2021/12/08 by Chris Kenyon, Kenyon, Chris, Mourad Berrahoui +3
Engineering · #86A08 #91G10 #91G20 #91G30 #91G40 #91G80 #F.2.1 #FOS: Economics and business #G.1.6 #G.3 #General Economics (econ.GN) #General Finance (q-fin.GN) #H.4.2 #I.1.2 #I.6 #J.1 #J.2 #J.4 #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Sustainable Industrial Ecology
paper · pdf · doi:10.48550/arxiv.2112.04181
openalex publication_date 2021/12/08 · openalex created_date 2022/11/14 · openalex updated_date 2026/07/28
Sustainability is a key point for financial markets and the label "Green" is\nan attempt to address this. Acquisition of the label "Green" for financial\nproducts carries potential benefits, hence the controversy and attractiveness\nof the label. However, such a binary label inadequately represents the carbon\nimpact - we use carbon as a useful simplification of sustainability. Carbon\nimpact has a range either size of zero. Both carbon emissions, and\nsequestration of carbon, are possible results of financial products. A binary\nlabel does not allow differentiation between a carbon neutral investment and a\ncoal power plant. Carbon impact has timing and duration, a planted forest takes\ntime to grow, a coal power plant takes time to emit. Hence we propose the\nCarbon Equivalence Principle (CEP) for financial products: that the carbon\neffect of a financial product shall be included as a linked term sheet\ncompatible with existing bank systems. This can either be a single flow, i.e.,\na summary carbon flow, or a linked termsheet describing the carbon impacts in\nvolume and time. The CEP means that the carbon impact of investment follows the\nmoney. Making carbon impacts consistent with existing bank systems enables\ndirect alignment of financial product use and sustainability, improving on\nnon-compatible disclosure proposals.\n