A framework for avoided emissions analysis

Climate change will be a defining investment theme for the coming decades. As governments’ and societies’ decarbonisation commitments translate into tangible policies and actions, giving rise to winners and losers in the green transition, the importance of meaningful and comprehensive carbon measures is higher than ever.

Conventional measures only inform us of the emissions companies generate from their own operations and value chains. However, the leaders in the decarbonisation race are doing more than reducing their own emissions; they are developing products and services that can drive significant reductions in economy-wide emissions.

Avoided Emissions provide an additional lens by capturing companies’ contribution to emissions reductions through the substitution of high carbon activities with low carbon alternatives, as these are not reflected in their conventional Scope 1, 2 and 3 metrics.


We have developed an Avoided Emissions framework to capture these emissions savings, which are calculated relative to a baseline where low carbon technologies had not been deployed. These represent real emissions reductions and will be vital to global decarbonisation efforts. Our framework is based on a proprietary systematic value chain approach, drawing on academic and industry literature to capture the contribution of a broad set of industries to Avoided Emissions, with an emphasis on investability and scalability.

The Avoided Emissions framework is built for direct application to investment analysis and the benefits are twofold:

  1. Sharpens our abilities to identify and assess an extended set of winners from the green transition, which are otherwise not captured using traditional carbon metrics or “green revenues”
  2. Allows for ease of comparison with Scope 1, 2 and 3 emissions under a common unit of measurement, enabling a more integrated and holistic approach to building a portfolio that reflects both climate risks as well as opportunities

We examined 19 carbon-avoiding activities and industries, and quantified the emission savings for each dollar of revenue (tCO2e/US$m). If adoption of these activities were now at the levels we expect in 2030, almost a quarter of economy-wide emissions could be eliminated. This highlights the importance of these low carbon products and services to decarbonisation efforts.

We also applied the Avoided Emissions framework to the broad MSCI ACWI Investable Market Index (IMI) stock universe and a focused portfolio of companies accelerating the low carbon transition. The analysis shows the latter made significant contribution to emissions reduction, even though their Scope 1, 2 and 3 emissions are undifferentiated.

The analysis further substantiates that companies with positive Avoided Emissions exposure saw revenues grow by an annualised rate of 7% over the past three years, which are 20% faster than the MSCI ACWI IMI stock universe as a whole1. The global impetus to decarbonise will continue to provide a strong tailwind to this growth, making it all the more imperative for portfolio analysis to include Avoided Emissions.


As research in this space is still at a nascent stage, there is significant opportunity to further develop the framework. We highlight a few areas below where the analysis can be extended:

  • Widen the coverage of carbon-avoiding activities
  • Factor in regional and sector variances
  • Augment with additional non-revenue measures
  • Extend from public to private markets

For institutional investors, the investment implications of the multi-decade climate transition are immense. Our framework for incorporating Avoided Emissions in investment and portfolio analysis is a pivotal step which we believe will add valuable insights to investors.

1 The Schroders calculation is based on companies exposed to Avoided Emissions in our framework. This is not guaranteed and may not be representative of future growth.

Read the full report

A framework for Avoided Emissions analysis


Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.