Infographics
How Carbon Offsetting Works, and What Investors Should Know
This infographic is available as a poster.
Carbon Offsetting: What Investors Should Know
In 2016, an international treaty known as the Paris Agreement was negotiated by member nations of the UN Framework Convention on Climate Change.
The long-term goal of this agreement is to limit the increase in global temperature to below 3.6°F (2°C) over the next century. Achieving this target will require the world to develop cleaner solutions across all areas of the economy, from energy to transportation.
In this infographic from New York Life Investments, we introduce carbon offsetting, an activity used by both businesses and investment funds that has the potential to accelerate the development of a more climate-friendly economy.
What are GHG Emissions, and Where do They Come From?
Greenhouse gases (GHGs) are a family of gases known to trap heat in the Earth’s atmosphere. The most prevalent among them is carbon dioxide (CO₂), which accounts for 80% of America’s GHG emissions. Common sources of CO₂ include fossil fuel consumption and deforestation.
Businesses are often significant emitters of CO₂, but due to the complexity of their production chains, emissions can be difficult to track. To combat this, a company’s carbon footprint is measured across three scopes:
- Scope 1: These are direct emissions from a company’s operations. An example would be the CO₂ emitted by company-owned factories.
- Scope 2: These are indirect emissions from a company’s operations, such as the pollution generated from purchased electricity.
- Scope 3: These are indirect emissions from the company’s supply chains. Common sources include the extraction of raw materials and business travel.
Although we understand that GHGs are harmful to the planet, our ability to eliminate them is limited by technology and costs. Fortunately, this is where offsetting can help.
How Does Carbon Offsetting Work?
Carbon offsetting is a method of neutralizing one’s emissions by investing in GHG-reducing projects. The benefits of these projects are measured by the amount of CO₂ equivalent (CO₂e) that they avoid or absorb. Then, the company or fund that is engaging in the carbon offsetting project will then receive one carbon credit for every tonne of CO₂e negated.
Below are the three common types of GHG reduction programs.
1. Energy efficiency projects
These projects reduce energy consumption. One example is the distribution of energy-efficient cookstoves in Rwanda, a country where many people rely on firewood and charcoal. By distributing 10,800 cookstoves throughout the country, nearly 60,000 tonnes of CO₂e can be avoided each year.
2. Forestry projects
These projects nurture and protect our CO₂-absorbing forests. One notable example is the Garcia River forest protection program, which ensures the longevity of California’s redwood forests. The program oversees over 9,600 hectares which has been estimated to store almost 80,000 tonnes of CO₂e annually.
3. Renewable energy projects
These projects reduce our dependency on fossil fuels. They are especially effective in economies such as Taiwan, where 75% of electricity capacity relies on fossil fuels. Thanks to its strong coastal winds, Taiwan is able to remove 328,000 tonnes of CO₂e per year with just 62 wind turbines.
How is Offsetting Regulated?
Carbon offsetting in America is primarily a voluntary activity, but some state governments have made it mandatory for significant polluters. Here’s how both markets are regulated.
The Voluntary Market
The voluntary market is regulated by a variety of third-party organizations such as Verra, Gold Standard, and American Carbon.
They conduct audits on GHG reduction projects to ensure each one meets four broad criteria:
- Measurability: The GHG savings of the project must be measurable
- Verifiability: The results of the project must be verified on an annual basis
- Sustainability: Each project should have a minimum lifespan of seven years
- Additionality: GHG reductions of project must be considered in reference to a baseline scenario
Carbon credits are only issued after a project has passed this verification process.
The Mandatory Market
Some U.S. states have introduced carbon offsetting schemes to meet their climate goals. One of the largest is California’s Cap and Trade program which was introduced in 2013.
The program is targeted at businesses that emit over 25,000 tonnes of CO₂e annually, and works by setting a “cap” on total annual emissions. This cap is reduced each year, and overpolluting businesses must acquire carbon credits to offset their excess pollution. These can be purchased from state-administered auctions or from other firms.
Revenues generated from California’s carbon credit auctions are used to fund various GHG reduction projects, including:
- 690,000 acres of land preserved or restored
- 287,000 rebates issued for zero-emission and plug-in hybrid cars
- 108,000 urban tree plantings
- 150,000 energy efficiency projects installed in homes
By 2030, California’s emissions cap is intended to reach 200.5 million tonnes of CO₂e, marking a near 50% reduction from its 2015 level.
What Role can Investors Play?
A majority of U.S. investors consider themselves to be values-based, meaning they care about the societal and environmental impacts of their investments. This mentality is increasing the demand for ESG investing and placing pressure on corporations to become more sustainable.
For example, the percentage of S&P 500 firms that publish sustainability reports has risen from just 20% in 2011 to 90% in 2019. More importantly, a growing number of U.S. firms are cooperating with the CDP (formerly the Carbon Disclosure Project) to report their emissions and set formal reduction targets.
| Year | Companies with active emissions reduction targets | All other companies reporting to the CDP | Total |
|---|---|---|---|
| 2013 | 322 | 166 | 488 |
| 2014 | 335 | 164 | 499 |
| 2015 | 365 | 143 | 508 |
| 2016 | 378 | 124 | 502 |
| 2017 | 385 | 123 | 508 |
| 2018 | 389 | 117 | 506 |
| 2019 | 419 | 138 | 557 |
Source: CDP 2020
Some of the world’s largest oil producers are also taking action—a testament to the significance of these shareholder concerns. Royal Dutch Shell announced earlier in 2020 that it intends to fully offset its Scope 1 and 2 emissions.
Does Offsetting Really Help?
Carbon offsetting programs such as the one implemented by California have the potential to generate revenues and encourage innovation. Critics, however, have suggested it has a number of design issues.
One such issue is the fact that California’s carbon credits do not expire. This could allow companies to stockpile credits and ignore future cuts to the emissions cap. Another concern is that the companies covered by California’s cap and trade will simply pass their higher costs to the consumer, although this claim didn’t seem to hold up in a 2016 study conducted by UCLA.
Other inefficiencies within the program may exist, but its benefits are hard to ignore. By the end of 2019, the revenue generated from California’s carbon credit auctions totaled $12.5 billion. Of this amount, over $5 billion has been invested in GHG reduction projects to date.
Infographics
The Top 6 Infrastructure Investment Opportunities
Based on funding from the Infrastructure Investment and Jobs Act, this graphic explores the top 6 infrastructure investment opportunities.
This infographic is available as a poster.
The Top 6 Infrastructure Investment Opportunities
The U.S. government is putting a focus on infrastructure investment. For years, the country’s infrastructure—critical structures and facilities like roads, power supplies, and internet access—has been in poor condition.
Now, the government is pledging billions of dollars in funding. In this graphic from New York Life Investments, we explore how this public commitment translates into six potential infrastructure investment opportunities.
Breaking Down the Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act was signed into law in November 2021. It includes nearly $550 billion in new investments.
| Category | Investment Amount |
|---|---|
| Transportation | $283.8B |
| Broadband | $65.0B |
| Energy & Power | $65.0B |
| Water | $63.3B |
| Climate & Cybersecurity Resiliency | $47.2B |
| Environmental Remediation | $21.0B |
Based on these commitments, here are the six categories that present potential infrastructure investment opportunities.
1. Transportation
52.0% of new government funding
Because infrastructure has been underfunded for some time, transportation systems are in a state of disrepair.
- 43% of roads are in poor or mediocre condition
- 231,000 of the country’s 617,000 bridges are in need of repair or preservation work
New government funding will enable the expansion and repair of transportation infrastructure.
The infrastructure investment opportunity: Funding could increase revenue and provide stable long-term contracts to engineering, materials, and construction companies.
2. Broadband
11.9% of new government funding
Millions of Americans don’t have access to broadband (high speed) internet, and the number of people who don’t use it is even higher due to affordability issues.
- People without access: 14.5 million
- People who don’t use broadband: 120.4 million
New government funding will increase access and help reduce prices.
The infrastructure investment opportunity: Funding could boost the customer base and revenue of internet service providers.
3. Energy & Power
11.9% of new government funding
The U.S. has set a goal to have net zero emissions by 2050, yet the country gets most of its energy with fossil fuels.
| Source | Percent of U.S. Energy Consumption in 2020 |
|---|---|
| Petroleum | 34.7% |
| Natural Gas | 34.0% |
| Renewables | 12.5% |
| Coal | 9.9% |
| Nuclear | 8.9% |
New government funding will help build electric power transmission lines and facilitate clean energy technology.
The infrastructure investment opportunity: Funding could boost the revenue of utility, manufacturing, and renewable energy companies.
4. Water
11.6% of new government funding
U.S. water infrastructure is aging, with 14-18% of potable water lost through leaks. The annual costs of wasting this treated water is projected to increase from $7.6 billion in 2019 to $16.7 billion in 2039.
New government funding will modernize water infrastructure, invest in water storage and recycling, and remove lead pipes.
The infrastructure investment opportunity: Funding could boost the revenue of engineering firms and companies that build, install, and repair water pipes.
5. Climate & Cybersecurity Resiliency
8.7% of new government funding
Climate disasters and cyber attacks are leading to increased costs & destruction of infrastructure. In 2020, there were 22 U.S. climate disasters that each cost over $1 billion in damage—with a total cost of $100 billion.
| Type of Disaster | Cost in 2020 |
|---|---|
| Tropical Cyclone | $57.5B |
| Severe Storm | $35.5B |
| Wildfire | $17.3B |
| Drought | $4.7B |
New government funding will invest in protection against cyber attacks, floods, droughts, and other climate disasters.
The infrastructure investment opportunity: Funding could boost the revenue of companies involved in cybersecurity, weatherization, environmental consultation, and construction.
6. Environmental Remediation
3.9% of new government funding
Contaminated sites are causing environmental harm or hindering land reuse, and there are more than 450,000 of them across the country. New government funding will clean up contaminated land, reclaim abandoned land mines, and plug orphaned oil and gas wells.
The infrastructure investment opportunity: Funding could boost the revenue and long-term contracts of environmental remediation companies.
Public Funding, Private Infrastructure Investment Opportunities
A boost in government funding is likely to create increased activity in private infrastructure-related areas:
- Engineering
- Construction
- Materials
- Internet Service Providers
- Clean Energy Tech
- Pipe Installation
- Cybersecurity
- Environmental Consultation
By paying attention to where the money is going, investors can consider a variety of categories that provide critical services—and capitalize on upcoming trends.
Infographics
What Retirement Barriers do Americans Face Today?
Retirement barriers are making it difficult for people to feel good about their future. See how advisors can help in this infographic.
What Retirement Barriers do Americans Face Today?
Today’s definition of retirement is much different than before.
It’s no longer a postscript to career, but instead a time to enjoy freedom. This could be the freedom to learn new hobbies, the freedom to travel, or the freedom to start an online business. Unfortunately, this freedom is proving to be difficult to achieve for most.
In this infographic from New York Life Investments, we discuss the retirement gap—what it is, why it exists, and how advisors can help reduce it.
What is the Retirement Gap?
New York Life Investments partnered with AARP to survey over 3,000 Americans about their retirement plans. They uncovered that across all ages, there was a gap between i) people’s perceived importance of retirement planning, and ii) their actual preparedness.
| Age group | Perceived importance of preparing for retirement | Actual preparedness |
|---|---|---|
| 20s | 77% | 45% |
| 30s | 87% | 41% |
| 40s | 87% | 40% |
| 50s | 92% | 47% |
| 60s | 93% | 58% |
| 70-74 | 84% | 70% |
Based on a survey of 3,025 Americans aged 20-74.
These results suggest that the status quo around retirement planning isn’t working for most people. This is further supported by other survey findings. For example, 65% of respondents said they didn’t feel optimistic about retirement.
What Barriers do Americans Face?
The survey determined that Americans are struggling to overcome five retirement barriers. Let’s hear from survey respondents to learn more about them.
#1: Managing multiple priorities
Juggling between retirement savings and more immediate needs such as childcare can lead to emotional overwhelm.
”It’s difficult to put substantial money in a 401 or IRA while also paying off debt at the same time.”
– Alex B. (20s)
#2: Figuring out how much is enough
Uncertainty about how much savings is needed causes many people to avoid retirement planning altogether. The problem can simply feel too large to tackle.
”Retirement and aging are not things I look forward to, mainly because of the lack of preparation and fear of the unknown.”– Janet F. (50s)
#3: The complexity of resources
Many Americans find retirement resources are too difficult to understand. This issue is related to a lack of financial literacy, which happens to be a growing problem in the United States.
”They don’t break it down into where you can understand it.”– Amy E. (40s)
#4: Lack of representation in the marketplace
People feel that available resources are not speaking to them, or are not relevant to their life circumstances. This type of “alienation” can discourage people from seeking professional advice.
”I don’t see people who are anything like me. I see representations of upper management people…and I know that won’t be my reality.– Penni B. (60s)
#5: Don’t know who to trust
People feel that the financial industry does not have their best interests in mind. They often seek information from sources who seem more like “them.”
”I avoid professionals because I hear so many stories of financial planners who cheated people in their investments. I believe in some of the people I follow on YouTube more.”– Dino M. (50s)
Bridging the Gap
Altogether, these barriers highlight a disconnect between who the market is targeting, and who is most in need of help. Financially advisors have the power to bridge this gap by doing two things.
The first is to view investors as “customers for life”. Large firms often push advisors to work with clients who have a greater level of assets—typically those in their 40s or older. This could create a major challenge for younger generations who hope to one day retire.
For example, survey data shows that people’s expected retirement age increases as they grow older. This suggests that young adults are struggling to develop the right financial plan for their needs.
| Age of respondent | Expected retirement age |
|---|---|
| 20s | 55.7 |
| 30s | 60.7 |
| 40s | 64.6 |
| 50s | 64.9 |
| 60s | 67.8 |
Based on a survey of 3,025 Americans aged 20-74.
By viewing investors as “customers for life”, advisors have the opportunity to steer people onto the right path at an earlier age. This can help them create positive impact in their communities, as well as grow their business through word-of-mouth marketing.
The second thing advisors can do is reach out to underserved communities. Data shows that Black and Hispanic Americans are less likely to have retirement savings, while those that do feel much less confident.
| Ethnicity | Have retirement savings | Perceive retirement savings as being on track |
|---|---|---|
| White | 80% | 42% |
| Black | 63% | 23% |
| Hispanic | 58% | 22% |
| Asian | 85% | 47% |
Source: Statista (2021)
Up to this point we’ve focused on the financial aspect of retirement, but what about health & wellness?
Redefining Retirement: Health, Wealth, and Self
The rising importance of personal health has been a major phenomenon of the COVID-19 pandemic. According to McKinsey, 48% of Americans increased their prioritization of wellness compared to 2-3 years ago.
This shift in thinking must also be reflected by retirement plans. One way to do this is to integrate health & wellness considerations alongside wealth.
For example, poor physical health can significantly drive up the costs of retirement. In fact, the average American aged 65-84 already spends nearly $17,000 per year on healthcare.
Mental health, on the other hand, can be severely affected by money-related stress. Symptoms include a loss of sleep, high blood pressure, and a negative impact on personal relationships.
Perhaps most interesting is that the relationship between health and wealth goes both ways. In other words, wealth can be a driver of better emotional and physical health. The following table shows how individuals with greater income felt better about their wellbeing.
| Income level | Consider themselves to be emotionally healthy | Physically healthy |
|---|---|---|
| Under $40K | 50% | 47% |
| $40K - $75K | 63% | 56% |
| $75K - $100K | 68% | 63% |
| Over $100K | 73% | 68% |
Based on a survey of 3,025 Americans aged 20-74.
To develop a more holistic retirement plan for their clients, advisors must transform from financially focused representatives to holistic life coaches.
Barriers are Meant to be Broken
With the concept of retirement, many Americans feel like they are on the outside looking in. They suffer from a lack of representation, a mistrust for the financial industry, and have few resources that are catered to them.
What’s needed is a democratization of retirement planning.
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