Making A Greener Greenback (23-Jul-07)
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Making A Greener Greenback (23-Jul-07)
In the past professional investors have been rated purely on their investment record, however, nowadays fund managers are also considering other aspects for example how their green credentials look and whether they can achieve the same returns whilst improving the carbon efficiency of their portfolios.
The leading environmental researcher, Trucost, believes that this can be achieved. They have built a Carbon Optimised Tracker portfolio which allows fund managers to achieve exactly the same performance whilst significantly decreasing their Carbon Footprint. Trucost also argues that companies using carbon inefficiently are likely to generate lower profits.
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By David Stevenson | 23 July 2007
Historically professional investors have always been rated on their investment record, pure and simple. As a former equity fund manager I was always acutely aware of the performance numbers my funds were generating. My bosses weren't concerned about the stocks I bought and sold provided the returns stacked up.
But times change. These days I'm writing about fund managers who now have other things to consider as well as simply making money.
Like how their green credentials look under the environmental microscope. And whether they can achieve just as good returns and improve the carbon efficiency of their portfolios into the bargain.
The answer according to leading environmental researcher Trucost is Yes, they can. Trucost last week announced the results of Carbon Counts 2, their survey assessing the Carbon Footprint of 185 UK equity investment funds with a total of nearly £74bn under management in five categories: Socially Responsible Investments, Growth, Income, FTSE All Share Trackers and FTSE 100 Trackers.
Trucost has built its own Carbon Optimised Tracker portfolio which has done what it says on the tin, i.e. moved in line with the FTSE 350 index (excl. Investment Trusts) whilst increasing carbon efficiency by 25%. The environmental researcher has also carbon optimised an Income Fund and a Growth fund, improving the carbon efficiency by 22% and 23% respectively, without damaging the returns achieved.
Simon Thomas, Chief Executive of Trucost, said: 'Using Trucost's optimisation approach, fund managers can now achieve exactly the same financial performance while significantly decreasing their Carbon Footprint. If investors want to invest in carbon-efficient funds - and the evidence is that they increasingly do - they are now able to assess whether the fund really is less carbon intensive than its peers.'
According to Trucost, fund managers and analysts increasingly need to understand how environmental issues may have a financially material impact on companies' future earnings and to be able to make comparisons between companies in a given sector. Institutional investors can also use optimisation information to understand where the environmental risk lies in their portfolios.
Trucost also argues that increased regulation means that companies that use carbon inefficiently are likely to generate lower profits.
Trucost named three Socially Responsible Investment funds as having the lowest carbon footprints of the 185 it analysed. These were the Prudential Ethical Trust, then AXA Ethical Accumulation followed Sovereign Ethical. No fewer than 75% of Socially Responsible Investment funds have smaller-than-average carbon footprints.
There is a vast difference between the top and bottom ends of the Carbon Footprint scale. The Invesco Perpetual High Income fund, which ranked as the most carbon-intensive fund, has a carbon footprint nearly ten times larger than Prudential Ethical Trust.
So the other winners are ... Trucost's analysis showed the funds in the other categories with the lowest footprints as follows:
Income funds: JOHCM UK Equity Income, Baillie Gifford Income, CF Walker Crips Equity Income
Growth funds: F&C UK Mid Cap, Baillie Gifford British Smaller Companies, Royal London UK Strategic Growth
FTSE All-Share Trackers: AXA UK Tracker, Threadneedle Navigator UK Index Tracker, Nationwide Tracker
FTSE 100 Trackers: Scottish Widows UK Tracker, HSBC FTSE 100 Index Tracker, Prudential UK Index Tracker
Fund managers' future remuneration could increasingly be linked to their environmental awareness. These days not only golfers need to think about green fees.
- Source: Motley Fool
