Article 17 November, 2021

Netting to zero

R&M's Head of ESG explains how the business is turning talk into action following its commitment to achieve net zero carbon emissions.

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In recent years, significant carbon reduction undertakings have been made, and it will be interesting to see the solutions that start to emerge on how to actually achieve these hypothetical cuts to greenhouse gases by the middle of this century.  This is even more significant when we consider there is almost 60bn tonnes of carbon emitted into the atmosphere worldwide per annum1, an amount that has been steadily rising since 1990 with increasingly visible physical effects of climate change2.

It seems therefore apposite at the moment to give a brief overview of the journey to Net Zero covering three areas:  Understanding emissions, Stages to Net Zero, and what we are doing as a firm.

Understanding emissions

Understanding emissions “Scopes”, as defined by the Greenhouse Gas (GHG) Protocol, is an essential first step.

The GHG protocol sets the standards & principles for measuring and managing carbon emissions and has divided all emissions from businesses into operational boundaries, defined as Scopes 1, 2 & 3 as outlined in Figure one.


As a financial firm, for R&M, with three office locations, minimal purchase of power and no physical distribution of products, our own Scope 1 & 2 emissions are comparatively small, at 369 tonnes for the last financial year. That said, Scope 3 indirect emissions include 15 areas of activity that depend on an organisation and for us are by far the most material (80%+) and important to report. For a fund manager, Scope 3 is the Scope 1 and 2 emissions from the companies in which we invest. Some studies have shown that these financed emissions from investee activities can be up to 1,000 times bigger than the investor’s own.

R&M stages to net zero

We should remember it’s net zero, not gross zero. There will still be emissions and the R&M solution is all about identifying and managing them.   Adding the word ‘to’ in the middle of ‘net’ and ‘zero’ helps clarify the objective.  Our solution has three distinct stages:

Data. We need our investees’ emissions data i.e. the Scope 3 detail. The GHG Protocol sets the standards to measure and manage emissions. The Partnership for Carbon Accounting Financials (PCAF) has launched a global standard for measuring  and reporting GHG emissions associated with loans and investments, which provides detailed instructions for listed equity and fixed income.

Based on ‘follow the emissions’, with a scale for quality of inputs from those that are independently verified by CDP3 to estimates by the emitting firm itself and phasing in Scope 3, PCAF provides valuable guidance for carbon accounting. Our proportional ownership share of a given company is multiplied by its emissions, and this is the quantity of emissions we are responsible for.

Reduction. This is where we engage and collaborate with investees to lower emissions and to disclose. Important here is the idea of ‘net gain’. If a real estate investor is planting 100 trees that each absorb 20 tonnes of carbon, engagement for planting 100 trees is of limited value as this was going to happen anyway; engagement to encourage an extra 100 trees to be planted, providing saplings, explaining the carbon capture properties of roots, soil etc. is much more valuable and provides a gain.

Offset. Just like R&M is carbon neutral, investees offsetting emissions is required. There can be no net zero without carbon sequestration, and this can be natural (trees, oceans, peat bogs) or mechanical (sucking the carbon out of the air as it’s emitted and storing underground). We are seeing a wide range of offsets emerging for purchase, covering both types and with varying ‘credit quality’. Internal offsetting is also permitted within the same fund, so an asset that emits 100t can be offset by another asset that absorbs 100t.

What we are doing at River and Mercantile

At River and Mercantile, we are turning talk into action for the areas outlined. Our net zero focus for the rest of this year and into 2022 is:

  • Evolving the business model for net zero (governance, data and reporting)
  • Engaging key stakeholders
  • Embedding our exclusions (in particular coal) and climate policies: learn more
  • Identifying the initial funds and mandates in scope for emissions reduction by 2030. And then for these funds, setting the baseline emissions (as at Dec 2019), followed by top-level tilts towards or away from certain sectors, bottom-up understanding of an investee’s emissions pathway, ongoing engagement with investees and monitoring their emissions reductions and offsets.

1Source UN Environmental Program and Intergovernmental Panel on Climate Change (UNEP), 2019,

2Source IPCC, 2013.

3Previously the Carbon Disclosure Project

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