Carbon Counts 2008: the carbon footprints of Australian superannuation investment managers
09 September 2008
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The combined emissions associated with portfolio holdings amount to 1.4% of Australia’s emissions in 2006, or 5.9 million tonnes of greenhouse gases.
For every million Australian dollars of revenue generated by companies in the ASX 200 Index, 370 tonnes of greenhouse gases are emitted. The carbon footprint of the ASX 200 is 20% larger than the carbon footprint of the MSCI All World Developed Index and almost 40% smaller than the relatively carbon-intensive MSCI Asia ex-Japan Index.
The carbon intensity of Superannuation Funds varies widely. There is a 36% difference between the largest and smallest carbon footprints of Funds and an eightfold variation in effi ciency between individual portfolios. Funds with smaller carbon footprints are less exposed to carbon costs which are expected to escalate.
The aggregated holdings of the portfolios analysed, valued at A$31.6 billion1, are 4% more carbon effi cient than the ASX 200 Index, at 357 tonnes of greenhouse gas emissions per A$ million of revenue.
Of the aggregated portfolios within each investment style, Growth and Sustainability portfolios have the smallest carbon footprints. The Enhanced Index portfolios together have the largest carbon footprint and are most exposed to carbon costs.
The carbon intensity of holdings in each sector varies between different investment styles, indicating variations in exposure to carbon risks.
The report highlights opportunities to reduce the carbon footprints of investments. Portfolios can be carbon optimised to reduce their carbon intensity. This approach rebalances holdings to overweight carbon efficient companies and underweight carbon-intensive companies relative to a benchmark.
Trucost has carbon optimised the ASX 200 to reduce its carbon footprint by 42%. Keeping the stock universe constant and maintaining sector allocations, a portfolio’s exposure to carbon liabilities can be reduced without sacrificing returns.
This ground-breaking collaboration with the Australian Institute of Superannuation Trustees provides the first assessment of the carbon footprints of 14 of the largest Superannuation Funds in Australia. The report examines the greenhouse gas emissions associated with 100 equity portfolios that employ different investment styles: Growth, Value, Sustainability, Index, Enhanced Index, Core and Small/Mid Caps.
Why did AIST commission the research?
AIST was the first independent professional body of its kind to commission a quantitative assessment of carbon risks across Australian Superannuation investment managers. As owners of major corporations, Superannuation Funds need to understand how the value of their investments could be affected by the physical impacts of climate change, as well as by Government regulations to control greenhouse gas emissions.
Trustees will increasingly expect asset managers to identify portfolio holdings with the greatest financial risk from carbon costs. The report that Trucost produced for AIST has taken the lead in identifying how Australia’s Superannuation Funds and their external investment managers are positioned with respect to a policy framework that imposes the costs of greenhouse gas emissions on company balance sheets.
Report image: Distribution of portfolio carbon footprints