Finding ways to remove carbon from your portfolio
Investors are increasingly turning away from oil and looking for climate-friendly products. But how do they know if their portfolio carries a carbon risk?
It’s getting easier, but information out there is only as good as what companies publicly disclose. That’s why financial authorities such as the Bank of England are pushing for better climate-disclosure practices.
“It will expose the likely future cost of doing business, paying for emissions, changing process to avoid those charges and tighter regulation,” said bank governor Mark Carney.
Last month, 32 Democratic legislators sent a letter to the chair of the U.S. Securities and Exchange Commission urging the regulator to enforce existing guidance that calls for more transparency on climate risk.
On the same day, the Toronto Stock Exchange launched three new climate-change indices that investors can now track as part of a partnership with S&P Dow Jones Indices.
All three are based on the S&P/TSX 60. They include a “Carbon Efficient” index that shifts weighting to companies that have lower levels of carbon emissions; a “Carbon Efficient Select” index that excludes companies with the highest carbon footprints and a “Fossil Fuel Free” index that eliminates companies that own fossil-fuel reserves.
“As awareness of the effect of carbon emissions continues to grow, we believe investors will value these index offerings,” said Eric Sinclair, group head of information services at TMX Group.
Investors looking to be more proactive can inspect their U.S. mutual funds by using a free tool at FossilFreeFunds.org. The tool, created by a shareholder advocacy group called As You Sow, reveals where fossil-fuel holdings are buried in 1,500 of the most-held mutual funds.
No equivalent tool exists for Canadian funds, but a new web-based app called the Clean Capitalist Investor Tool is expected to be launched in Canada before the UN climate summit in December.
The customizable tool, being devel- oped by Corporate Knights Capital of Toronto, will let investors upload their portfolio data and compare performance to one of 23 benchmark indices. (Disclosure: author has a past working relationship with its parent company.)
The tool will also reveal a portfolio’s carbon footprint, percentage exposure to high-carbon companies and how that portfolio would have performed over the previous three years if such companies were removed or underweighted.
This article is part of a series produced in partnership by the Toronto Star and Tides Canada to address a range of pressing climate issues in Canada leading up to the United Nations Climate Change Conference in Paris, December 2015. Tides Canada is supporting this partnership to increase public awareness and dialogue around the impacts of climate change on Canada’s economy and communities. The Toronto Star has full editorial control and responsibility to ensure stories are rigorously edited in order to meet its editorial standards.