As climate regulations tighten worldwide, investors are under growing pressure to factor emissions data into their decisions. Carbon metrics have become essential in portfolio construction, asset allocation, and risk assessment, guiding strategies aimed at aligning investments with decarbonisation goals.
Yet, interpreting portfolio emissions is far from straightforward. Emissions data is shaped by shifting company disclosures, macroeconomic dynamics, and changes in portfolio composition. These factors make it difficult for investors to compare decarbonisation progress across time, asset classes, and portfolios.
The latest edition of the LSEG Decarbonisation in portfolio benchmarks report, published in collaboration with the UN-Convened Net-Zero Asset Owner Alliance (NZAOA), seeks to address this complexity. Now in its fourth year, the study offers a data-driven view of carbon emissions trends across equities and corporate fixed income, tracking progress between 2016 and 2023 using both absolute and intensity metrics.
Findings reveal that global equity emissions, represented by the FTSE All-World Index, have grown at 4% annually since 2016, reaching 13 billion tonnes CO₂e in 2023. Much of this increase is attributed to the rising weight of emerging market issuers in the index. By contrast, investment-grade corporate bonds, represented by the FTSE WorldBIG Corp Index, recorded a gradual annual decline of 1% in aggregate emissions over the same period.
Portfolio intensity measures tell a more encouraging story. Weighted Average Carbon Intensity (WACI) has fallen by 26% in equities and 20% in fixed income since 2016. In some sectors, particularly utilities, reductions appear tied to real-world emission cuts rather than portfolio shifts or methodological effects.
Disclosure levels have also improved substantially. Scope 1 and 2 reporting among benchmark constituents reached 79% for equities and 67% for fixed income in 2023, up from 56% and 53% respectively in 2016. Emerging market participation is rising too, with more than half of firms now disclosing operational emissions. Scope 3 disclosures, however, remain less consistent, with only a third of companies covering material categories and two-thirds showing year-on-year swings greater than 20%.
Target-setting is gaining traction. Around 65% of FTSE All-World constituents have now committed to long-term climate goals, an eightfold increase since 2018. These companies typically achieve steadier reductions in Scope 1 and 2 emissions compared with peers lacking formal commitments.
Green bonds are playing an expanding role, making up 5% of the investment-grade universe in 2023, also an eightfold increase since 2016.
For more insights, read the full report here.
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