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Carbon Counts Asia 2007: the carbon footprints of Asian investment funds

Publication Date:

11 December 2007

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Key Findings

The MSCI Asia ex-Japan index is more carbon intensive than the MSCI All World Developed, S&P 500 and MSCI Europe indices.
This suggests that investors in Asian equities have a relatively higher exposure to the cost of carbon emissions.
Carbon-intensive companies in the utilities and basic resources sectors contribute most to the carbon footprint of the MSCI Asia ex-Japan index.
The carbon intensity of 54 out of 90 funds of Asian companies analysed is greater than that of the MSCI Asia ex-Japan index.
The carbon footprints of funds analysed varies dramatically: the diversified fund with the biggest footprint is over 90 times more carbon intensive than the diversified fund with the smallest footprint.
The carbon intensity of portfolios can be reduced by overweighting carbon-efficient companies and underweighting carbon-inefficient companies while keeping the stock universe constant and maintaining sector allocations. It is possible to reduce fund exposure to future carbon liabilities without affecting returns.
Trucost has optimised the MSCI Asia ex-Japan index. The Trucost Carbon Optimised Tracker Portfolio matches the financial performance of MSCI Asia ex-Japan while increasing carbon-efficiency by an average of 31%.

Extract

Climate change presents new risks and opportunities for investors, companies and policymakers. Regulatory actions to reduce global warming including emissions trading schemes, carbon taxes and emissions limits are creating a monetary cost for carbon and other greenhouse gas emissions. Countries with varied levels of industrialisation are likely to increasingly require companies to bear the environmental costs of emissions from their operations and supply chains.

Carbon Counts Asia 2007 examines the carbon footprints of the MSCI Asia ex-Japan index and 90 funds in Asia for the first time. The report identifies potential opportunities for fund managers to control and measure the risks associated with carbon emissions in their portfolios without sacrificing returns.

Why did the IFC commission the research?

Carbon Counts Asia 2007 examines the carbon footprints of the MSCI Asia ex-Japan index and 90 funds in Asia for the first time. The report identifies potential opportunities for fund managers to control and measure the risks associated with carbon emissions in their portfolios without sacrificing returns. The International Finance Corporation commissioned Trucost to undertake this study in order to measure the carbon impact of these funds and to identify the potential to reduce associated risks.

Report image: Carbon optimising portfolios

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