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Carbon Counts 2007: the carbon footprints of UK Investment Funds
16 July 2007
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Overview
- Trucost has calculated the Carbon Footprint of 185 UK Equity Investment Funds.
- The Carbon Footprints of the funds analysed varies dramatically. The most carbon-intensive fund has a footprint almost ten times as large as the least carbon-intensive fund.
- The 3 funds with the lowest Carbon Footprint are Socially Responsible Investment (SRI) funds.
- Although three quarters of SRI funds have a smaller Carbon Footprint than the benchmark, one quarter of SRI funds are more carbon-intensive than the benchmark.
- Half of the ten most carbon-efficient funds are Growth funds.
- The Trucost Carbon Optimised Tracker Portfolio matches the financial performance of the FTSE 350 (ex. Investment Trusts) whilst increasing the carbon-efficiency by an average of 25% per annum over an 8 year period.
- Trucost have carbon optimised a Growth Fund from the study improving the carbon-efficiency by 21% without effecting the financial performance.
- There is no correlation between the Carbon Footprint of funds and financial performance.
- There is no correlation between the Carbon Footprint of funds and fund size.
- Fund managers are now able to reduce the carbon emissions of their investments without sacrificing financial performance by using Trucost’s data and analysis.
Extract
In this study, Trucost analyses and ranks the Carbon Footprint of 185 of the UK’s largest investment trusts and mutual funds. Together, these funds have a total of £73.65 billion of assets under management. The Carbon Footprint is the total carbon emitted by the companies that make up each fund’s holdings per million pounds invested. This is calculated by measuring each company’s CO2 emissions and allocating them to each fund in proportion to its shareholding. This measure is referred to as the “carbon intensity” or “Carbon Footprint” and allows valid comparison between funds irrespective of the size of different businesses.
Why did Trucost carry out the research?
Climate change presents a new category of risk and opportunity for individuals, companies and investors alike. When Sir Nicholas Stern released his report ‘Economics of Climate Change’ in October 2006, he identified Climate Change as the ‘biggest market failure the world has ever seen’. Increased recognition that investments contain carbon risk has driven demand for investment products that specifically address this issue. Companies are increasingly aware that they may face higher costs as they are increasingly forced to bear the environmental costs of their carbon emissions and those in their supply chain. This Trucost report provides valuable information to fund managers looking to control and measure the risks associated with carbon emissions in their portfolios, as well as individual investors seeking to get the most out of their investments while taking greater responsibility for the environment.
Report image: Financial performance
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