Portfolio Analysis Through TCFD Metrics: Total Carbon Emissions and Carbon Footprint.

Climate change is driving long-term shifts in global temperatures and weather patterns, already triggering extreme weather events and significant economic disruptions. The Task Force on Climate-related Financial Disclosures (TCFD), established in 2017, provides key metrics to support financial institutions and investors in monitoring and reporting their environmental impact. This study investigates the temporal behavior of Total Carbon Emissions (TCE) and Carbon Footprint (CF) within investment portfolios, addressing their variability and potential misinterpretations. We analyze TCE and CF across four portfolio types, composed of companies that have disclosed emissions data at least once between 2011 and 2020. By quantifying these metrics and assessing their trends, we determine whether they exhibit alignment or divergence over time. Furthermore, we evaluate the impact of excluding Scope 3 emissions from these calculations. Our findings reveal that TCE and CF can follow either consistent or divergent trends, influenced by the fluctuations in both emissions and portfolio valuation. Equally weighted portfolios demonstrate lower volatility than market capitalization-weighted portfolios. Regarding CF, market capitalization-weighted portfolios consistently report lower values than equally weighted portfolios, with differences ranging from 31.88% to 41.29% over the full 10-year period. Additionally, Scope 3 emissions play a crucial role, contributing up to 99% of total emissions for individual firms and up to 91.0% at the portfolio level. These results indicate that TCE and CF, depending on Scope 3 emissions, may not always accurately reflect a company’s true emissions impact. Furthermore, due to their dependence on market capitalization, CF metrics are susceptible to misinterpretation and potential greenwashing by companies.