The greenhouse gas emissions associated with investing in an average Evenlode portfolio are ten times lower than an equivalent investment in a fund tracking the MSCI World Index. This is according to the latest Evenlode Investment portfolio emissions report for 2020.
The relative difference between Evenlode’s average emissions and the MSCI World average relates to Scope 1 and 2 emissions, which are emissions from the fuel and electricity used directly by Evenlode’s investee companies. The gulf in emissions mostly comes from the Evenlode funds’ low exposure to energy-intensive industries, such as the energy industry itself, utilities, materials and real estate, relative to the MSCI World Index.
While Scope 1 and 2 emissions associated with investing £10,000 in a MSCI World Index tracker equate to 1.02 tonnes of CO2-equivalents (CO2e) per year, the equivalent investment into an average Evenlode portfolio is associated with less than 0.1 tonnes. Emissions associated with an equivalent investment in the Evenlode Income, Evenlode Global Income and Evenlode Global Dividend funds were 0.8, 0.9 and 0.9 tonnes respectively. The Evenlode Global Equity Fund had a footprint of 0.04 tonnes of CO2e per annum when only considering scope 1 and 2 emissions – more than 20 times lower than the MSCI World Index. The Evenlode Global Equity Fund was publicly launched in May 2021, after the portfolio emissions report was published, so it will be formally included in the 2022 report.
Evenlode’s full analysis covers the Scope 1, 2 and 3 emissions of its investee companies, proportional to the funds’ stakes in these companies. Scope 3 estimates, which also capture emissions from a company’s supply chain and from customers using a company’s products and services, are still not widely reported for funds and indexes, so a comparison to the MSCI World Index is not currently possible. However, Charlie Freitag, sustainable investment analyst at Evenlode Investment (pictured), explains that the vast majority of most companies’ carbon footprints lies in their supply chain and their products and services – covered by Scope 3. By including Scope 3 in the emissions analysis for its funds, Evenlode was able to get a much better picture of the climate risk inherent in its portfolios.
The report shows emissions associated with investing £10,000 in one of Evenlode’s range of funds (including Scope 1, 2 and 3 emissions) equate to between 2.4 and 2.9 tonnes of CO2e per year. For context, average per capita emissions for UK residents are 5.5 tonnes per year, or 13 tonnes if imports from other countries are included.
Reducing the carbon count
For Evenlode’s analysis, it used the CDP Full GHG Emissions Dataset, which collates companies’ own reports of their emissions and fills in the gaps with modelled estimates.
“Recent devastating wildfires and flooding have underlined that climate change is one of the most important systemic risks we face. It has the potential to affect livelihoods everywhere, and it will also change the risk profile of companies we invest in on behalf of our clients. High-emissions companies can expect to be impacted more heavily by carbon pricing and other forms of climate regulation in the near future,” says Freitag.
In order to better understand this risk, Evenlode started measuring and reporting on the greenhouse emissions embedded in its portfolio in 2019. Building on its first portfolio emissions report from January 2020, for this second report, Evenlode has further refined its methodology by aligning it to the Partnership for Carbon Accounting Financials (PCAF).
“Compared to last year’s analysis, emissions per £10,000 invested have decreased by 10% for the Evenlode Income fund and by 3% for the Evenlode Global Income fund. This is partly because companies are starting to take action to reduce their emissions, and partly because the funds have shifted slightly towards lower-carbon sectors,” Freitag says.
Freitag also explains that data quality has improved too, with 96% of investee companies now reporting their Scope 1 and 2 emissions. However, only a minority of companies report on all relevant Scope 3 emissions.
“Companies’ climate risk is integrated into the Evenlode investment risk framework through the ESG risk score. The insights from our emissions analysis allow us to better target our research and engagements around climate risk, focusing on the biggest emitters and those companies that fail to report their full emissions,” she adds.
She affirms that Evenlode will continue to engage with companies to set ambitious net-zero emissions targets in line with the goal of the Paris Agreement to limit global warming to 1.5 degrees and to deliver on those targets.
“We believe this will make our portfolios more resilient while contributing to tackling climate change.”