Legal & General Investment Management (LGIM) – The time value of decarbonisation

LGIM proposes a carbon discount rate that can be used to ‘discount’ the value of future carbon emissions reductions, relative to near-term ones. We justify the use of this rate by considering how a reduction of one tonne of CO2 per year (1tCO₂/year) – relative to business as usual – will compound over time. Accordingly, we believe near-term carbon reductions are more valuable than equivalent reductions in the future.