Research Reveals Carbon Intensity Of Asia Equities
Research Reveals Carbon Intensity of Asian Equities
Shift in Investments Needed to Reduce Asian Companies' Exposure to Carbon Impacts
Asian listed companies are more carbon intensive than their peers in other regions of the world. This makes investors in Asian equity funds more exposed to carbon risks. There are opportunities, however, to reduce the carbon intensity of Asian equity funds by some 30 percent without suffering a loss in performance.
These are the main conclusions of a report launched on December 11 in Bali - Carbon Counts Asia 2007: Carbon Footprints of Asian Investment Funds . The study, commissioned by IFC, a member of the World Bank Group, and conducted by the environmental research organization Trucost, provides the first comprehensive review of greenhouse gas emissions by Asian companies by analyzing the carbon intensity of the MSCI Asia ex-Japan index and 90 individual investment funds in Asia.
The study found that t he MSCI Asia ex-Japan index is more carbon intensive than the MSCI All World Developed, S&P 500, and MSCI Europe indices. Investors in c arbon intensive companies in the utilities, basic resources, and industrial goods and services sectors could be most at risk from the introduction of a price for carbon and shifts in demand to low-carbon, more resource-efficient suppliers.
The research established the carbon footprint of 90 individual investment funds, which together have more than $127 billion under management. Over half of these funds have an even larger footprint than the MSCI Asia ex-Japan index. While this is partly due to sector allocation bets, the main driver is the fact that investors in the funds select companies that are more carbon intensive than sector averages.
Fund managers can adjust their holdings to reduce exposure to potential liabilities from carbon-intensive companies without sacrificing returns. A carbon-optimized tracker portfolio created for the study matched the financial performance of the MSCI Asia ex-Japan while reducing the carbon intensity by 31 percent.
Simon Thomas, Chief Executive of Trucost, said, "This is the first review of the carbon intensity of Asian listed companies, and the research provides invaluable insights for investors. As government policies increasingly constrain greenhouse gas emissions and introduce a price for carbon, investors are increasingly looking to take emissions into account in their investment strategies while maintaining the financial performance of their portfolios."
Rachel Kyte, IFC Director of Environment and Social Development, said, "IFC believes that the private sector has a powerful role to play in climate change mitigation, because the financial implications of climate change can increasingly be quantified as risk and because that risk can be turned into business opportunity. By creating the data that highlights this risk, we are enabling investors and companies to adapt their behavior. In a carbon-constrained world, this is smart sustainable investing and sustainable business."
Key findings include:
* The carbon footprint of the MSCI Asia ex-Japan index is 620.99 tonnes of greenhouse gas emissions per US$ million invested.
* The 90 funds analyzed had at least 90 percent their holdings by value located in China , Hong Kong , India , Indonesia , Malaysia , Pakistan , the Philippines , Singapore , South Korea , Taiwan , or Thailand . The funds are responsible for annual emissions of over 40.6 million tonnes of greenhouse gases, measured as their carbon dioxide-equivalent (CO 2 -e).
* The carbon footprint of the consolidated group of 90 funds was 823.34 tonnes of greenhouse gases emitted per US$ million. Fifty-four out of 90 funds of Asian companies analyzed have a greater carbon footprint than the MSCI Asia ex-Japan index.
* More than 8,950 tonnes of greenhouse gases are emitted per US$ million in the fund with the biggest carbon footprint. The smallest carbon footprint of a fund that invests in all major sectors was over 90 times smaller, at 29 tonnes of CO 2 -e /$US million.
* Trucost has optimized the MSCI Asia ex-Japan index. The Trucost Carbon Optimised Tracker Portfolio matches the financial performance of MSCI Asia ex-Japan while increasing carbon efficiency by an average of 31 percent. Investment strategies can similarly be adjusted to reduce carbon impacts without returns deviating from those of the chosen benchmark.
IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC's vision is that poor people have the opportunity to escape poverty and improve their lives. In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through loan participations and structured finance for 299 investments in 69 developing countries. IFC also provided advisory services in 97 countries. For more information, visit www.ifc.org
About Trucost ( www.trucost.com )
Trucost Plc is an environmental research business that helps companies and investors understand the environmental impacts of business activities in financial terms. Trucost offers expert advice and research to major corporations, both public and private, institutional investors and to government departments and associated agencies. Trucost wrote the environmental reporting guidelines for UK business with the UK government, released in January 2006.
Trucost has built up a database of the environmental impacts and disclosures of over 4,000 major companies worldwide. Trucost's database of climate change disclosures is the world's largest. Trucost has developed unparalleled experience and expertise in the area of environmental performance, analysis and reporting, working with leading multinational companies in a range of business sectors.