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October 01, 2014
Institutional Investors Pledge to Disclose Carbon Footprint of Portfolios
    by Robert Kropp

Signatories to the Montreal Pledge, launched at last week's UN Climate Summit, will measure and disclose the carbon footprint of their investment portfolios on an annual basis.

The complicity of financial institutions in ever-increasing greenhouse gas (GHG) emissions may not seem intuitive, but there are reasons why so many score so poorly in green rankings using environmental data that account for indirect emissions. If emissions originating from companies in the portfolios of financial institutions are taken into account, then the Scope 3 emissions of many of them are as high as those from many direct emissions industry sectors.

In 2009, the environmental data provider Trucost reported that US-based mutual funds accounted for 8.6% of US emissions in 2007.

Scope 3 or indirect emissions are certainly impactful but seem to remain somewhat poorly understood, so any initiative that seeks to increase the transparency of financial institutions is to be welcomed. At the Climate Summit held at the United Nations last week, a small but influential number of institutional investors set out to do just that. The Montreal Pledge, coordinated by the UN's Principles for Responsible Investment (PRI), requires that signatories “commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis.” The initiative seeks to gather investors with a total of $3 trillion in assets under management by the scheduled Climate Change Conference in Paris, in December 2015.

“As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries,” the Pledge states. In this fiduciary role, we believe that there are long-term investment risks associated with greenhouse gas emissions, climate change and carbon regulation.”

“The first step to managing the long-term investment risks associated with climate change and carbon regulation is to measure them, and this initiative sets a clear path forward,” Fiona Reynolds, Managing Director of the PRI, said.

The dozen signatories thus far include two US-based institutions. “Climate risks are material to investors as we evaluate corporations throughout all sectors of the economy,” Bennett Freeman, Senior Vice President for Sustainability at Calvert Investments, said. “It shows up in corporate earnings statements due to physical weather-related disruptions and higher costs for resources such as energy, water and raw materials.”

The Calif ornia Public Employees’ Retirement System (CalPERS) also signed the Pledge, and committed to mapping its carbon footprint starting with equity investments in 2015. “This pledge signifies our continued commitment to better understand our own footprint and help forge solutions to serious climate change issues,” Priya Mathur, CalPERS Board of Administration Vice President, said. “We call on other investors to join us in assessing the climate risk in their investment portfolios and using that knowledge and insight in their investment decision.”

Signatories also commit “to using the results of the mapping information to develop an engagement strategy and/or set portfolio carbon footprint reduction targets,” CalPERS added.

The strategy of disclosing carbon footprints is not a new one among institutional investors. Also in 2009, Green Century Capital Management applied Trucost's environmental analysis to its Balanced Fund and thus became the first US-based institution to disclose the carbon footprint of its mutual fund.

"By disclosing the carbon footprint of our Balanced Fund, we're hoping to set the bar high, and to have others follow in our footsteps," Erin Gray of Green Century told at the time. "It is important for all of us as investors to say, this is important information that we need to have to make investment decisions."


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