Online tool reveals investment exposure of funds to climate risk
An online tool calculating the carbon footprint of 8,500 international funds worth more than $11 trillion was launched last week in London. It covers funds in the U.K., U.S., Germany, France, Denmark and Hong Kong, screening up to 3,000 funds in each market. It potentially allows any investor to see the degree to which he or she might be threatened by high carbon investments.
The tool, fossilfreefunds.org, allows the investor to search for mutual fund by name, ticker or fund family. It has been launched by the non-profit organization As You Sow, with financial data from Morningstar and carbon footprint data from South Pole Group and YourSRI.
It exposes the U.K.’s dirtiest fund to be a BlackRock fund that invests in eastern Europe and Asia. BlackRock’s $124 million Emerging Europe (LON:BEEP) fund has a carbon footprint 176 times greater than the U.K.’s cleanest fund - $270 million Royal London Sustainable World Trust, a fossil free fund.
BlackRock last month issued a report warning that climate change was a big investment risk.
There are sharp contrasts among the 1,300 UK funds included and worth over $731.4 billion. The $14.26 billion Invesco Perpetual High Income Fund, the biggest U.K, fund in the study for example, is three times more exposed to carbon than the $9.6 billion Stewart Investors Asia Pacific Leaders Fund, the fourth biggest. The $6.8 billion M&G Global Dividend Fund, the ninth biggest, is seven times more exposed.
Mark Carney, Governor of the Bank of England and chairman of the international Financial Stability Board (FSB) has warned that action to meet global climate change targets could leave fossil fuels and other high-carbon investments as worthless stranded assets, threatening investors with huge losses. The FSB has set up a task force to recommend how asset owners and the companies they invest in should report the potential impact of climate change on their bottom line.
“Transparency leads to transformation. Measuring a company’s carbon emissions is a critical way to understand the climate risk in your investments. This tool enables every investor to answer the question, ‘Am I investing in my own destruction or the clean energy future?” said Andrew Behar, CEO of As You Sow.
The analysis compares funds against a slate of benchmarks, including the FTSE 100 and 250, S&P 100 and 500, and the MSCI All World Index. BlackRock Emerging Europe’s relative carbon footprint is over 10 times higher than the MSCI Emerging Markets Index, it reveals.
Nine other sector-diversified funds with a combined value of £2.5 billion are between four and seven times higher than the FTSE 100, including funds managed by Standard Life Investments, Schroder plc (LON:SDR) - the U.K.’s largest listed asset manager, GAM (SWX:GAM), Ecofin (LON:EGL) and Invesco (NYSE:IVZ) Perpetual.
Beware the names of funds as a reflection of reality, suggests the analysis. The Jupiter Ecology Fund, with assets of £505 million, has carbon at 41 percent higher than the FTSE100.
Alliance Trust (LON:ATST) manages five of the 10 cleanest funds including the biggest, its £553 million Sustainable Future Managed fund which has a relative carbon footprint measuring at less than one fifth of the benchmark.
Traditional fossil free investment approaches avoid companies with coal, oil, and gas reserves and their future greenhouse gas emissions. But the focus of carbon foot-printing is towards current emissions, helping to identify businesses which operate with lower footprints than their industry peers.
“De-carbonizing” a portfolio involves investing in companies that have lower carbon footprints than their peers. Institutional investors such as California’s CalPERS and Sweden’s AP4 have embraced carbon foot-printing as a way to protect their assets from climate risk.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com