Working Paper 2013-04

Title: Life Cycle Impacts of Divestment: Applying an Economic Input-Output LCA Model to Measure Financed Emissions

Authors: Justin Ritchie and Hadi Dowlatabadi

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Abstract:

In recognition of the long-term impacts resulting from financial decisions, a growing number of campaigns are advocating divestment from companies responsible for high levels of carbon emissions. However, a systematic understanding of divestment is needed for an examination of the social, economic and environmental impacts that extend beyond the currently stated political motivations to divest.

We have developed the Shadow Impact Calculator (SIC) based on economic input-output life cycle assessments (EIO-LCA) as a tool to examine broader impacts of investment decisions. A portfolio’s “shadow footprint” represents the economic, social and environmental impacts underlying an investor’s decision to hold equities in particular companies, economic sectors or nations. We show which sectors of the economy have particularly large or small carbon shadows. To demonstrate the use of SIC we examine the endowment investments of a Canadian university. We also show how the immediate economy-wide impacts of divestment are often much smaller than would otherwise be expected.

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