# Sustainability Manifesto for Financial Products: Carbon Equivalence Principle

**Authors:** Chris Kenyon, Mourad Berrahoui, Andrea Macrina  
**arXiv:** [2112.04181](https://arxiv.org/abs/2112.04181)  
**Date:** 2021-12-08  
**Summary page:** https://www.summarizepaper.com/en/paper/2112.04181v1/

## Key points

- The concept of sustainability is increasingly important in financial markets
- The use of the label "Green" has emerged as a way to address sustainability
- Controversy surrounds the acquisition of the "Green" label for financial products
- Carbon impact is a useful focus when understanding sustainability in financial products
- Carbon impact can range from zero to various sizes, encompassing emissions and sequestration
- Different financial products have different effects on carbon levels, ranging from carbon neutral to contributing significantly to carbon emissions
- Timing and duration of carbon impact are important factors to consider
- The authors propose the Carbon Equivalence Principle (CEP) for financial products
- The CEP suggests including the carbon effect as a linked term sheet compatible with existing bank systems
- Incorporating the CEP improves transparency and understanding of carbon impact associated with investments
- Financial institutions can align their product offerings with sustainability goals by following the principles outlined in this manifesto

## Summary

The concept of sustainability is increasingly important in financial markets, and the use of the label "Green" has emerged as a way to address this issue. However, there is controversy surrounding the acquisition of this label for financial products, as it carries potential benefits but also inadequately represents the true carbon impact. In order to understand sustainability in financial products, it is useful to simplify it by focusing on carbon impact. Carbon impact can range from zero to various sizes, and it encompasses both carbon emissions and sequestration. This means that financial products can have different effects on carbon levels, ranging from being carbon neutral to contributing significantly to carbon emissions, such as in the case of a coal power plant. Furthermore, it is important to consider the timing and duration of carbon impact. For example, a planted forest takes time to grow and sequester carbon while a coal power plant emits carbon over time. This highlights the need for a more nuanced approach that goes beyond a binary label. To address these issues, the authors propose the Carbon Equivalence Principle (CEP) for financial products. The CEP suggests that the carbon effect of a financial product should be included as a linked term sheet compatible with existing bank systems. This could take the form of a single flow summary or a linked termsheet describing the volume and timing of carbon impacts. By incorporating the CEP into existing bank systems, financial institutions can directly align their product offerings with sustainability goals. This improves upon non-compatible disclosure proposals and allows for better transparency and understanding of the carbon impact associated with investments. Overall, this manifesto emphasizes the importance of considering carbon impact in financial products and proposes practical solutions for integrating sustainability into existing banking systems. By following the principles outlined in this manifesto, financial institutions can play an essential role in promoting sustainable practices and mitigating climate change.