Cutting our investment carbon footprint

Sam Slator 02/05/2019 in Sustainable investing

I thought I was doing OK in terms of being more environmentally-friendly in recent years.

Yes, I have a diesel car which I drive too much, but I recycle as much as I can: plastics, paper – even clothes in my children’s school ‘phil-a-bag’ fundraiser. I’ve started using soap instead of shower gel as it uses less packaging and, now I do online shopping, our food waste has dropped considerably.

But all the talk of climate change this week prompted me to go on the World Wildlife Fund website to see just how big my environmental footprint is.

It’s 276% of the UK’s 2020 target! And certainly nowhere near the near-zero emissions the Committee on Climate Change want the UK to have by 2050.

To say I was shocked is an understatement. On the positive side, at least I have a goal now and some more tips on how to achieve it.

Carbon-emitting ISAs and pensions

But what about our investments? Our ISAs and our pensions? You may be surprised to learn that some asset managers already measure the carbon footprint of their funds: in simple terms, CO2 emissions per £1 invested.

A carbon footprint score will depend on the industries in which a fund invests. A global energy fund, for example, will score very badly. Oil and gas companies, plus power generation, then aviation and automotive sectors are all carbon-heavy.

Healthcare funds and technology funds – such as Elite Rated Polar Capital Global Healthcare Trust and AXA Framlington Global Technology – will score very highly. Both of these sectors have a very light manufacturing footprint and companies are largely asset-light and hi-tech in nature. Many have also been early adopters of environmental initiatives and technology to ensure that they are in a position where being ‘carbon-aware’ is very much part of the core brand.

Ethical funds, which have been around for more than three decades in the UK, will also tend to have a lower-than-average score.

EdenTree – a pioneer of responsible investing – has been measuring the carbon footprint of all its funds for a number of years. Elite Rated EdenTree Amity UK has a carbon footprint 50% below that of the FTSE All Share, for example, while SLI UK Ethical has a carbon intensity 56% less than its benchmark.

Meanwhile, Rathbone Greenbank Investments, the team that screens companies for Elite Rated Rathbone Ethical Bond and Elite Radar Rathbone Global Sustainability, is part of a coalition of investors engaging with the 100 biggest carbon emitters to commit to three areas of carbon management and reduction.

EdenTree Amity UK co-fund manager, Ketan Patel, said to us recently: “The investment industry is a great position to lead and shape the debate on carbon, by supporting companies that are stewards of not only the environment, but also the communities in which they operate.

The interest shown by new generations of investors, who are asking difficult questions on climate, will be a catalyst and we are seeing a surge in new products to meet this growing demand.

“The shift from cost centre to profit centre has also been a watershed moment for many company CEOs who now see a return to the bottom line from adopting a more efficient carbon footprint.”

There will be a tipping point where behaving ‘ethically’ becomes essential for a firm to keep clients, and therefore essential to an investor. But as shareholders, we part-own the companies we invest in. From this perspective, we also own the emissions generated by those companies and have a role to play in encouraging businesses to manage their emissions and implement a robust climate change strategy.

So perhaps we should act sooner rather than later. I’m off to review my portfolio, turn down my thermostat, look up some vegetarian recipes and research electric cars.

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