The World Wildlife Federation-Canada (WWF-Canada) has released a report highlighting climate change as a new risk for institutional investors and providing insights into carbon risk assessment of an investment portfolio.
The report Carbon Counts: Assessing the Carbon Exposure of Canadian Institutional Investment Portfolios, prepared for WWF-Canada by Mercer and Trucost, identifies the carbon exposure of Canadian institutional pooled investment products and provides a quantitative assessment of the carbon impact of portfolios by analyzing the greenhouse gas emissions and associated risks generated by the companies held in institutional portfolios.
“By understanding and managing their carbon exposure, investors can better protect their investments and help fight climate change at the same time,” says Josh Laughren, director of climate and energy with WWF-Canada. “This is an issue that will affect every investment portfolio, and recognizing potential impacts will be increasingly important.”
Key findings
The study found that the S&P/TSX Index has the third-largest carbon footprint among major global indexes, measured by carbon emissions per US$1 million sales. Only the Indian and emerging markets global indexes have larger footprints. These findings are consistent with resource-based economies that rely heavily on the oil and gas sectors.
The carbon footprints of the 181 funds in the survey vary widely, due to both stock selections and sector allocation decisions, but the study found that funds with larger carbon footprints are likely more exposed to greenhouse gas-related investment risks, including regulatory, litigation, market and reputational risks.
Elisabeth Bourqui, head of responsible investment Canada with Mercer, says, “Climate change and assessing carbon exposure are becoming important issues for institutional investors—both in terms of potential risk and opportunity.”