Photo via NY Times
Can a single, multi-billion dollar mutual fund have an impact of millions of tons of carbon? Indeed. That's what a groundbreaking study released today by Trucost reveals. The report, Carbon Counts USA, tallies up the carbon impact of some of the biggest mutual funds in the US--which are altogether worth over $1.5 trillion. And for the most part, it's not pretty.Carbon Impact of a Mutual Fund
For instance, take the mutual fund with the highest carbon impact on the list: iShares FTSE, a fund worth nearly $6 billion. And it's responsible for 1,500 tons of CO2 for every $1 million it makes—you do the math. Or don't: it's roughly 9 million tons of CO2. Basically, this mutual fund finances the pumping of 9 million tons of carbon into the atmosphere.
By way of comparison, that's a whopping 38 times more than the lowest fund on the list, which pumps only 40 tons of CO2 into the atmosphere per $1 million.
And the rest? From the report:
The combined global emissions associated with fund holdings analyzed amount to over 615 million metric tons of greenhouse gases. This is equivalent to 8.6% of US emissions in 2007.
Okay, so that's a lot of carbon. But what do the findings really mean? Since this is the first study to take stock of the carbon impact of mutual funds, it means there's now a resource available to investors and fund managers interested in investing in less emissions-heavy companies. And not purely for moral reasons, either—this information should appeal to investors across the board that are bracing themselves for climate legislation to influence business in a very real way.
Mutual Funds and a New Investing Climate
With the promise of a carbon cap and trade (or a tax) looming, investors are going to have start adapting to an entirely new investing climate (no pun intended): one where factoring in carbon emissions is a financial necessity. After all, under a cap and trade system, a coal powered utility company is going to be penalized more than say, a natural gas utility, which would likely impact its bottom line, which in turn could lead to less desirable stock returns. Which makes natural gas the better investment (at least in my uber-simplified hypothetical, of course).
Simon Thomas, the CEO of Trucost, has a good point. He says that, even if a fund manager doesn't believe in climate change, he must accept that there will soon be a real cost for carbon. It's not a matter of ethical investment--it's behaving rationally towards changing financial circumstances.
In other words, it's simply a fiscal reality. Deny global warming all you'd like, but once a cap and trade or a carbon tax becomes law, you're not going to be able to deny the influence of emissions trading on the market.
Hopefully, research like this will provide investors with both environmentally conscious and more financially sound options—and will slowly usher in a new era of widespread greener investing.
(The study evidently did not take into account "green" mutual funds) Download the study over at Trucost.
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