Carbon footprint risky for investors, report says

A report prepared for WWF-Canada by Mercer and Trucost concludes that climate change and carbon exposure are new risks for Canadian institutional investment portfolios.

The study found that the TSX has the third-largest carbon footprint among major global indices, second only to the Indian and Emerging Markets indices. “These finding are consistent with resource-based economies that rely heavily on sectors such as oil and gas,” the report states.

The study also found that Canadian pooled funds invested $3.7 billion (US) in 20 energy companies working in the carbon-rich Alberta oil sands, as of the end of 2009. "Funds with larger carbon footprints are likely to be more exposed to greenhouse-gas related investment risks, including regulation, litigation, market and reputational risks.”

“By understanding and managing their carbon exposure, investors can better protect their investments and help fight climate change at the same time,” said Josh Laughren, Director of Climate and Energy for WWF-Canada. “This is an issue that will affect every investment portfolio, and recognizing potential impacts will become increasingly important.”

“Climate change and assessing carbon exposure are becoming important issues for institutional investors – both in terms of potential risk and opportunity,” added Elisabeth Bourqui, head of Responsible Investment Canada for Mercer.

Mercer conducted its analysis using data from Trucost. The report also includes case studies, assessing the carbon risk of the equity portfolio of four Canadian institutional investors: the Toronto Atmospheric Fund, Community Foundation of Ottawa, a public pension plan and Batirente.

The study found that the carbon risk of the Toronto Atmospheric Fund was significantly lower than the benchmark, primarily due to its underweighting in carbon intensive sectors.