Glossary term
Carbon Intensity
Subject: Sustainability and ESG, Climate Risk
Also known as: Emissions intensity, Weighted average carbon intensity, WACI
Carbon intensity measures greenhouse gas emissions relative to an activity, such as revenue, units produced or money invested, so that firms or portfolios of different size can be compared.
Explanation
A steel maker and a software firm cannot be compared on total emissions alone, because size distorts the picture. Dividing emissions by revenue, tonnes of output or floor area gives a rate that is fairer for comparison and shows whether efficiency is improving even while the business grows. Investors use a portfolio version called weighted average carbon intensity, or WACI: each holding's emissions per unit of revenue are weighted by its share of the portfolio. Intensity has limits. Revenue-based figures move with prices and exchange rates, and a firm can show a falling intensity while its total emissions rise. Regulators and funds often ask for both figures. Targets set on intensity can be met while total emissions rise, so the choice of denominator decides what counts as success.
Example
A fund holds three companies equally. Their emissions per million of revenue are 400, 100 and 20 tonnes of carbon dioxide equivalent. The fund's weighted average carbon intensity is 173 tonnes per million of revenue. The manager notes that one holding drives most of the figure, and tests the effect of replacing it with a lower-emitting peer.
Not to be confused with
- Carbon Footprint
- A footprint is total emissions. Intensity is emissions per unit of output or revenue, which can fall while the total grows.