Key Findings

• The combined global emissions associated with fund holdings analysed amount to over 615 million metric tons of greenhouse gases. This is equivalent to 8.6% of US emissions in 2007.
• For each million dollars of revenue generated by companies in the S&P 500, 384 metric tons of greenhouse gases are emitted.1 The carbon intensity of the S&P 500 is slightly higher than that of the MSCI Europe Index and more than 50% lower than the relatively carbon-intensive MSCI Asia ex-Japan Index.
• The carbon intensity of funds varies widely. The highest-carbon fund analyzed is 38 times more carbon intensive than the fund with the lowest carbon footprint. Funds with lower carbon intensities are likely to be less exposed to carbon pricing introduced under cap-and-trade programs.
• The combined funds analyzed are 13% less carbon intensive than the S&P 500 Index. Aggregated fund holdings are associated with 335 metric tons of greenhouse gas emissions per million dollars of revenue.
• Fund holdings were also aggregated according to their investment styles. Of these, combined Sustainability/SRI funds have the smallest carbon footprint. However, within this category, carbon efficiency varies widely - some of the largest SRI funds are more carbon intensive than the S&P 500. The combined Country/Regional funds have the largest carbon footprint and are therefore most exposed to potential carbon costs.
• Fund managers can reduce fund exposure to carbon liabilities without sacrificing returns. A UBS Europe Carbon Optimized Index, which invests more in carbon-eff cient companies while keeping the stock universe constant relative to the DJ STOXX 600, has achieved a 39% lower carbon footprint while closely tracking the financial performance of the underlying index.
• Index provider Standard & Poor's has launched the S&P U.S. Carbon Efficient Index using Trucost carbon data to select companies with low carbon emissions relative to sector peers, reducing carbon intensity by 48% while seeking to closely track the returns of the S&P 500.

Why did Trucost carry out the research?

Trucost carried out this research to examine how the differing approach to stock selections characteristic of each style could affect the carbon intensity of funds. Funds comprised of companies that are carbon-efficient relative to sector peers may be less exposed to escalating carbon liabilities. Funds with low carbon intensities will be better placed for sustained returns from companies that will be well-positioned under carbon constraints.

The report highlights some of the tools and opportunities available to investors to manage fund carbon risks. Trucost outlines how the index provider Standard & Poor's and financial firm UBS are using carbon data to create investment strategies with reduced carbon intensity and exposure to carbon liabilities.

Report image: Distribution of fund carbon footprints

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