As we look back at the 28th Conference of Parties (COP28) and the global temperature records realized in 2023, it is clear global stakeholders need to do more to address the risk of global warming. To date, public equity owners have focused on scope 1 and scope 2 GHG emissions, a fraction of total emissions, because they are easier to measure and increasingly available. Reported scope 3 data tries to capture indirect emissions. However, since both data quality and reporting inconsistency make reported scope 3 unsuitable for portfolio measurement and management, public equity investors aiming to align with Net Zero face a significant challenge.
This paper discusses the GMO Indirect Emissions Model, which was developed to address the challenge of calculating total emissions and used to build the GMO Horizons Strategy, which seeks materially lower total emissions than its benchmark.