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Sustainable Future funds emit much less carbon dioxide than their benchmark

Article tags:  Fund news , Investment insight

Mike Appleby, Investment Manager analyses how much carbon dioxide is emitted by our funds compared to the markets they invest in.

We have updated analysis on how much carbon dioxide is emitted by our funds compared to the markets they invest in. The Sustainable Future Funds continue to emit significantly less CO2 – on average emitting 64% less carbon dioxide from their operations than their benchmark.

Carbon Dioxide emissions of SF funds versus benchmark


Source: MSCI ESG Carbon Analytics Report 25-Oct-2016
[*] Corporate Bond fund uses Weighted average carbon intensity as compared to the conventional benchmark. All other equity funds use Total Carbon Emissions for funds relative to their conventional benchmarks.

This is consistent with previous analysis showing the funds emit relatively low amounts of carbon dioxide. While this kind of analysis has some short comings, for example, it does not capture the emissions from the use of products or services the companies provide, it is a useful starting point for investors to see how funds compare on CO2 emissions.

The same analysis, by MSCI ESG Carbon Analytics, estimates that the funds have between 9% and 32% of the fund invested in clean technology solutions (combating climate change).


 Clean technology solutions (% of portfolio)

Source: MSCI ESG Carbon Analytics Report 25-Oct-2016

We construct our portfolios from the bottom up, based on fundamental analysis to identify well managed companies which are beneficiaries of structural changes, that have good prospects to remain profitable with a meaningful potential to be worth more in the future. We believe that getting these elements right in an investment, maximises the chances of generating competitive investment returns.

Our investment approach to carbon risk uses a combination of:


  • Actively avoiding carbon intensive businesses (as we believe their future profitability to be over estimated by the market) – we don’t invest in the primary extraction of fossil fuels such as coal, oil or natural gas, airlines or auto manufacturers;


  • Seeking out the best operationally managed companies who are proactively managing their business to mitigate expected increased regulation to make big emitters pay;


  • Actively looking for exposure to profitable businesses which are providing solutions to help emit less pollution. The latter is not captured in the CO2 emission analysis, but we disclose exposure to over twenty different structural investment themes which are not just limited to carbon dioxide and climate change.


So what? By investing in companies that emit less CO2 than their benchmark, means the funds are better positioned to withstand any carbon cost inflation as they will have less additional costs to pass on to their customers. In short, the companies in the funds have margins that are more resilient to emissions regulations, which we see becoming tighter over the medium term. In addition we actively avoid the continued long-term death cycle of diminishing returns experienced by carbon intensive businesses as lower carbon alternatives continue to get cheaper and gain market share - every year.

We think there are three attributes that society needs and will drive demand for companies that:


  • Enable more efficient use of resources (energy, water, and raw materials)


  • Make societies more resilient (software security, resilient financial and communications systems) 


  • Make people healthier (through what they eat, what they do and how they cope with being ill)


We look for well managed companies that can grow profitably by providing for these needs. This gives us broad structurally advantaged companies, which we classify into over twenty investment themes. We build diversified portfolios that we think will appreciate in value more than the market in the future.


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