We decided to develop the tool in-house because we realized that most commercially available portfolio tools were focused on reporting, as opposed to investment decision-making and delivering progress in climate-related engagements. We also wanted to combine carbon data from Trucost with our own internal carbon model, QESG score, financial and engagement data. Our proprietary public markets carbon analytics tool goes beyond portfolio-level aggregate statistics and focuses on identifying patterns and outliers. In particular, we look at data with various lenses to identify companies better or worse placed to deal with client change. In particularly, the carbon tool assesses and integrates the following four key elements, making it a cutting-edge approach in evaluating the impact that investment funds have on the environment:
- Measuring carbon risk of an investment fund relative to its benchmark and of listed companies relative to its peers, including Scope 1, 2, and 3 emissions.
- Calculating the value at risk for an investment fund for different carbon pricing and policy scenarios.
- Identifying companies with which carbon-focused engagement should be initiated or intensified.
- Gauging the level of carbon risk being engaged on within portfolios and the progress achieved.
The tool helps our fund managers to more effectively take into account information about specific carbone risk and thereby enhance their investment decisions. This helps them identify investment opportunities and threats to value, and to begin or intensify engagements that can reduce the risk of holding exposed companies.
We track carbon footprint and weighted average carbon intensity (carbon emissions divided by AUM) of our equity and credit portfolios. In addition, we compare our WACI with the MSCI world index. The analysis includes scope 1 and 2 emission. Despite being backward looking data, this provides a good proxy for assessing the exposure of our assets to carbon risk. We use the market capitalization ownership and enterprise value method for calculating the carbon footprint of our equity and credit assets under management.
Our carbon tool reveals, most importantly, that the concentration of emissions in a small number of companies makes engagement potentially very powerful. This gives a lot of leverage to push companies for better carbon performance, and more generally a coherent climate change strategy.