Weighted Average Carbon Intensity (WACI) — Definition and GHG Accounting Context
Absolute financed emissions tell you how large a portfolio’s footprint is. WACI tells you how carbon-intensive the companies inside it are. They answer different questions, and treating one as a proxy for the other is among the most common errors in climate-aligned investing — a portfolio can lower its WACI while its absolute financed emissions rise, simply by growing.
WACI is an exposure metric, not a footprint — and reading it as a footprint is where most reporting goes wrong.
Weighted Average Carbon Intensity (WACI) is the portfolio-weighted average of each holding’s carbon intensity — issuer emissions per unit of revenue. Recommended by the TCFD and expressed in tCO₂e per $M revenue, it measures exposure, not an ownership-attributed total, and needs no attribution factor.
Definition and Formula
Weighted Average Carbon Intensity expresses how carbon-intensive a portfolio is by averaging each holding’s carbon intensity, weighted by the holding’s share of portfolio value. Each issuer’s intensity is its emissions divided by its revenue; each issuer’s weight is its position value divided by total portfolio value.
WACI = Σ ( weighti × ( emissionsi ÷ revenuei ) )
where weighti = position valuei ÷ total portfolio value
Typical unit: tCO₂e per $M revenue
Two features of this construction drive the metric’s behaviour. First, the denominator is issuer revenue, not an ownership-based value such as EVIC — so WACI requires no attribution factor and makes no claim about how much of an issuer’s emissions the portfolio “owns”. Second, the weights sum to one, so WACI is scale-free: doubling every position leaves it unchanged. The metric measures the carbon intensity a portfolio is exposed to, not the tonnage it finances.
WACI is an intensity weighted by portfolio share, not a tonnage attributed by ownership. It answers “how carbon-intensive are the companies I hold?” — never “how many tonnes does my capital finance?” That second question belongs to absolute financed emissions.
WACI at a Glance
The defining characteristics of Weighted Average Carbon Intensity, as recommended by the TCFD and carried forward under IFRS S2.
| Property | Value | Notes |
|---|---|---|
| Metric type | Intensity | Exposure measure, not an absolute tonnage |
| Denominator | Issuer revenue | Not EVIC or invested value |
| Weighting | Portfolio share | Position value ÷ total portfolio value; weights sum to 1 |
| Attribution factor | None | Makes no ownership claim on issuer emissions |
| Grows with AUM | No | Scale-free — doubling every position leaves it unchanged |
| Typical unit | tCO₂e / $M revenue | Currency basis must be stated for comparability |
| Origin | TCFD (2017) | One of three recommended portfolio metrics; carried forward by IFRS S2 |
The Portfolio-Metric Family
WACI is one of several portfolio climate metrics, and choosing the wrong one for a given question is the root of most reporting confusion. The TCFD recommended three of these for asset owners and managers — total carbon emissions, carbon footprint, and WACI — while PCAF standardised the attribution-based absolute total. The four metrics below are the ones practitioners most often conflate.
| Metric | Type | Denominator | Attribution factor? | Grows with AUM? |
|---|---|---|---|---|
| WACI | Intensity | Issuer revenue | No | No |
| Carbon footprint | Intensity | Invested value ($M) | Yes | No |
| Total / absolute financed emissions | Absolute total | None (tCO₂e) | Yes | Yes |
| Economic carbon intensity | Intensity | Issuer value (e.g. EVIC) | Yes | No |
The dividing line is the attribution factor. WACI sits alone on the left of it: alone among common portfolio metrics, it weights by portfolio share rather than attributing ownership of emissions, which is what makes it computable without issuer-value data. The carbon footprint and economic carbon intensity are also intensities but attribute emissions to invested capital first; absolute financed emissions drop the normalisation entirely and report the attributed tonnage.
WACI vs Absolute Financed Emissions
The two metrics most often confused are WACI and absolute financed emissions. They are complementary, not interchangeable.
| WACI | Financed emissions | |
|---|---|---|
| Type | Intensity | Absolute total |
| Question answered | How carbon-intensive are the holdings? | How much emission does the capital finance? |
| Needs an attribution factor? | No — weights by portfolio share | Yes — attributes ownership of emissions |
| Denominator | Issuer revenue | Issuer value (e.g. EVIC) |
| Grows with portfolio size? | No | Yes |
A fund can lower its WACI while its absolute financed emissions rise, simply by adding assets — the intensity is scale-free, the tonnage is not. Reporting WACI alone therefore masks a growing absolute footprint, which is why frameworks increasingly ask for both an intensity and an absolute metric side by side.
Worked Example — Three-Holding Portfolio
The calculation is a weighted average of per-issuer intensities. The illustrative portfolio below uses three unequal positions to show how a single high-intensity holding dominates the result even at a modest weight.
| Holding | Position ($M) | Weight | Emissions (tCO₂e) | Revenue ($M) | Intensity (tCO₂e/$M) | Contribution |
|---|---|---|---|---|---|---|
| Utility A | 20 | 0.20 | 900,000 | 3,000 | 300.0 | 60.0 |
| Manufacturer B | 30 | 0.30 | 240,000 | 4,000 | 60.0 | 18.0 |
| Software C | 50 | 0.50 | 25,000 | 5,000 | 5.0 | 2.5 |
| Portfolio WACI | 100 | 1.00 | — | — | — | 80.5 |
Each intensity is emissions ÷ revenue; each contribution is weight × intensity. Summing the contributions gives a portfolio WACI of 80.5 tCO₂e per $M revenue. Utility A holds just 20% of the portfolio by value but supplies 60.0 of the 80.5 — roughly three-quarters of the metric — because its intensity is sixty times Software C’s. The figures here are illustrative inputs chosen to demonstrate the arithmetic, not sourced emission factors.
Because a single high-intensity name can dominate WACI, decompose the metric into per-holding contributions before acting on it. A portfolio’s WACI movement quarter-on-quarter is usually traceable to one or two positions — the contribution column, not the headline figure, is where the story is.
Strengths and Limitations
WACI is simple to compute and requires no ownership or issuer-value data, which is why it became the original TCFD headline metric and a common input to IFRS S2 disclosures. Its weaknesses follow from the same construction. Because the denominator is revenue, WACI is sensitive to revenue swings, to currency translation when issuers report in different currencies, and to inflation that lifts nominal revenue without changing physical output — all of which move the metric without any change in real emissions. It is dominated by outlier holdings, says nothing about the absolute scale of emissions financed, and embeds whatever scope coverage the underlying issuer data carries: a WACI built on Scope 1 and 2 only is not comparable to one that includes material Scope 3.
Best practice pairs WACI with an absolute financed-emissions total derived from PCAF attribution, and discloses the scope coverage and revenue currency basis alongside the figure.
Regulatory Context — TCFD, PCAF, SFDR, IFRS S2
WACI’s disclosure footprint runs across the major climate-reporting frameworks. The metric is the same in each; what differs is whether it is recommended, required, or one option among several.
| Framework | WACI role | Reference |
|---|---|---|
| TCFD | Recommended portfolio metric for asset owners and managers; one of three suggested (total carbon emissions, carbon footprint, WACI). Framework superseded by ISSB / IFRS S2 from 2024. | View standard → |
| IFRS S2 / ISSB | Carries forward TCFD-aligned metric disclosure for financial institutions, including financed-emissions intensity reporting. | View standard → |
| PCAF | Standardises the attribution-based absolute and economic-intensity metrics that complement WACI; WACI itself needs no attribution. | View standard → |
| SFDR (EU) | The GHG-intensity Principal Adverse Impact indicator is closely related; many EU managers report a WACI-style intensity to meet PAI obligations. | No GreenCalculus standards page yet |
WACI figures are only comparable when they share the same emissions scope coverage. A WACI built on issuer Scope 1 and 2 understates carbon-intensive sectors where Scope 3 dominates (energy, autos, materials). When comparing funds or tracking a target, confirm the scope boundary before treating two WACI numbers as like-for-like.
Five Common Mistakes
Frequently Asked Questions
Weighted Average Carbon Intensity is a portfolio metric — the portfolio-weighted average of each holding’s emissions per unit of revenue. Recommended by the TCFD, it measures how carbon-intensive a portfolio’s holdings are, expressed typically in tCO₂e per $M revenue. It weights by portfolio share and needs no attribution factor.
For each holding, divide issuer emissions by issuer revenue to get its carbon intensity, then multiply by the holding’s portfolio weight (position value ÷ total portfolio value). Sum those weighted intensities across all holdings. The result is the portfolio WACI in tCO₂e per $M revenue. Because the weights sum to one, the figure does not change if every position is scaled up or down proportionally.
WACI is an intensity that weights by portfolio share and uses issuer revenue as the denominator; it needs no attribution factor. Financed emissions are an absolute total that attributes ownership of emissions using an attribution factor and an issuer-value denominator such as EVIC. WACI does not grow with portfolio size; financed emissions do.
Most commonly tCO₂e per $M of issuer revenue. The unit matters for comparability: two WACI figures are only comparable if they share the same revenue currency basis and the same emissions scope coverage. Currency translation and inflation can move the revenue denominator, and therefore WACI, without any change in underlying emissions.
Both. WACI shows intensity and is easy to compute; absolute financed emissions show scale and ownership. Reporting only WACI can hide a rising absolute footprint as a portfolio grows, so current frameworks increasingly expect an intensity and an absolute metric side by side. Pair WACI with a PCAF-attributed total.
Under the TCFD, WACI was a recommended portfolio metric — one of three suggested for asset owners and managers — rather than mandatory. Its successor regime, IFRS S2, carries forward TCFD-aligned metric disclosure. In the EU, a closely related GHG-intensity indicator is part of SFDR Principal Adverse Impact reporting, so many managers report a WACI-style intensity to meet that obligation.