Investment Footprint
Stock Footprint
Stocks have a carbon footprint. They represent ownership in a corporation. That ownership comes with a claim for a part of that corporation’s assets and earnings. It also comes with a stake in that corporation’s responsibilities. Part of that responsibility is the corporation’s carbon footprint. Awareness of the climate risks and responsibilities of investments is becoming more mainstream. More companies are reporting greenhouse gas emissions on G4 and annual reports. Since 2016, institutional investors in France are required by law to report climate risk criteria according to Article 173.
How do we find the carbon footprint of an investment?
Industry professionals can use tools such as The Investment Carbon Screener on the Bloomberg App Portal. Smaller investors can use a Fossil Free Funds for some mutual funds. Otherwise it is just brut force by using the emissions from the company’s G4 report or from the Carbon Disclosure Project, divided by the number of outstanding shares times the number of shares owned. I have several mutual funds and they range from 8 to 24 tons of CO2e per $100,000 invested.
What can we do?
If a side effect of stock ownership is carbon pollution, why not balance it with an investment whose side effect is carbon reduction? Investors can measurably balance the footprint of their portfolios buy using the Carbon Xprint method. This positive feedback approach invests $40 in certified green project financing for each ton of carbon footprint. These green investments build the renewable energy, energy storage, and energy efficiency infrastructure we need to keep global temperatures from rising above 2 degrees Celsius. The IEA estimates that we will need at least $USD 3.5 trillion of this type of investment per year until 2050 to accomplish this goal. Since it is an investment, the investor is returned interest and the principle at the end of the term. This is a targeted and measurable diversification of an investor’s portfolio. A simple diagram illustrates the process.
The amounts are relatively small. For example, the Vanguard S&P 500 index fund has a footprint of 8 tons for $100,000 invested. This can be balanced for $320 a year, or .32%. When those green investments mature, they can be rolled over. In a few years, very little if any additional investment will be needed to maintain a carbon balanced portfolio.
Investing
Green bonds continue to be embraced by the investment community. The issuance of green bonds increased 78% from 2016 to 2017. The ideal is to provide an investment opportunity for any individual or institution to balance his or her portfolio. Currently green bonds are predominately only available to institutional and accredited investors. The best strategy now is to encourage foundations, family offices, and endowment funds who combat climate change as part of their mission to adopt this approach. They are large enough to participate in these types of investments. The investment will generate a return and fulfill the mission. They can lead other institutions and eventually individuals with this measurable and profitable approach for climate responsibility. They will increase the demand for green investment.
Financial Responsibility
There is a concern the fund managers would not generate the highest returns by investing in certified green bonds. The difference in return on investment of green bonds and other bonds could be factored into mission spending. The organization would actually do more for the mission with same amount of money while still growing the endowment. The average yield difference of green to non green bonds was -0.007% as of Nov. 2017.
This is a step beyond divestment. No matter what combination of policies and technologies we use to solve this problem, we will still need trillions of dollars in capital investment. Diversifying a small portion of our portfolio to balance our carbon footprint will help get us there.
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Certification bodies include the Climate Bonds Initiative, Green Bond Principles, Investor Confidence Project, and Passive House.
