State of Green Business

Trucost Report Ranks Top Investments by Carbon Emissions

Trucost Report Ranks Top Investments by Carbon Emissions

Environmental research group Trucost this week released its annual ranking of U.K. investment funds based on their overall carbon emissions. "Carbon Counts 2007" compares 185 funds in four categories on their environmental impact and notes which investments are at greatest risk from climate change.

Overall, the top three funds in the study -- Prudential Ethical Trust, AXA Ethical, and Sovereign Ethical -- are all socially responsible funds. The report's authors found that three-quarters of SRI funds have smaller-than-average carbon footprints.

But the low end of the carbon scale and the high end is dramatic: The Invesco Perpetual High Income fund, which ranked as the most carbon-intensive fund, has a carbon footprint nearly ten times larger than the most carbon-efficient fund, Prudential Ethical Trust.

"There is a huge range of Carbon Footprints from the best to the worst funds in each category," said Simon Thomas, Chief Executive of Trucost. "So 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."

Trucost says the ranking is the largest ever carbon-specific ranking of investment, and lists the best- and worst-performing funds in each of four categories -- SRI, Growth, Income and Trackers -- based on of their carbon footprint. Altogether, these funds have £73.65 billion under management.

The study found that regardless of the category of investment, it is possible to reduce the liability caused by high emissions without affecting the total returns on investment. To achieve this goal, Trucost created the "Trucost Carbon Optimized Portfolio," which performs as well as the FTSE 350 fund, but overall is responsible for 23 percent fewer emissions.

"Carbon Optimization rewards companies with lower emissions compared to sector peers," the report's authors write. "As companies are increasingly required to bear the costs of carbon, those with less efficient carbon use are likely to see profit margins narrowed resulting in lower company valuations."

The report found that financial performance is just as good in the carbon-light funds as in the carbon-heavy ones. The report cites statistics showing that moving £50,000 from the least carbon-efficient fund to the most carbon-efficient fund will prevent the emissions of 73 tons of GHGs per year, equal to the amount release by burning about 28 tons of coal. Similarly, shifting £7,000 from high- to low-carbon funds will eliminate the same amount of CO2 emissions as the average U.K. household emits during a year.

The full report, "Carbon Counts 2007: The Carbon Footprint Ranking of U.K. Investment Funds," is available for download from Trucost.