What is weighted average carbon intensity?
Weighted average carbon intensity (WACI) shows how strongly a portfolio is exposed to companies with high emissions relative to revenue. The 2021 TCFD implementing guidance, Table 3 on page 52, calculates each issuer's gross Scope 1 and Scope 2 emissions per million of revenue, multiplies that intensity by the holding's current share of portfolio value, and sums the contributions.
WACI is an exposure metric, not the tonnes of emissions owned or financed by the investor. Its unit is metric tonnes of carbon dioxide equivalent (tCO2e) per million of revenue in the chosen currency. A holding's weight can change its contribution even when the company's emissions and revenue do not change.
Why does WACI matter to you?
The TCFD guidance asks asset owners for WACI by fund or investment strategy and asset managers for WACI by product or strategy where data and methods allow. For firms within the UK Financial Conduct Authority's ESG 2 product-reporting scope, FCA rule ESG 2.3.9R requires each TCFD product report to include WACI and four other emissions metrics. The report must also explain limitations, assumptions or proxies and add annual historical calculations after the first year.
An investor or limited partner may therefore ask you for the portfolio value date, each holding's current value, reporting year, gross Scope 1 and Scope 2 emissions, revenue, currency conversion, data coverage and proxy method. Keslio's portfolio management support covers portfolio assessment, data gathering and sustainability reporting.
How is WACI calculated?
For each holding, divide the current investment value by the current value of the covered portfolio. Separately divide the issuer's gross Scope 1 plus Scope 2 emissions in tCO2e by its revenue in millions. Multiply the portfolio weight by that company intensity, then sum every holding's contribution.
Use one valuation date and one currency basis across the portfolio. Record whether revenue is reported or estimated, which financial year it covers, and the exchange rate and date used. The TCFD Table 3 formula uses Scope 1 and Scope 2. If a request asks for Scope 3 as well, calculate and label that version separately rather than silently changing the boundary.
What mistakes should you avoid?
- Dividing company emissions by portfolio value instead of the company's revenue in millions.
- Using ownership percentage as the weight. TCFD WACI uses current investment value divided by current covered portfolio value.
- Mixing revenue currencies, valuation dates, reporting years or Scope boundaries without a documented conversion or limitation.
- Reporting only the WACI result while omitting data coverage, estimated holdings, proxy methods and the tCO2e-per-million unit.
Is WACI the same as financed emissions?
No. Financed emissions allocate a share of an investee's absolute emissions using an attribution factor such as investment value divided by enterprise value including cash. WACI does not claim ownership of emissions. It weights each company's revenue intensity by its share of the covered portfolio.
What should you send when an investor asks for WACI?
Send the calculation date, covered portfolio value, holding values and weights, company revenue in the stated currency, gross Scope 1 and Scope 2 tCO2e, intensity and weighted contribution for every holding. Add the emissions year, revenue year, sources, exchange rates, exclusions, estimated-data share and any proxy method.
Can WACI fall without companies cutting emissions?
Yes. WACI can fall when a high-intensity holding loses weight, a low-intensity holding gains weight, revenue rises, a holding is sold or a proxy changes. It is also sensitive to outliers, and the revenue denominator can favour companies with higher pricing than their peers. Compare company emissions, revenues, portfolio weights, coverage and methods before describing a lower WACI as real-world decarbonization.