| Sourced From Environmental-finance.com |
London, 9 July: Climate change has little influence on the investment decisions made by equity fund managers, according to a report which revealed a seven-fold difference in the carbon footprints of UK-based equity funds.
Fund managers said their disregard was mainly due to a lack of confidence in government policies to address greenhouse gas (GHG) emissions, according to the study by investment research companies Mercer and Trucost, on behalf of WWF.
But the Carbon Risks in UK Equity Funds reportargues this attitude is “incongruous” with emerging GHG regulations in major economies including the EU and the US, and the fact that current and expected carbon costs are already reducing earnings and valuations for some companies, notably electricity utilities.
Danyelle Guyatt, principal in the responsible investment group at Mercer, said: “The investment management industry has a long way to go before pension funds can feel reassured that sufficient attention is being paid to the investment implications of the shift to a low-carbon economy.”
The fund with the lowest footprint was responsible for just 209 tonnes of carbon dioxide equivalent per million pounds invested (tCO2e/£ million), compared with 1,487 tonnes for the highest footprint fund – but interviews with both of these fund managers revealed little concern about carbon risks in the investment analysis. Mercer’s confidentiality agreements prevented the funds being named, a Trucost spokeswoman said.
As well as a lack of confidence in government policy, fund managers said short-term pressures and incentives (most have a one-year time horizon), and lack of comparable and trustworthy data, were factors in their disregard of the climate change issue.
The report concludes that asset managers could dramatically reduce the carbon footprints of their funds through stock selection without the need to alter sector weightings or their overall investment strategy. For instance, utility International Power is more than 12 times more carbon intensive than Scottish & Southern Energy, which is expanding its renewable power capacity.
Trucost carried out a similar analysis two years ago in its Carbon Counts 2007 report. A different data provider was used, so the results are not directly comparable, the spokeswoman said.
However, she noted that the carbon intensity of the benchmark FTSE All-Share index has dropped over the period, to 615 tCO2e/£ million today, from 680 in 2007. Trucost was not immediately able to provide an explanation for this, but said it could be an area for further research.
