January 19, 2011 07:00 ET

WWF-Canada Report Shows High Cost of Carbon to Investors

TORONTO, ONTARIO--(Marketwire - Jan. 19, 2011) - Today, WWF-Canada released a ground-breaking report highlighting climate change as a new risk for institutional investors, and providing insights in carbon risk assessment of an investment portfolio. The report Carbon Counts: Assessing the Carbon Exposure of Canadian Institutional Investment Portfolios was prepared for WWF-Canada by Mercer and Trucost to identify the carbon exposure of Canadian institutional pooled investment products.

As climate change continues to affect societies, governments and businesses around the world, investors are increasingly recognizing the likelihood of profound regulatory and social change driven by climate change concerns. The report provides a quantitative assessment of the carbon impact of Canadian institutional investors' portfolios by analyzing the greenhouse gas emissions and associated risks generated by the companies held in these institutional portfolios. 

"By understanding and managing their carbon exposure, investors can better protect their investments and help fight climate change at the same time," said Josh Laughren, Director of Climate and Energy for WWF-Canada. "This is an issue that will affect every investment portfolio, and recognizing potential impacts will be increasingly important."

The study found that the S&P/TSX Index has the third-largest carbon footprint among major global indices, measured by carbon emissions per USD 1 million sales. Only the Indian and Emerging Markets global indices have larger footprints. These findings are consistent with resource-based economies that rely heavily on sectors such as oil and gas. The Canadian pooled funds invested USD3.7 billion in 20 energy companies operating in the carbon-rich oil sands operations in Alberta as of end of 2009.

The carbon footprints of the 181 funds analysed vary widely, due to both stock selections and sector allocation decisions. Funds with larger carbon footprints are likely more exposed to greenhouse gas-related investment risks, including regulatory, litigation, market and reputational risks.

The report provides recommendations on how asset owners and investment managers can take action to reduce the carbon exposure of their investments.

Elisabeth Bourqui, Head of Responsible Investment Canada for Mercer said that "Climate change and assessing carbon exposure are becoming important issues for institutional investors – both in terms of potential risk and opportunity." 

Mercer conducted its analysis using carbon footprint data from environmental data provider Trucost Plc. This report also includes the carbon risk assessment of the equity portfolio of four Canadian institutional investors – the Toronto Atmospheric Fund (TAF), Community Foundation of Ottawa (CFO), a public pension plan, and Bâtirente, a workers' union fund – as case studies. 

The carbon footprint of the TAF portfolio analyzed was significantly lower than the benchmark, primarily due over-weighting in less carbon-intensive sectors.

Julia Langer, Executive Director of the TAF, an agency of the City of Toronto mandated to advance solutions to climate change and air pollution, indicates that their "investment strategy is premised on the belief that carbon risk will ultimately affect performance so and as a prudent investor our objective is to minimize carbon and maximize return."

Similarly, CFO's carbon footprint was also lower than the benchmark's due to sector selection.

In CFO's words, "The impact of stock selection is interesting. While we would have expected a higher than benchmark footprint due to our overweight in energy it is diminished by the fact that our two largest holdings in energy have lower than benchmark carbon footprints. The opposite is true of our selection in materials where we are significantly underweight by sector in materials, but our holdings result in very high footprints."

They also added that "This information is part of our learning process and we will plan on continuing to monitor our carbon footprint."

The public pension fund had a lower carbon footprint as well, but its footprint was equal to the benchmark when the sector allocation effect was removed.

Bâtirente's footprint was found to be higher than the benchmark due to investment in high carbon impact sectors, demonstrating the impact of stock selection on the portfolio's carbon footprint.

Francois Meloche, Extra-financial risks Manager at Bâtirente said that "they will engage in a discussion with the portfolio manager and see if the carbon footprint analysis should be updated every year and how much it will cost."

Trucost Senior Vice-President Cary Krosinsky said: "Investors can help protect the value of investments by asking fund managers to measure and manage carbon risks from holdings."

"Climate change is reshaping the investment landscape. We hope this report can help institutional investors reduce their carbon exposure, in advance of inevitable changes in regulations and consumer demand," concluded Josh Laughren.

About WWF-Canada

WWF-Canada (World Wildlife Fund Canada) is a member of WWF, one of the world's largest independent conservation organizations, active in more than 100 countries. WWF is creating solutions to the most serious conservation challenges facing our planet, helping people and nature to thrive. In Canada, we create solutions to conservation issues important to Canadians and the world. WWF-Canada works collaboratively with governments, businesses and the public to help fight climate change, the single biggest environmental threat to our planet; conserve our oceans and freshwater resources; and educate and mobilize people to build a conservation culture. WWF-Canada's main office is in Toronto, with regional offices located in Vancouver, Prince Rupert, St. Albert, Ottawa, Montreal, Halifax and St. John's. For more information, visit www.wwf.ca.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer's investment services include investment consulting and multi-manager investment management. Mercer's 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit us at www.mercer.ca.

About Trucost

Trucost was established in 2000, to help organizations, investors and governments understand and quantify the environmental impacts of business activities. Over the past 10 years Trucost has collected, researched and validated environmental data from organizations across the world. The result is the world's most comprehensive data on corporate environmental impacts, covering Greenhouse Gases (GHGs), water, waste, metals and chemicals. This enables our clients to access:

  • The most efficient approach to measuring GHG emissions and wider environmental impacts across organizations, supply chains and investment portfolios;
  • Clear identification of prioritized focus areas for reducing environmental impacts;
  • Validation of source data, including completion of gaps in data which are not currently being tracked or reported on;
  • Comparison of environmental performance against peers, sectors and investment benchmarks;
  • The ability to create environmentally-oriented investment products

For more information, visit www.trucost.com.

This news release and associated material can be found on wwf.ca.

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