Will corporate emissions cost you money?
10 July 2009
New research has exposed the difference in greenhouse gas emissions among stock exchange-listed companies – and how bigger carbon footprints can mean a bad investment.
The new study, commissioned by WWF, concludes that city fund managers should be more aware of climate change and carbon costs in the investment decisions they make.
‘Carbon Risks in UK Equity Funds’, published by environmental researchers Trucost and investment consultant Mercer, looked at over 100 UK-based funds, responsible for more than £200 billion of investments in 2,300 ‘listed’ companies.
It found that many fund managers are risking customer savings and pensions on potentially vulnerable high-carbon businesses, and failing to spot opportunities to invest in the low-carbon businesses that will lead the future economy.
As Trucost CEO Simon Thomas explains: “Many listed companies are very carbon-intensive, and the government’s planned carbon charges could lead some to lose market share to more efficient and innovative companies that emit less – and this could have a knock-on effect on pension fund returns.”
Carbon is a bad investment
So why don’t fund managers take account of climate change and corporate carbon footprints?
Basically because they don’t believe politicians – here or abroad – are actually going to implement the proposed carbon-cutting policies any time soon. Short-term pressures on managers to generate quick returns seem to over-rule any long-term concerns.
There also isn’t enough information available on individual companies to make an assessment of carbon liabilities and the likely effect on profits.
We know climate change will lead to a rise in carbon prices and financial penalties on high-emission companies, but we need the government to spell this out – and also make it compulsory for companies to accurately assess and report their total carbon emissions. This is something that WWF and the Co-operative Bank, Insurance and Investments’ Toxic Fuels campaign is pushing for.
Pension funds and fund managers could help by supporting the call for carbon reporting, which is ultimately in everyone’s interest.
We’re also encouraging them to take a more proactive approach to managing carbon risk in investment portfolios, and look out for new investment opportunities.
Green investments mean more profits
Even within carbon-intensive industries – like the oil, gas, construction or food sectors – there’s a wide range of carbon emission levels.
This suggests a lot of potential for fund managers to reduce the carbon exposure of their portfolios through carefully selecting the right stocks – or trying to influence companies to improve efficiency and reduce emissions – without necessarily altering ‘sector weightings’ or overall investment strategy.
As WWF’s Chief Executive David Nussbaum says: "There are great opportunities for companies that lead and innovate in this new economy.” The City of London could emerge as the centre for green investment in the future.
WWF’s One Planet Finance network is part of our initiative to transform the UK’s finance sector into a sustainable, green and fair system, serving the long-term interests of society and the environment.
You can…
- download the full report
- help us campaign against toxic fuels
- find out more about One Planet Finance
