Bali, December 11, 2007 — 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 the MSCI Asia ex-Japan index is more carbon intensive
than the MSCI All World Developed, S&P 500, and MSCI Europe indices.
Investors in carbon 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
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 CO2-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
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.