To Erste Asset Management, sustainable investments do not only mean the application of ethical beliefs, but to achieve social and ecological added value. To make this added value quantifiable, we have developed a number of sustainability indicators which compare the effects of sustainable investments with traditional indices.
The measuring results, in turn, affect investment decisions. The aim is to continuously improve the positive impact of our actions.
Make environmental benefits quantifiable
In cooperation with an external partner, we developed a methodology for the WWF STOCK ENVIRONMENT to illustrate the contribution to environmental protection made by companies in the environmental equities fund every year (Note: the contribution by the different companies is shown as total rather than as weighted by the respective portion invested in the fund).
About the Montréal Carbon Pledge
The Montréal Carbon Pledge was launched on 25 September 2014 at the “PRI in Person“ meeting in Montréal. This initiative is supported by PRI (Principles for Responsible Investment) and UNEP FI (United Nations Environment Programme Finance Initiative). The Montréal Pledge tries to facilitate a higher degree of transparency in connection with the carbon footprint of equity portfolios and wants to contribute to its reduction in the long run. As the first investment company in Austria, Erste Asset Management has decided to sign the agreement.
By signing the Montréal Pledge investors undertake to measure and publish the carbon footprint of their portfolio on an annual basis.
Carbon footprint of Erste AM equity funds
Within the framework of the Montreal Carbon Pledge, Erste Asset Management has published its cumulative carbon footprint for its equity mutual funds for the third time. The result, which compares explicitly sustainable funds as well as traditional funds to the global equity market, was convincing yet again:
The CO2 intensity of the EAM equity funds taken into account was more than 38% below that of the global equity market (61.8 percent), which means it had been reduced again significantly relative to the previous year.
If we were to only take the sustainable EAM equity funds into account, the cumulative carbon footprint would even be less than half of the referential value (45.9 percent). The FIRST RESPONSIBLE STOCK AMERICA registered the best result with 38.1 percent.
What does CO2 intensity mean?
There is a plethora of methods to calculate the carbon footprint. EAM calculates the footprint of its funds on the basis of the weighted CO2 intensity of the companies it holds in its funds. To this end, step one consists of our research partners’ ascertaining the greenhouse gases of the companies in our fund. They may have been caused directly by the companies (scope 1 emissions) or indirectly on the basis of the consumption of energy, heat, or similar resources (scope 2 emissions). In order to ensure comparability across various sizes, the emission values are standardised over the respective sales figures. For the individual companies, the CO2 intensity shows how many tons of CO2 per 1mn in sales the company emitted. In step two, the CO2 intensities of the individual companies are aggregated for the various funds into a weighted average. The weighted CO2 intensity facilitates the comparison of the exposure to CO2-intense companies in our funds to other funds.
The calculation of the carbon footprint of EAM then requires the establishment of a weighted average across those equity mutual funds that provide a sufficiently high availability of CO2 data for the respective individual companies.
What do the results of the detailed analysis tell us?
The aforementioned calculation method comes with the added benefit of facilitating an insight into what companies and thus what sectors account for the highest contributions to the carbon footprint. For the global equity market, utility companies produce by far the highest emissions (in relation to sales), followed by building materials, and the energy sector. The comparison of the CO2 intensity of these sectors in the referential universe with the companies held by the relevant EAM funds clearly shows that the lower carbon footprint of EAM results mainly from stock-picking and less from any over- or underweighting of CO2-intense sectors.
What relevance does the carbon footprint have for traditional investors?
We are basing our models on the assumption that further global warming will result in more restrictive measures and regulations with regard to the emission of greenhouse gases. The taxation of emitted greenhouse gases will affect those companies most severely that have not restructured their production processes efficiently enough within their respective sector. Therefore, it definitely makes sense for long-term investors to monitor the carbon footprint of their funds.