funds allocated to sustainable purposes and environmental goals are growing more than ever, “Investing Sustainably” is still not one of the most common practices people tend to follow when doing their part to increase their carbon handprint.

Let’s have a look at why it should definitely be and how exactly investing can help you make your handprint more significant than your footprint.

How can investing help you?

A lot of our articles mention that environmentally aware investors increasingly want portfolios that address climate change. Globally, more than 400 funds that included climate change as a key theme tripled total assets under management to $177 billion as of December 2020, according to Morningstar. Especially ESG ETFs can now be found in many individual portfolios. However, also here, the inherent problem with ESG data is the “carbon footprint” mentality. An example from an article in Stanford Social Innovation Review explains that MSCI gives Exxon and BP an ESG score of “BBB'' because its pollutive behaviors are being well managed and not threatening to the company’s financial value. In essence, because Exxon and BP both manage their carbon footprint well (as they have the resources to do so) they perform well according to ESG scores, which some would argue shouldn’t be the case given the damage their oil and drilling businesses do to the environment. This highlights why it's important for individual investors to put enough research into what kind of companies are included in chosen funds or ETFs as some may not align with your values.

This ambiguity when it comes to ESG mostly results from the fact that so far, there is no transparent standardization of ESG commitments which is a key issue with ESG data globally and reporting in general.

Many portfolio managers seek to address climate change by identifying so-called “good actors”—basically companies with low carbon footprints. This approach has its merits and is especially popular among passive portfolios.

But we think there’s another dimension to climate-aware investing that can be very effective. Instead of only looking at carbon footprints, we believe investors should also look at a company’s carbon handprint. In contrast to carbon footprints, which measure the negative impact of companies on the environment, companies with carbon handprints are creating positive solutions to global climate challenges. And this is not only something we need to combat climate change but also something we want when it comes to our investments! This is because evaluating carbon handprints, or the way a product or service affects the environment positively, is a good way to find companies that are providing powerful solutions to the world’s climate challenges while offering attractive growth potential. 📈

Why is that, you are asking? Basically, massive amounts of capital will be deployed in the decades ahead to combat climate change. According to UBS, the capital investment needed to decarbonize the global economy is estimated at $140 trillion—or about $4.7 trillion annually—through 2050. Companies enabling decarbonization should enjoy a multi-year tailwind from global efforts to reduce emissions driven by governments, corporations and individuals. This helps explain why many companies that are delivering climate solutions enjoy powerful long-term growth drivers!

Bar chart shows compound annual growth rates for several climate-related products such as solar power and electric vehicles.
Source: Alliance Bernstein

Okay, so why does not everyone just run to their banks or brokers and make climate friendly investments? After all, it seems like it is especially within the banking space that there is the most potential for a carbon handprint focus given it is the heart of consumers' financial lives, right? Technically, this would be true, but we are encountering just another issue here: banks currently focus most on their own footprint and activities, not how they can help customers improve their own footprint (which would be a more impactful handprint approach).  But since most banks are not financing themselves in the most sustainable manner, we have to come up with another approach.

We at Cooler Future are currently trying to provide each and everyone with an easy and effortless way to invest sustainably and monitor your impact by using metrics to track your carbon or water footprint. In addition, we are planning on including even more metrics in the near future to make it easy for you to monitor your foot- and handprint!

But how does this work? With regard to allocating your investments in a sustainable manner, it is possible to direct money towards companies and assets that align with sustainable goals. In addition to aiming to lower one’s carbon footprint, one could aim for creating more positive impact in their environment and society. Those who care about the planet and are concerned about climate change can, for example, choose to invest into investment funds (such as the ones we are offering) or directly into companies that contribute to climate change mitigation or generate positive impact. Of course, it is still very hard to measure the effect on your carbon handprint concretely as there are no standardized metrics so far, as previously mentioned.

But of course we are working hard and are trying our best here and to provide you with some approachable metrics to understand the handprint of your investments.

Conclusion

It goes without saying that when analyzing your very own effect on our environment, you should consider both - your carbon footprint as well as your handprint. While your carbon footprint gives you a good first quantitative impression and marks a point to start looking for change, your carbon handprint can show you explicitly what you are doing good for nature and future generations.

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