Why the carbon footprint of equity funds is important

  • Erste Asset Management (EAM) has further reduced the carbon footprint of its equity funds
  • The average CO2 intensity of the EAM equity funds is only 61.8% compared to a global equity index (previous year: 77.4%)
  • The CO2 emissions of companies will become even more relevant in the future due to stricter rules regarding the compliance with the Paris Climate Agreement

Within the framework of the Montreal Carbon Pledge, Erste Asset Management has published its cumulative carbon footprint for its equity mutual funds for the third time. The result, which compares explicitly sustainable funds as well as traditional funds to the global equity market, was convincing yet again:

The CO2 intensity of the EAM equity funds taken into account is more than 38% below the level of the global equity universe. We have reduced this value again significantly relative to the previous year. Our in-depth analysis shows that this result is mainly due to the high quality of the companies in the most CO2-intense sectors,” explains Gerold Permoser, Chief Investment Officer of Erste Asset Management. If we were to only take the sustainable EAM equity funds into account, the cumulative carbon footprint would even be less than half of the referential value (45.9%).

What does CO2 intensity mean? 

There is a plethora of methods to calculate the carbon footprint. EAM calculates the footprint of its funds on the basis of the weighted CO2 intensity of the companies it holds in its funds. To this end, step one consists of our research partners’ ascertaining the greenhouse gases of the companies in our fund. They may have been caused directly by the companies (scope 1 emissions) or indirectly on the basis of the consumption of energy, heat, or similar resources (scope 2 emissions). In order to ensure comparability across various sizes, the emission values are standardised over the respective sales figures.

In step two, the CO2 intensities of the individual companies are aggregated for the various funds into a weighted average. 

 

What do the results of the detailed analysis tell us?

The aforementioned calculation method comes with the added benefit of facilitating an insight into what companies and thus what sectors account for the highest contributions to the carbon footprint. For the global equity market, utility companies produce by far the highest emissions (in relation to sales), followed by building materials, and the energy sector.

The comparison of the CO2 intensity of these sectors in the referential universe with the companies held by the relevant EAM funds clearly shows that the lower carbon footprint of EAM results mainly from stock-picking and less from any over- or underweighting of CO2-intense sectors.

 

What relevance does the carbon footprint have for traditional investors?

We are basing our models on the assumption that further global warming will result in more restrictive measures and regulations with regard to the emission of greenhouse gases. The taxation of emitted greenhouse gases will affect those companies most severely that have not restructured their production processes efficiently enough within their respective sector. Therefore, it definitely makes sense for long-term investors to monitor the carbon footprint of their funds.

Montreal Carbon Pledge

The Montréal Carbon Pledge Agreement was launched on September 25, 2014 at the "PRI in Person" meeting. This initiative is supported by PRI (Principles for Responsible Investment) and UNEP FI (United Nations Environment Program Finance Initiative). The Montréal Carbon Pledge seeks to create greater transparency in the carbon footprint of investment portfolios, and in the long run also aims to reduce it. Erste Asset Management has become the first investment company in Austria to sign the Montréal Carbon Pledge.

By signing the agreement, investors are committed to measuring and publishing the carbon footprint of their portfolio on an annual basis.

For more information, visit the sustainability page.

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art  21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to Art  21 AIFMG, and the Key Information Document can be viewed in their latest versions at the website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.