There remains one very powerful, and largely unexplored, way for the world to move towards maximizing carbon and environmental efficiency: We need a general recognition of the embedded carbon and other environmental impacts in equity and other investments, and a large enough commitment from portfolio owners to reduce those impacts.

This possibility of using such investment-related impacts not only brought me into this field -- I first worked with Trucost and UN PRI in 2005 -- but has increasingly become recognized more generally as a source of carbon responsibility that can be dealt with most effectively by the owners of portfolios, if they choose to act on them.

The World Resources Institute (WRI) recognized this in 2009 when publishing its landmark report Accounting for Risk. This report set a relative framework for how investors can identify and understand the GHG impacts of their portfolios. In effect, as the report states, institutions should "Report a proportional share (by percentage of ownership) of the investee's GHG emissions as the investor's emissions."

Trucost has been working with asset owners and fund managers for years, helping foster an understanding of these impacts. This has occurred largely in Europe to date but, to a growing extent, in North America as well. Trucost has worked with many asset owners over the years, including Hermes, the U.K. Environment Agency, Green Century, Calvert and many more that choose to stay anonymous.

Trucost has also published reports for many years on the carbon intensity of mutual fund ownership, and the responsibility for those emissions. Our Carbon Counts USA report, sponsored by Lipper, brought the relative carbon intensity of the largest US mutual funds, both mainstream and SRI in focus. Interestingly, although SRI funds on average had a lower carbon footprint than the S&P 500, a few were significantly overweight carbon, including the largest SRI fund in the US, the TIAA-CREF Social Choice Fund -- clearly showing that some SRI funds focus on social impacts, not environmental ones.

Most significant, perhaps, is indirect impacts on the overall carbon footprint of financial services organizations, which the WRI commented on. The Newsweek Green Rankings methodology, as it stands, does not factor in ownership into its assessment of the overall impacts of financial institutions. If it did so, this would place the financial services sector as a whole closer to the larger emitters, than among more efficient companies. Trucost estimates that factoring in environmental responsibilities of equity ownership alone would increase the footprint of the largest financial services companies over 100 times, an issue that we expect to comment on further.

A general recognition of the environmental impacts of portfolios, and a commitment to reduce these environmental footprints, would be very powerful indeed, creating a race for capital among companies being evaluated by asset owners. Such commitments by large financial institutions could also cause a race for clients who want to invest their money where environmental responsibilities are understood and encouraged. There is a growing correlation between the best run companies and those who are seen as most sustainable, as per my book Sustainable Investing: The Art of Long Term Performance and subsequent papers and teachings, which demonstrate the consistent outperformance of SRI funds which take a positive approach to environmental impacts. Such outperformance has also been found by the likes of Abby Joseph Cohen of Goldman Sachs, Mark Fulton of Deutsche Bank, and Paul Hawken of Highwater Global Fund.

Focusing on equity ownership and environmental efficiencies, especially when it comes to carbon emissions, has the potential to move companies towards more strategic reduction decisions that would ultimately be beneficial for society. This would correlate with Walmart's recent move to find reductions and cost savings in its indirect emissions.

With a growing recognition of environmental boundaries that we as a world cannot go beyond, and an increasing risk of environmental regulations changing the game for some industries and business models, a consequent focus on the carbon footprint of one's portfolio may turn out to be a way of maximizing returns as well. Now wouldn't that be something.

Cary Krosinsky is vice president for Trucost, which has built the world's most extensive time series database of more than 700 emissions and pollutants as are generated by more than 4,500 public companies around the world. Cary is also co-editor of the recently released book "Sustainable Investing: The Art of Long Term Performance," with Nick Robins, HSBC's head of Climate Change. This article originally appeared on the new Trucost blog, and is reprinted with permission.