Nordea’s illustrative analysis on carbon footprint from savings

Q1 News story 2018
18-11-15 11:20 | Responsible investment

Our illustrative analysis showed how ‘greening’ an individual’s financial assets, such as savings, could generate 27 times greater improvements in a personal carbon footprint than eating less meat, using public transport, reduce water use, and flying less. This analysis has caused quite a stir and has helped to spark an important conversation. 

We are not arguing that reducing personal consumption isn’t important for tackling climate change or that it doesn’t make a difference. We are merely illustrating that financial assets should be counted in personal carbon footprint analysis as investments do have an impact that is currently underappreciated. Today, the personal carbon footprint of individual savings and investments are discounted to zero and that does not make sense.

The current economic model that involves subsidies, investments and financing towards environmentally destructive activities assumes unlimited resources and disregards climate change. Our opinion is that this system needs to change. For this to happen, bold leadership within the financial industry is required to drive systemic change. We believe that the most effective way to drive systemic change is by re-orienting capital flows to companies that will win in a transition to a low carbon, sustainable economy. Understanding, measuring, and then managing the personal carbon footprint with an individuals’ assets is key to driving capital in the right direction.

The methodology

The model is built on carbon footprint methodology, but we recognize the need for clear consensus and further development in existing methodologies. It is important to note that as with any model, its results are driven by the assumptions used. Key assumptions used in the illustrative analysis include:

  • Time-period used, defined as the span of the average working lifetime of a Swedish individual
  • Sustainable investments, defined as investment funds that do not include companies with significant fossil exposure 
  • Traditional investments, defined as a selected global passive equity fund and its corresponding weights in companies with significant fossil exposure
  • Emission levels, defined as scope 1 and 2 of the companies with significant fossil exposure
  • Amount invested, defined by statistics on the average Swedish salary level and savings proportions
  • Average annual return, defined by the selected global passive equity fund

Given the interest in our illustrative analysis, as well as some of the related critique, we have asked for a peer review of the calculations. We have also taken a closer look at the model and undertaken sensitivity analysis changing the variables and assumptions in both directions. The range of results from this sensitivity analysis span within the stated factor of 27 times as being more effective in tackling the carbon footprint of financial assets than the other four comparison activities. 

The peer review, made by Dr. Ben Caldecott, founding Director of the Oxford Sustainable Finance Programme at the University of Oxford Smith School of Enterprise and the Environment, verifies the calculations (but not any of our underlying assumptions). View the statement here (pdf, 66 KB). Having said that, existing methodologies each bear its limitations, which is why we re-iterate the need for further developments and improvements among the investment community.

Here are our several responses to specific questions raised by stakeholders after the publication of our original analysis:

1. How can emissions be reduced by re-allocating capital?

The illustrative analysis shows the improved personal carbon footprint from making changes in investments. Improving the personal carbon footprint in terms of carbon responsibility is not necessarily the same as emission reductions. Changes in the carbon intensity of financial portfolios can change capital flows and impact the cost of capital for a company. Emission reductions can be expected to be achieved as a result of collective efforts from investors over the long-term.  

2. Are you comparing apples and oranges?

We understand that comparing the effects on the personal carbon footprint from investments to other activities is unconventional. But as only 12% have made changes to parts of their savings due to climate considerations and the majority believes that investments have a very small impact on the climate, we think it is important to raise awareness. Furthermore, although the climate impact from investments can be argued to not have a direct effect, there are reasons to argue why other activities are contributing to the climate indirectly as well. Take for example consuming less meat or flying less. In the former, emissions from the produced meat have already been caused, suggesting that the impact can be argued to be indirect over the long-term if many people act in the same way. With the latter, the airplane will most likely take off and emit regardless of whether you cancel your flight ticket or not, so the effect here is arguably also indirect and dependent on collective efforts. Compared to re-allocating investments from companies with significant fossil exposure, the stock ownership is transferred which can then also contribute indirectly using the same concept of thinking. Finally, other studies make more dramatic comparisons – such as having less children – as a way to combat climate change. Our illustrative analysis is another way to look at carbon footprint using different comparisons.

3. Can I continue driving my car if I save sustainably?

What our illustrative analysis tells you is that your savings, given the various reasonable assumptions, could have a significant impact on your personal carbon footprint. There are no suggestions that other activities may be discarded. To combat the urgent issue of climate change, we need collective efforts in all possible ways. This includes considerations of both daily activities such as substituting your car, but also more subtle activities such as saving sustainably. They go hand in hand and we believe investments is crucial to achieve the systemic solutions needed. 

4. How can I save sustainably?

The illustration does not guide you, or point you, towards a specific fund or other investment product. We suggest that you approach your financial adviser, independent of which financial institution you belong to, and ask to see options on sustainable investment products. Furthermore, we argue that the financial argument for saving sustainably is also strong. The financial argument is also supported by this study.  


We are humble to the fact that opinions might differ on which ways are the most effective to improve the personal carbon footprint. We hope that this article provides a clearer picture of how personal financial assets could impact your carbon footprint. 

There are numerous outstanding questions that needs to be answered by academic research. Some of these questions include:

  • To what extent will increased cost of capital for carbon intensive companies and changes in investor sentiment lead to a faster transition to sustainable alternatives?
  • What is the trade-off between personal gain and negative externalities for such companies and would these effects, from a society perspective, necessitate further interventions/regulation of asset owners and/or asset managers?
  • To what extent will increased cost of capital for those companies incentivize investors to improve their personal carbon footprint and invest sustainably? 

To have a high likelihood of transitioning to an environmentally sustainable global economy, a sizeable amount of sustainable investments is needed, as outlined by this IPCC report and as recognized by the European Commission action plan on financing sustainable growth. There is an increasing momentum in the financial industry towards sustainable investments and the likelihood of a structural green shift is increasing, as described by the financial institution Blackrock

Personal savings are key to mobilizing capital. People should be aware of the potential for their savings to make a difference. For more questions you can email Sasja Beslik, Head of Group Sustainable Finance at moc.aedron@kilseb.ajsas, or Karim Sayyad at moc.aedron@dayyas.mirak  

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