Publication / 21 Oct 2010

Carbon Risks and Opportunities in Emerging Markets

Trucost study on the exposure of different regional equity strategies to carbon costs.

The study examines opportunities for fund managers to manage financial risk from rising carbon costs by tilting their portfolios toward more carbon-efficient companies in emerging markets, whilst maintaining financial performance consistent with the market benchmark.

Trucost analysed the carbon footprint of the S&P/IFCI Carbon Efficient Index, which enables investors using the index as a benchmark to shift assets towards carbon-efficient companies. This could help encourage listed companies in emerging markets to compete for capital on carbon efficiency and make the transition towards low-carbon fuels, technologies and processes.

The main findings are that companies in the S&P/IFCI LargeMidCap Index emit 563 metric tonnes of GHGs, measured in carbon dioxide equivalent (CO2e), per US$ million of revenue on average. Emerging-market equity funds could be more exposed to rising carbon costs than portfolios benchmarked against developed market indices such as the S&P 500 and MSCI Europe. However, the S&P/IFCI Carbon Efficient Index, which contains the same constituents as the S&P/IFCI LargeMidCap, but with index weight adjustments to reduce exposure to carbon emissions, has a smaller carbon footprint at 440 tCO2e/US$ mn.

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