To succeed in the green transition, it is necessary to recognize sustainability in the next era of product and service value chains; this is where avoided emissions can serve as a valuable resource. Avoided emissions refer to the reduction in greenhouse gas emissions that occur outside a product’s value chain or life cycle as a direct result of using that product/service. They quantify the impact of decarbonization on a solution, highlighting the emissions that are prevented from occurring in the first place. Avoided emissions broaden the scope of carbon accounting, extending beyond direct and indirect emissions to consider the positive environmental impacts of a product, such as low-temperature detergents, videoconferencing technologies, and fuel-saving tires, in comparison to alternative scenarios.
Incorporating avoided emissions into investment strategies may offer asset managers a new method to quantify the environmental impact of investments and, as sustainability regulations become more stringent, align with climate goals and support the global transition toward net-zero emissions.1 Integrating avoided emissions can enhance portfolio resilience, provide a comprehensive perspective on a company’s emissions, and reduce the risk of mis-investment. Furthermore, companies with positive avoided emissions exposure saw revenues grow by an annualized rate of 7% over the past three years; 20% faster than the MSCI ACWI IMI stock universe as a whole.2
To understand the forecasting of avoided emissions in theory, consider the example of an Internal Combustion Engine (ICE) vehicle and an electric vehicle (EV). Very loosely speaking, emissions continue to increase along the ‘baseline’ with the use of a high-emitting ICE vehicle but reduce with the low-carbon ‘solution’, an EV. The shaded delta represents the avoided emissions of making this switch (Figure 1).
Early adopters and industry leaders of this dimension of emissions reporting include companies in renewable energy, the automotive sector, and technology & electronics manufacturing. The concept of avoided emissions is currently incorporated in industries where it can be effectively marketed and used as a compelling selling point or investing proposition and is an area that represents potential future.
For asset managers, leveraging avoided emissions may present an opportunity to reduce portfolio carbon footprints by investing in sustainable companies, technologies, and projects, such as renewable energy schemes, and energy-efficient solutions. These investments have the potential to help prevent emissions that would otherwise have occurred from traditional, high-emission activities, and better align strategies with the low-carbon transition & climate goals.
Reporting Standards
Including avoided emissions in emissions calculations provides a more complete picture of a product or service’s environmental impact. Avoided emissions can be a key tool for reducing a company’s environmental footprint, highlighting its low-carbon potential, and boosting its reputation as a climate leader. This metric is valuable for demonstrating climate action to stakeholders, but only if calculated and reported transparently.
While avoided emissions offer a valuable perspective, they currently lack standardization and recognition from the widely-used GHG Protocol, and full integration into reporting standards remains years away. Consequently, reporting on avoided emissions is not yet mandatory. This lack of standardization also creates a risk of both greenwashing (exaggerating positive impacts) and greenhushing (downplaying them), potentially leading to inaccurate disclosures. Despite these challenges, the focus on avoided emissions is expected to grow alongside the increasing adoption of Scope 3 emissions reporting.
The World Resource Institute and Greenhouse Gas Protocol recommend that companies should first concentrate on reporting Scopes 1, 2, and 3 before tackling avoided emissions,3 which are also not recognized as one of the nine ESRS-E1: Climate Change subcategories. The SBTi also does not consider avoided emissions to be a valid source of emissions reduction but acknowledges that activities within the scope of avoided emissions are crucial for achieving net zero and should be included in a company’s strategy, even if not included in formal targets.4
The CDP questionnaire includes question C4.5 which enquires if a company has low-carbon products or products that enable a third party to avoid greenhouse gas emissions (to be reported as the % of revenue these products represent).5
Company Engagement with Avoided Emissions – Panasonic
Panasonic Group aims to contribute at least 100 million MTCO2 in avoided emissions by 2050, generated by customers and society in general. Areas include infrastructure, lifestyle, and mobility, for example, the ‘essential’ transition to more efficient EVs, aided by Panasonic’s automotive battery and charger business expansion. Another initiative is to establish improved supply chains that reduce the environmental impact, for example, by procuring recycled materials. Panasonic’s avoided CO2 emissions for its automotive battery business were 8 million tonnes in fiscal 2021; due to increase to 21 million tonnes in fiscal 2025 and 59 million tonnes in fiscal 2031.6
Additional Case Study: Company Engagement with Avoided Emissions – Tesla
In its 2023 Impact Report, Tesla says that its mission is to “accelerate the world’s transition to sustainable energy”. The report states that one of Tesla’s EVs will avoid around 51 metric tonnes of CO2e after 17 years of driving (the average lifespan of a vehicle in the U.S. before it is scrapped), showcased in Figure 2. Furthermore, in 2023, customers avoided releasing “over 20 million metric tons of CO2e into the atmosphere by using [Tesla’s] products”. 7
Figure 2, Source: Tesla 2023 Impact Report (p. 10)
Tesla calculates its avoided emissions statistics by assessing the lifecycle emissions of its EVs against those of traditional ICE vehicles. In this process, Tesla uses conservative assumptions; assuming that electric grid emissions intensity (CO2e/kWh) remains the same throughout the vehicle’s lifespan and that throughout its life, an ICE vehicle maintains its fuel efficiency. However, we note that both of these assumptions are unlikely, as ICE vehicles often do not maintain fuel efficiency, meaning the resulting avoided emissions have the potential to be higher, and national grids are decarbonizing in line with climate change targets in many developed nations, for example, the UK closed its last coal power plant in October 2024 and by 2035 all electricity is expected to come from 100% zero-carbon generation.8
Tesla EVs may offer avoided emissions after years of use, however, the initial emissions associated with the manufacture of the EVs are significantly higher than those from ICE vehicles due to EV upstream emissions like mining for battery minerals. In contrast, Tesla claims that the initial ‘carbon investment’ required to manufacture an EV is equal to that of an ICE vehicle after two years of use, beyond which the total emissions of an EV fall below that of a comparable ICE vehicle.9
Conclusion
Avoided emissions reflect a proactive approach to carbon management, facilitate informed decision-making, and highlight products’ positive externalities. They foster innovation, drive R&D, and encourage sustainability practices; leading to enhanced product and usage optimization. Furthermore, their use can strengthen corporate responsibility, and support progress toward emissions reduction goals. Avoided emissions also provide strategic value in mitigating climate change, helping companies maintain a competitive edge in the evolving climate landscape.However, despite their potential, avoided emissions are impeded by a lack of standardized methodologies and reporting practices. The subjectivity of the discourse makes it challenging to track progress, compare emissions across organizations, and ensure consistency in reporting – raising the risk of greenwashing and misleading claims. While some companies include avoided emissions in their reports based on internal methodologies, the absence of reporting bodies and standardized approaches raises concerns regarding accuracy, availability, and reliability.
1WBCSD, Guidance on Avoided Emissions, 2023
2GIC x Schroders, A Framework for Avoided Emissions Analysis: Uncovering Climate Opportunities Not Caputare by Conventional Metrics, 2021
3WRI, Estimating and Reporting the Comparative Emissions Impacts of Products , 2019
4CDP, Foundations for Science-Based Net-Zero Target Setting in the Corporate Sector, SBTI, 2020
5CDP, CDP Climate Change 2023 Reporting Guidance, 2023
6Panasonic, Panasonic GREEN IMPACT – Our Goals,
7Tesla, Impact Report, 2023 National Grid, How much of the UK’s energy is renewable?, 2024
8National Grid, How much of the UK’s energy is renewable?, 2024
9 Tesla, Impact Report, 2022