Take only memories, leave only footprints -- so goes the adage imploring campers to minimize their ecological impact. Yet when it comes to CO2, the primary greenhouse gas (GHG) contributing to climate change, humanity's collective carbon footprint threatens to smother the planet underfoot.

Corporations have particularly big "feet," though a mix of scientific, regulatory, market, normative, and moral forces are compelling companies to shrink their shoe size. While the Brannock Device is the standard tool for measuring human feet, no such standard yet exists for carbon footprints. A proliferation of yardsticks for measuring carbon footprints have emerged over the past few years, challenging companies and investors alike to discern the best way to gauge carbon footprints.

Companies are increasingly measuring their carbon footprints. The September 2006 Carbon Disclosure Project (CDP) report by Innovest Strategic Value Advisers and an October 2006 Conference Board report both find about three quarters of surveyed companies measuring their carbon footprints, but only about half implementing programs to reduce or offset emissions. This despite very high recognition of the risks and opportunities posed by climate change (CDP -- 87 percent; Conference Board -- 92 percent.)

While the concept of measuring carbon footprints is relatively straightforward, the practice is exceedingly complex, the Conference Board report points out -- made more complicated by the myriad methodologies.

"There's a lot of fuzziness in carbon footprints," said Mathis Wackernagel, executive director of the Global Footprint Network who originally conceived of ecological footprints, of which carbon footprints are an important subset (accounting for between half and three quarters of humanity total ecological impact.) He points out the dilemma of defining the boundary of a company's responsibility for emissions, the need to contextualize the degree to which emissions exceed the planet's assimilative capacity, and the danger of doing carbon footprinting as window-dressing.

"First and foremost, the information needs to be interesting to the CEO, even if it is never published," Wackernagel told SocialFunds.com. "If information is produced to be published but the CEO never looks at it, obviously it's just PR -- it's meaningless."

Innovest CEO Matthew Kiernan agrees. "Disclosure is the opiate of the people," Kiernan said. "Carbon disclosure is one thing, actual carbon performance is something else altogether -- it is more material, and more empirically linkable to financial differentials."

Innovest tested its Carbon Beta model, which underpins the JP Morgan/Innovest Carbon Beta bond index, against both conventional global benchmarks such as the MSCI World and a portfolio of leaders in carbon emissions disclosure, and the index outperformed both by over 2 percent per year over a five year period. The Innovest model assesses four factors. In addition to carbon footprints, it examines carbon risk management architecture, ability to recognize and capture upside opportunities driven by the climate problem, and the performance improvement trajectory over time.

Innovest also qualifies emissions on a national level where companies operate as well as where they sell products, taking into account the risk and opportunity associated with meeting carbon emissions reductions regulations. In the absence of existing legislation, Innovest makes educated guesses--for example pegging its estimates in the US to carbon legislation proposed by Senator Jeff Bingaman (D-NM) as the most likely of the numerous bills wending through Congress to survive as law.

"From an environmental point of view, an emission from an Alcan plant in Ecuador is the same as one from a plant in Germany, but from an investor's perspective, there's worlds of difference," Kiernan explains.

Innovest's model embodies several of the different forms of carbon footprinting in a four-part typology proposed by Mark McElroy, executive director of the Center for Sustainable Innovation (CSI). The first, exemplified by the Global Reporting Initiative and the Greenhouse Gas Protocol, simply calls for measuring carbon emissions. The second, exemplified by the Trucost Carbon Footprint Ranking of UK investment funds, correlates carbon emissions to financial metrics. The third, exemplified by the Global Footprint Network's Carbon Footprint, measures carbon emissions against environmental constraints. And the fourth, exemplified by CSI's Global Warming Footprint (which Ben & Jerry's employs), measures emissions against normative mechanisms to lower emissions, such as the Kyoto Protocol.

"The key issue to consider is, which types will best serve the needs of humanity in terms of contributing to climate change mitigation?" McElroy said. "My own view is that the value of each approach increases as you move down the list."

The Innovest model hits the first, second, and fourth forms. A June 2007 report [PDF] from French investment firm Société Générale introduces its Carbon Risk Exposure Assessment Model (CREAM), based on the envIMPACT carbon intensity model from Switzerland-based socially responsible investing research firm Centre Info. The envIMPACT model essentially represents a comprehensive carbon footprinting tool, which takes cradle-to-grave product Life Cycle Assessments (LCAs) and industry process Life Cycle Inventories (LCIs) into account. The CREAM tool then filters these metrics through complex financial analytics that also factor regulatory frameworks based on ecological constraints by looking at both actual and potential carbon prices.

"I love what the tool is trying to do, which is to realize the internalization -- or re-internalization -- of the otherwise externalized costs of environmental degradation resulting from CO2 emissions," said McElroy. While CREAM covers all four of his forms, McElroy still categorizes it as a financial tool, as it expresses all the variables in its equations in financial terms, such as costs, revenues, and earnings.

In assessing CREAM, however, McElroy echoes Wackernagel's concern over defining the boundaries of company responsibility. In assessing total life cycles, CREAM includes not only direct but also upstream (supplier) and downstream (consumer) emissions -- in essence covering all three "scopes" of emissions defined by the Greenhouse Gas Protocol for carbon footprinting from the World Business Council for Sustainable Development and the World Resources Institute. Wackernagel would call this very "fuzzy."

"I think this is problematic -- isn't it double-counting?" McElroy asked. "I prefer to hold companies accountable for their own emissions, and not those of their suppliers or customers -- just like financial accounting. This still leaves open the possibility that a company can be influenced by pressures from its suppliers and customers to lower emissions; but that's all the more reason, I think, to place accountability at the point of emission, not up or downstream from it."

This article was reprinted courtesy of SocialFunds.com, where it originally appeared Sept. 4, 2007.