IN FOCUS6-8 min read

Andy Howard: our approach to carbon offset share classes

As Schroders launches carbon offset share classes for a climate fund, our Global Head of Sustainable Investment explains what this means and why it matters.



Andy Howard
Global Head of Sustainable Investment

The annual indirect emissions attributable to typical UK households’ financial savings and investments are of a similar magnitude to their direct emissions from conventional sources like heating and transport.

That investors are becoming increasingly focused on that indirect exposure is unsurprising. The direct emissions of global listed companies equates to around one third of global CO2 emissions.

UK household carbon emissions

The investment industry’s growing recognition of the climate threat is reflected in asset owners’ commitments to portfolio decarbonisation. Large institutional investors controlling assets of $11 trillion have joined the Net Zero Asset Owner alliance, equal to more than 40% of the total assets of the world’s 100 largest asset owners.

At Schroders, we are committed to transitioning the portfolios we manage toward the net zero goals the large majority of the world’s governments have now committed to. We continue to engage intensively with portfolio companies to encourage change.

Read more details of our climate strategy and progress here

The same focus is reflected in sustained demand for climate funds. Morningstar reported that globally, assets under management in climate-related mutual funds doubled in each year 2019-2020 and 2020-2021, with assets standing in excess of $400 billion as at December 2021. In addition, PwC’s State of Climate Tech Report noted that in 2022 more than one quarter of all venture capital funding went to climate technology, with increased focus on technologies that have the most potential to cut emissions.

Carbon offsets are no replacement for the significant change required from most companies to reduce their emissions. However, offsets can help accelerate progress toward the long-term global emissions reductions needed to avoid the worst effects of temperature rises.

We expect carbon offsets will be an important part of the solution to the global climate challenge and to investors’ transition strategies. The IPCC has outlined its expectation that negative emissions, or offsets, will play a much bigger role in meeting global decarbonisation goals in the future.

Reduction in emissions.

At Schroders, we have initially applied this share class to a fund focused on climate leaders. We have focused on a strategy that already emphasises companies transitioning quickly toward a low carbon economy.

How does a carbon offset share class work?

In this case, every quarter we will purchase carbon offsets equal to the emissions of portfolio companies attributable to the share class. For example, if the share class holds 1% of the emissions of a company, we will calculate 1/100th of that the company’s Scope 1 and 2 carbon emissions.

Adding together all of the equivalent exposures to carbon emissions yields an estimate of the total carbon emissions attributable to the share class. We will then purchase and cancel an equivalent volume of carbon offsets, taking those credits out of circulation and “locking in” their emissions benefit.

The cost of purchasing those emissions will be applied to the share class, so that its management fee is reset every quarter. In more volatile conditions, those calculations may be made monthly.

Based on the most recent calculations, the additional fee applied to the share class for the climate leaders fund in question will be 5.7 basis points (i.e. 0.057%). This figure equates to less than 5% of the current standard fee.

What are some of the challenges and how can we tackle them?

The emissions data companies report varies in timeliness, quality and consistency, while some companies do not yet report that data at all.

To provide transparency on fees, they are calculated at the start of each quarter and remain constant until the next review, irrespective of changes in portfolio holdings or companies’ emissions.

We use recognised third party data providers, with emissions estimated where they are not reported. By doing so, we aim to estimate the carbon emissions associated with the share class, recognising that this is necessarily imprecise.

The offsets bought on behalf of the share class do not represent an investment. They are cancelled when they are bought, so that investors in the share class will not benefit from rising carbon offset prices. Rather, they provide a way for investors to easily offset the emissions associated with their holding in the fund.

Carbon offsets have come under scrutiny in recent years. The quality and benefits of different types and sources of offset can vary significantly. Those differences are reflected in the wide range of prices for offsets, which can range from a few dollars per tonne of CO2 to several hundred.

At least initially, we will use offsets acquired to help Schroders meet our group commitment to carbon neutrality in our operations. Those offsets will come from a range of natural capital projects around the world which we consider high quality. Leveraging the group’s offset purchases also allows us to limit exposure to fluctuations in carbon prices.

Subscribe to our Insights

Visit our preference center, where you can choose which Schroders Insights you would like to receive

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Andy Howard
Global Head of Sustainable Investment


Climate leaders
Net Zero
Climate Change
Global Transformation
Follow us

Please consider a fund's investment objectives, risks, charges and expenses carefully before investing.

The website and the content included is intended for US-based financial intermediaries (and their non-US affiliates) on behalf of those of their clients who are both (a) not “US persons” as that term is defined in Rule 902 under the United States Securities Act of 1933, as amended (the “1933 Act”) and (b) “non-United States persons” as that terms is defined in Rule 4.7(a)(vi) under the Commodity Exchange Act of 1936, as amended. None of the funds described herein is registered as an “investment company” as that term is defined in the United States Investment Company Act of 1940, as amended, and shares of the funds described herein have not been and will not be registered under the 1933 Act or the securities laws of any of the states of the United States. The shares may not be offered, sold or delivered directly or indirectly in the United States or for the account or benefit of any “US person.”

The information contained in this website does not constitute an offer to purchase or sell, advertise, recommend, distribute or solicit a subscription for interests in investment products in any Latin American jurisdiction where such would be unauthorized. The information contained in this website is not intended for distribution to the public in general and must not be reproduced or distributed, entirely or partially to any individuals who are not allowed to receive it according to applicable legislation. The investment products and their distribution may not be registered in Latin America, and therefore may not meet certain requirements and procedures usually observed in public offerings of securities registered in the region, with which investors in the Latin America capital markets may be familiar. For this reason, the access of the investors to certain information regarding the investment products may be restricted. Financial intermediaries and Advisors must ensure the information provided in this website is appropriate and suitable to the receiver’s domicile and jurisdiction and according to the applicable legislation.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Issued by Schroder Investment Management (Europe) S.A., 5 (“SIM Europe”), rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.

Schroders Capital is the private markets investment division of Schroders plc.  Schroders Capital Management (US) Inc. (“Schroders Capital US”) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).  It provides asset management products and services to clients in the United States and Canada.  For more information, visit

SIM (Europe), SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.