Note:ThefollowingisaredactedversionoftheoriginalreportpublishedJuly25,2023[27pgs].

25July2023|4:48PMEDT

GSSUSTAIN:AvoidedEmissions

HowquantifyingAvoidedEmissionscanbroadenthedecarbonizationinvestmentuniverse

Whileinvestinginclimatesolutionshasbeenoneofthemostdominantthemes

BrianSinger,CFA

+1(212)902-8259|brian.singer@

amongSustainabilityinvestorsinrecentyears,ESGownershipstillcontinuestobe

GoldmanSachs&Co.LLC

largelyconcentratedinasubsetofmore-obviouspureplaysolutionproviders,mainly

KeebumKim

+852-2978-6686|keebum.kim@

solar/wind/water.Webelievethishasbeeninpartdrivenbyrelativelackofmetrics

GoldmanSachs(Asia)L.L.C.

availabletohelpinvestorsquantifytheimpactofless-obviousenablersacross

BrendanCorbett

+1(415)249-7440|

multipleindustriesrangingfromIndustrials,MaterialstoTechnology.However,our

brendan.corbett@GoldmanSachs&Co.LLC

analysissuggeststhatsince2010,EnergyEf?ciencyhashelpedtoreduce50%

EmmaJones

morecarbonemissionsthanrenewablesgenerationadditions.Webelieveas

+61(2)9320-1041|emma.jones@GoldmanSachsAustraliaPtyLtd

SustainableInvestingcontinuestoshiftFromAspirationtoAction,investorswilllook

XavierZhang

toquantifyimpact,withrisinginterestinAvoidedEmissionsforrelevantsectors.In

+852-2978-6681|xavier.zhang@GoldmanSachs(Asia)L.L.C.

thisreport,wediscusswhywebelieveincorporatingAvoidedEmissionsinto

DerekR.Bingham

investmentdecisionscouldhelpidentifyunderappreciatedenablersinthe

+1(415)249-7435|

derek.bingham@

ecosystemofGreenSolutions.

GoldmanSachs&Co.LLC

EvanTylenda,CFA

+44(20)7774-1153|

AvoidedemissionsimpactofBuildingInsulationandSemiconductors

evan.tylenda@

GoldmanSachsInternational

BothBuildingInsulationandSemiconductorscancontributetoAvoided

MadelineMeyer

Emissionsbyenablingend-consumerstosavemoreenergy.Ournewanalysis

+44(20)7774-4593|

madeline.r.meyer@GoldmanSachsInternational

suggestsBuildingInsulationcouldhelpavoid20X-100Xmoreemissionsthan

GraceChen

theyemit.Asperourprioranalysis,webelieveSemiconductorscouldhelpavoid

+44(20)7774-5119|grace.j.chen@GoldmanSachsInternational

atleast5Xtheirownfootprint.

VarshaVenugopal

+1(415)393-7554|

varsha.venugopal@

MethodologyandapplicationofAvoidedEmissionsanalysislikelytoseeincreasedfocus

GoldmanSachs&Co.LLC

Despitethechallengingdatalandscapeandlackofconclusivemethodologies,we

believepreliminaryanalysisofAvoidedEmissionscanstillbeadditivetothe

investmentprocesswhenappliedtoindustrieswithstrongtiestoenergyef?ciency,whichhasplayedacriticalroleinenablingglobalAvoidedEmissionsinrecent

decades.WediscussearlyguidelinessetbytheWRIandWBCSDonhowinvestorscanstarttomeasureAvoidedEmissions,andprovideexamplesofhowcorporatesandinvestorsarecurrentlyleveragingAvoidedEmissionstocommunicatetheir

impact.

GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,

investorsshouldbeawarethatthe?rmmayhaveacon?ictofinterestthatcouldaffecttheobjectivityofthis

report.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcerti?cationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html.Analystsemployedbynon-USaf?liatesarenotregistered/quali?edasresearchanalystswithFINRAintheU.S.

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20232

TableofContents

PMSummary3

Scope4:Thenextfrontierofemissionsboundariesthatcouldhelpquantifytheimpactofunderappreciated

enablers7

EnergyEf?ciency:Asigni?cantenablerofavoidedemissions

10

Generalframeworkstomeasureavoidedemissions

12

Howarecompaniesandassetmanagerscurrentlyassessingavoidedemissions?

18

GSSUSTAINanalysisonavoidedemissionsfromBuildingInsulationandSemiconductors

20

DisclosureAppendix

23

ThefollowingisaredactedversionofGoldmanSachsResearch’sreport“GSSUSTAIN:AvoidedEmissionsHowquantifyingAvoidedEmissionscanbroadenthedecarbonizationinvestmentuniverse”originally

publishedJul.252023(27pgs).Allcompanyreferencesinthisnoteareforillustrativepurposesonlyandshouldnotbeinterpretedasinvestmentrecommendations.

GoldmanSachsGSSUSTAIN:AvoidedEmissions

PMSummary

Avoidedemissionsprovideadditionalinsightsthatcanhelpbroadenthedecarbonizationinvestmentuniverse

AsSustainabilityinvestingmaturestothe“Measurement”phaseofitscycleand

becomesmoreforward-looking,thereisrisingfocusonhowtoquantifyimpact—

whetherenvironmentalorsocial.Investingindecarbonizationhasbeenastrongareaoffocusinparticular,andwecontinuetoseeinvestorsandcorporatesfocusingonthe3Ps—Plan,PathandPerformance.Weseeavoidedemissionsamongthe?vekey

metrics(Exhibit1)investorswillincreasinglyconsiderinordertoidentifysectorsthatplayacriticalroleintransition.Avoidedemissionscanbeadditivetotheinvestmentprocess,providinginsightsthatcannotbemeasuredthroughconventionalemissionsreportingboundaries(i.e.,Scope1-3).Whiletheconcepthasbeenbroadlyadoptedbythemarketforpure-playgreensectors(insomecasesimplicitly),applicationhasbeenrelativelylimitedforless-obviousenablingindustries.Webelieveadoptingavoidedemissionsanalysisforunderappreciatedenablingsectorscanhelpbroadenthedecarbonizationinvestmentuniverselonger-term.

GSSUSTAINClimateTransitionTool

Ourtoolprovidesaviewoncompanies'climatetransitioneffortsthroughtwolenses:(1)ourTransitionPlan

TransparencyScoreand(2)ourTransitionPerformanceScore.

1.TransitionPlanTransparencyScore:thisisanabsolute

assessmentofcompanies’disclosuresacrossmetricswhichdemonstrateifacompanyhasatransitionstrategyinplace,howintegratedthestrategyiswiththebroaderbusiness

strategy,andthequalityoftheirreporting.

2.TransitionPerformanceScore:thisisasector-relative

assessmentacrossindicatorswhichdemonstratehow

companiesareperformingrelativetopeersonreducingtheircarbonemissionsfootprintandhowtheyareshiftingtheir

productmixorbusinessmodelstowardslowercarbonoutcomes.

Exhibit1:Webelieveavoidedemissionsisacriticalbuildingblockmetricthatcanhelpinvestorsquantifyandmeasurecorporates’climatetransitionprogress

ThethreeP'skeyformeasuringclimatetransitionprogress

TransparencyofclimateUnderstandingHowgreenhousegasemissions

PlanPathPerformance

transitiongoalsregardlessoftiming/catalystsforlowerintensityandbusinessmix

whatthespecificgoalmaybe.corporateemissions.compareswithpeers.

Fivemetricsthatwillbeinfocusbyinvestorsacrosscompaniesinmultiplesectorsimportanttotheenergytransition

GreenRevenue

Amountorpercentageofrevenuelinkedtosustainableusecasesorclimatetransition

activities.GSSUSTAINoffersanalystforecastsforcompaniesin20sectors.OurEUTaxonomytoolestimatesGreenRevenueeligibilityandalignmentfor7,000companies.

GreenCapex

Amountorpercentageofcapex+R&Dlinkedtosustainableusecasesorclimatetransitionactivities.GSSUSTAINoffersanalystforecastsforcompaniesin19sectors.

Emissionsintensity

Scope1+2greenhousegasemissionsdividedbykeyindustryoperationalmetrics(GWhof

generationforutilities,tonsofsteelforsteelcompanies,revenuepassengerkmforairlines,etc.)andpathforward.GSSUSTAINoffersanalystsforecastsforcompaniesin10sectors.

Avoidedemissions

Howasector/company'sproductshelptoavoidemissionsbycustomersor

customers/customersifadirectimpactusinghistoricaldatacanbedetermined.GSSUSTAINestimatedemissionsavoidedforBuildingInsulationandSemiconductors.

Accountability

Disclosurewhethermanagementisincentivizedtomeetitsclimatetargetsand/oronthebasisofthemetricsabove.

Source:GoldmanSachsGlobalInvestmentResearch

Sectorstiedtoenergyef?ciencyarecriticalenablersofavoidedemissions

Energyef?ciencygainshavehistoricallybeenoneofthestrongestenablersof

avoidedemissions,whichpartlyexplainswhyindustrystakeholders(e.g.,IEA,UN)

havecoinedenergyef?ciencyasthe“?rstfuel”policymakersmustaddressinordertopromoteglobalclimatechangemitigationobjectives.Forbackground,globalenergy

25July20233

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20234

relatedCO2emissionshaveincreased<10%acrossthepastdecade(2010-2022),

despitea~40%expansioninrealGDP.Inotherwords,althoughabsoluteemissions

haverisen,asigni?cantamountofemissionswasavoidedgloballyasaresultof

renewableenergyexpansionandenergyef?ciencygains.Whiletheroleofrenewableshasoftenbeenacknowledgedbyindustryparticipantsandinvestors,webelieveenergy

ef?ciencyenablershavenotbeenasprominentlyfeaturedinthebroaderdecarbonizationdebatebymarketparticipants.

Ourscenarioanalysissuggestsenergyef?ciencygainsacrosstheeconomyhave

contributedto60%oftheavoidedemissionsgloballybetween2010-2022,with

renewablescontributingtheremaining40%(Exhibit2).Despitetheirimpact,sectors

thatenableenergyef?ciencyrangingfromIndustrials,MaterialstoTechnologyarestill

broadlyunder-representedinESGportfoliosinpartbecausetheirbene?tsareless

visibleandoftenunmeasured.Webelievesectorstiedtoenergyef?ciencycanbene?tfromincreasinginvestorsupportwhenassessedthroughthelensofavoidedemissions.

Exhibit2:Overthepastdecade,energyef?ciencygainsacrosssectorshaveplayedagreaterroleindrivingavoidedemissionsthanrenewablesdeployment

Attributionanalysisofavoidedemissionsfromrenewableenergydeploymentandenergyef?ciencygains(2010baseline)

Energyefficiencydrove60%ofemissionsavoidanceinthepastdecadevs.aBAUscenario,

whilerenewablescontributedto40%.

45.0

EnergyrelatedCO2emissions(Gt)

30.0

15.0

0.0

30.4

12.2

-3.7

33.2

-5.7

2010

Growthinemissionswithoutefficiencygainsandrenewables

Renewablesdrivenavoidedemissions

EnergyEfficiencydrivenavoidedemissions

2022

Source:IEA,WorldBank,UN,GoldmanSachsGlobalInvestmentResearch

Preliminaryframeworksexisttoguideinvestorsandcorporateslookingtoadoptavoidedemissions

Despitethelackofconclusivemethodologiestoestimateavoidedemissionstodate,thereareearlyinitiativestoaccelerateadoptionofthesemetrics.Unlike

conventionalcorporateGHGinventories(i.e.,Scope1-3)whichtendtofollowfairly

standardizedapproachesinmeasurementandreporting,therearemultipleapproachesthatcanbeleveragedtoestimateavoidedemissions(alsocommonlyreferredtoas

“Scope4”emissions).Avoidedemissionsestimatesultimatelyrequireananalysisoffactual(or“basecase”estimatesiffactualdataisnotfullyunavailable),aswellas

“counterfactual”scenariostocomparehowglobalemissionsoutcomeswouldhavevariedfromthebasecaseifcertainactionswerenottaken.

Whilenotexhaustive,ourreportsummarizesbroad-basedrecommendationssetbyvariousorganizations,includingtheWorldResourcesInstitute(WRI)andtheWorld

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20235

BusinessCouncilforSustainableDevelopment(WBCSD)whichhavebeenwidely

referencedbystakeholderslookingtoassessavoidedemissions.Wediscussthekeystepsthatarerecommendedtoassessavoidedemissions,startingfromlifecycle

emissionsanalysis(Exhibit3)andconstructionofbasecase/counterfactualscenarios(Exhibit4)neededtoestimateavoidedemissions.Frameworkstomeasureavoidedemissionswilllikelycontinuetoevolvethroughindustryandgovernmenteffortstoharmonizestandardsandincreasedataavailability.

Exhibit3:Assessingproductsfromalifecycleperspectivecanhelpinvestorsgaininsightsonavoidedemissionscontributionsfromenablingvs.alternativeproducts

Illustrativeanalysisofhowlifecycleemissionsassessmentscanleadtoavoidedemissionscalculations

aEmissionsfromEmissionsfrom

productionprocessend-use

EmissionsfromrawmaterialsaEmissionsfromdistribution

Emissionsavoidedby

Primaryproduct

Comparativeproduct

nEmissionsfromdisposal

c

displacing

omparativeproduct

Source:GoldmanSachsGlobalInvestmentResearch

Exhibit4:Investorscanassesshowthedeploymentofcertain

enablingproductscouldleadtolowerlevelsofglobalemissionsrelativedtoascenariowherethesolutionisnotdeployed

Overviewofavoidedemissionsestimationprocess

CounterfactualScenarioemissions

AvoidedEmissions

BaseCaseScenarioemissions

Timelineforanalysis:2022-2035

2019

2020

2021

2022

2023E

2024E

2025E

2026E

2027E

2028E

2029E

2030E

2031E

2032E

2033E

2034E

2035E

Source:WRI,WBCSD,GoldmanSachsGlobalInvestmentResearch

GSSUSTAINanalysisonavoidedemissionsfromBuildingInsulationandSemiconductors

Inadditiontodiscussinggeneralframeworks,weanalyzedavoidedemissionsofkey

productswithinindustrieswebelievecanplayacriticalroleinclimatetransition,startingwithBuildingInsulationandSemiconductors.Onaggregate,ouranalysissuggests

BuildingInsulationcouldhelpavoid20X-100Xmoreemissionsthantheyemit,whileSemiconductorscouldhelpavoidatleast5Xtheirownfootprint.

nBuildingInsulationisanenablerofhouseholdenergyef?ciency.Comparedtoanuninsulatedhome,insulatedbuildingscanleadto40%-45%energysavingsforspaceheatingandcooling,pertheVictorianStateGovernmentofAustraliaand

ourEuropeanInfrastructure/Construction&Transportcolleagues’conclusionsfromthe2022Insulationinitiationreport.Basedonouranalysis,incrementalBuilding

Insulationproductsdeployedbetween2015-2030couldhelpreduceannual

householdenergyconsumptionby9EJ,ora14%reductionrelativetoa

counterfactualno-insulationdeploymentscenario.By2030,ouranalysisimpliesthiswouldmeanthatincrementalinsulationdeploymentfroma2015baselinewould

leadto0.9GtofCO2annualavoidedemissionsin2030,or~3%ofglobalenergy-relatedemissionsin2019.

nTechnologicaladvancementinSemiconductorshasbeenanimportant

contributorofenergyef?ciencygainsforthemoderndigitalinfrastructure.

Exponentialgrowthinsemiconductorcomputingperformance,combinedwithgains

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20236

inenergyef?ciencyandcostde?ationhaveenabledlargescaleadoptionof

semiconductorsacrossmultipletechnologieswhichhaveultimatelybene?tedfromenergyef?ciencygains.Together,weestimatethatadvancementsinsemissince2015contributedto1-2Gtofcarbondioxideemissionsavoidedin2020(>3%ofglobalEnergyemissions),andseepotentialforanadditional2-5Gtofannual

avoidanceby2025.

Formoredetailsonouranalysisandassumptions,pleasesee:

nGSSUSTAINAvoidedEmissions:SizingtheunderappreciatedenablingimpactofBuildingInsulation(July2023)

nGSSUSTAIN:Greenablers:ThecriticalroleofSemiconductorstowardsasustainablefuture(Nov2021)

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20237

Scope4:Thenextfrontierofemissionsboundariesthatcouldhelpquantifytheimpactofunderappreciatedenablers

AsdiscussedinourGreenCapexresearchseries,webelievedecarbonizationwillbeasecularinvestmentthemerequiringanall-inapproachtodeployamultitudeofenablingsolutions.WhiletheecosystemofGreenCapexsolutions(Exhibit7)isvastand

inclusiveofvariousindustries(manyofwhicharenotcommonlyperceivedas

“Green”),thecurrentholdingscompositionofglobalESGfundsislargelyconcentratedinonlyasubsetofpure-playverticals(Exhibit8-Exhibit9).

Avoidedemissionscanbeadditiveinourview,inthattheyhelpprovideinsightsthatcannotbemeasuredthroughconventionalemissionsreportingboundaries

(i.e.,Scope1-3).Theconceptofavoidedemissionsisnotnewforinvestors,companiesorgovernments.Thishasbeenbroadlyadopted,insomecasesimplicitly,bythemarketforpure-playgreenindustries—e.g.,low-carbonportfoliosfocusingonrenewablesandEVs,bothofwhichcanleadtoavoidedemissionsforthebroadereconomywhen

displacingfossilfueldemand.Inaddition,governmentshaveusedavoidedemissionsprinciplestosetnationaldecarbonizationtargetsundertheParisAgreement.NotethatmanyEMsacrossAsiaandelsewherehavedecarbonizationtargetssetagainsta

“Business-As-Usual”(BAU)scenario,whichmeansnationaltargetsarebasedon

avoidingemissionsthroughclimateactionrelativetoacounterfactualdo-nothing

scenario.Belowaretwoexamplesillustratingtheconceptofavoidedemissionsfor

solar/windpower(Exhibit5)andnationallevelavoidedemissionstargets(Exhibit6).

Exhibit5:Whendisplacingcoalpower,solarandwindplantscanavoid25X-100Xmoreemissionsacrosstheirlifecycle

Totallifecycleemissionsandvaluechainemissionsmixofsolar,windandcoalpowerplants

%oflifecycleemissions

100%

80%

60%

40%

20%

0%

40gCO2/kWh

1,000gCO2/kWh

Upstream(construction)Operational(usage)Downstream(disposal)

10gCO2/kWh

Solar/windplantscan

avoid25X-100Xmore

emissionsthanthe

emitacrosstheir

lifecyclewhen

displacingcoalpower.

SolarWindCoal

Source:NationalRenewableEnergyLaboratory,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Exhibit6:Indonesia’stargettoreducenationalemissionsby~32%vs.itsBAUscenarioby2030isanexampleofanational

decarbonizationtargetbasedonavoidedemissionsprinciples

Indonesia’s2030decarbonization(NDC)target

Indonesia'stargetemissions---Indonesia'stargetemissions

mntonnesofCO2e

3,100

2,900

2,700

2,500

2,300

2,100

1,900

1,700

1,500

Avoidedemissionsthrough2030

20202021202220232024202520262027202820292030

Source:UNFCCC,GoldmanSachsGlobalInvestmentResearch

25July20238

GoldmanSachsGSSUSTAIN:AvoidedEmissions

Exhibit7:TheecosystemofGreenCapexsolutionsisinclusiveofmultiplesectorsandtechnologies,manyofwhicharenotcommonlyperceivedtobe“Green”

Criticaltechnologies/focusareasandannualinvestmentinthe2020stoachieveNetZero,InfrastructureandCleanWaterneeds

Source:IEA,McKinsey,OECD,Companydata,GoldmanSachsGlobalInvestmentResearch

Exhibit8:OverweightpositionsbyESGfundsarehighlyconcentratedinWaterandRenewables

20mostoverweightindustries(GICS3)byESG-linkedequityfunds;boxesshowstrategy-wideESGownershipmomentum(vs.Mar2022)

Integration/EngagementSustainableThematic

1369%

700%600%500%400%300%200%100%0%

ESG

2676%

1182%

889%

-52%

-111%

-136%

21%

-5%

-138%

130%

247%

208%

-58%

-42%

-49%

-46%

61%

15%

14%

86%

7%

52%

-6%

-5%

Exhibit9:UnderweightpositionsinESGfundsarehighly

concentratedinTobacco,Aerospace&Defense,Oil&GasandMetals&Mining

20mostunderweightGICS3industriesbyESGfunds;boxesshowstrategy-wideESGownershipmomentum(vs.Mar2022)

0%

10%

-17%

6%

0%

-32%

-20%

-37%

1%

7%

-7%

-37%

-40%

22%

-4%

-53%

13%

-25%

-96%

11%

-60%

-18%

1%

-80%

SustainableThematic

1%

ESGIntegration/Engagement

-100%

Source:Morningstar,ThomsonReuters,GoldmanSachsGlobalInvestmentResearchSource:Morningstar,ThomsonReuters,GoldmanSachsGlobalInvestmentResearch

GoldmanSachsGSSUSTAIN:AvoidedEmissions

25July20239

Potentialshiftsinportfolionetzerotargetsettingmethodologiescouldcatalyzefocusonavoidedemissions

Wecontinuetoseemountingevidencefromleadingglobalclimatebodiesthatthewindowof

opportunityforachievingtheclimategoalsoftheParisAgreementisshrinking.Withoutsuf?cient

near-termaction,theIPCCwarnsthatwewillreach1.5°Cwarminginthe?rsthalfofthenextdecade.Withtheincreaseinurgencytodecarbonize,wehaveseenrisinginvestorfocusonportfoliodecarbonization,

withU$72trillioninAUMincorporatingNetZeroconsiderationsintotheirportfoliomanagement.Thatsaid,

weobserveawideninggapbetweenemissionsintensitygoalsoutto2030—selectinvestortargetscallforportfolioemissionsintensityreductionsataratethatismorethan2Xwhatisimpliedby

nationaltargets.

Longer-term,webelievethiscouldpotentiallyleadtoincreasingfocusbyassetmanagersonalternative

low-carboninvestingstrategies,withlessemphasisonsettingquanti?edportfoliodecarbonizationtargets.

Thismayincludeincreasinginvestmentinclimatesolutions(i.e.,focusonmaximizingavoided

emissionsinadditiontofocusingonminimizingcorporateScope1-3emissions),upstreamenabling

technologies,orlaunchingdedicatedengagementor“improvers”strategiestoworkwiththehighest

emittingcompaniestoachievemoreaggressivedecarbonizationoutcomes.Ultimately,increasingfocusoninvestinginclimatesolutionscoulddrivegreaterneedtoincorporateavoidedemissionsinto

investmentdecisionsinordertoexpandtheinvestmentuniversebeyondalimitedsetofpure-playgreensectors.

Formoredetails,pleaseseeGSSUSTAIN:NetZeroGuide:TheDecarbonisationDislocationbetweeninvestorandnational-level2030targets.

Exhibit10:Selectinvestoremissionsintensitytargetsimplya2xgreaterreductionthancurrentnational-leveltargets

Indexed(i)regionalemissionsintensity(perunitofUS$GDP)pathwaysimpliedbykeyeconomies’statedNDCsand(ii)weightedaverageemissionsintensitytargets(per$mninvestedorWACIofholdings)to2030vs2019baseline.

Index(2019baseline)

140

130

120

110

100

90

80

70

60

50

40

APACAmericasEUEMEAex.EU--WorldSelectInvestors*

HistoricalTargetimplied

2019baseline

CurrentNationaltargets

implyreductionsofless

than50%acrossall

regions(2030vs2019).

SelectInvestor*targets

implyreductionsgreater

than50%

(overthesameperiod).

World:76

(24%reductionvs2019)

Morethan2xgreaterreductions

SelectInvestors*:48

(52%reductionvs2019)

2010201520202025E2030E

“Select