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April 10, 2009
Report Alerts Investors to Carbon Footprints of Mutual Funds
    by Robert Kropp

A Trucost report on the carbon footprints of major mutual funds finds that sustainability and SRI funds generally outperform the mainstream, and warns investors to prepare for carbon pricing.

An examination of the carbon performance of major US mutual funds with a combined value of about $1.5 trillion reveals that overall, sustainability and socially responsible investment (SRI) funds have a smaller carbon footprint than mainstream funds, according to a report by Trucost, an environmental data provider that maintains data on the environmental impacts and disclosures of over 4,500 companies.

However, because of the diverse environmental, social, and governance (ESG) criteria used by SRI fund managers, at least one of the largest SRI funds are among the most carbon-intensive analyzed in the report, due to its holdings in carbon-intensive Utilities stocks.

The report, entitled Carbon Counts USA, analyzes the carbon performance of 75 of the nation's largest equity funds, as well as 16 major sustainability/SRI funds. The report finds that the greenhouse gas (GHG) emissions associated with the fund holdings it analyzed amount to over 615 million metric tons, which is equivalent to 8.6% of US GHG emissions.

Of the funds analyzed, the iShares FTSE/Xinhua China 25 Index Fund, which invests in carbon-intensive coal-fired utilities in China, was found to have the largest carbon footprint, over 38 times larger than the lowest-carbon fund, the Financial Select Sector SPDR Fund, which excludes the Basic Resources, Oil & Gas and Utilities industry sectors.

Of the five most carbon-efficient funds, four do not invest in the Basic Resources sector. The top three performing funds do not invest in the Utilities and Oil & Gas sectors, and have at least 80% invested in low-carbon sectors such as Financial Services, Banks, and Healthcare. The Ariel Appreciation Fund ranked best among the SRI funds analyzed, finishing fourth.

Three of the five least carbon-efficient funds pick Utilities stocks that are more carbon intensive than sector peers in the S&P 500 Index. Stock selection rather than sector allocation was found to be the primary cause of their high carbon intensity in four of the five. One of the five least carbon-efficient funds, the Sentinel Sustainable Core Opportunities Fund, is an SRI fund.

James Salo, Trucost Vice President and co-author of the report, said, "The bottom line is that there are major differences between funds on carbon. This is going to become an even bigger issue for fund managers and investors when carbon emissions carry a real price in the US, because companies and shareholders will likely bear a percentage of this cost."

The report is available for download from the Trucost website.


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