Portfolio carbon footprinting and assessing climate risk

Rathbone Greenbank reaffirms its commitment to the Montréal Carbon Pledge by publishing an updated carbon footprint of the equity holdings within all the investment portfolios it manages. We believe it is important to understand and be transparent about the climate impacts associated with investment portfolios, so that risks and opportunities can be identified and managed appropriately.

Our footprinting tool covers only the equity portion of investment portfolios managed by Rathbone Greenbank. Overall, equity holdings represented 35% of our total funds under management as at 31 December 2017.

Our analysis shows that for every £1m in equity investments managed, Rathbone Greenbank ‘owned’ 81.7 tonnes of carbon dioxide equivalent (CO2e). The same amount invested in the FTSE 350 would result in 217.07 tonnes CO2e being ‘owned’ – a difference of 62%.

Source: Rathbone Greenbank Investments

1The carbon footprint includes only Scope 1 and Scope 2 emissions, as defined by the Greenhouse Gas Protocol. This is due to widespread gaps in company reporting of Scope 3 emissions and our desire to compare like-for-like company data. [Scope 1: All direct Greenhouse Gas (GHG) emissions from sources owned or controlled by the company, e.g. emissions from vehicles owned by the company. Scope 2: Indirect GHG emissions from consumption of purchased electricity or heat. Scope 3: Other indirect emissions, such as from business travel or waste disposal.]
2CO2e is a standard unit for measuring carbon footprints. It expresses the impact of each different greenhouse gas (including methane, ozone and nitrous oxides) in terms of the amount of CO2 that would create the same amount of warming.

It is also encouraging to see a trend towards decarbonisation over time, both within Rathbone Greenbank portfolios and the wider market. Over the past year, the carbon intensity of £1m invested in the FTSE 350 has fallen by 10%, and within Rathbone Greenbank portfolios by 27%. This is due to both reductions in individual company carbon footprints and also variation in the amount we have invested in different companies.  

We have also seen the gap between the carbon intensity of Rathbone Greenbank portfolios and that of the FTSE widen over time, demonstrating that our clients’ portfolios are decarbonising faster than the UK market. This can be seen in Figure 2, which shows the relative carbon footprints of the FTSE 350 and Rathbone Greenbank portfolios since our first footprinting exercise in March 2015.

Source: Rathbone Greenbank Investments
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Figure 2 rebases data from March 2015 to create a common starting position of 100 for both the FTSE 350 and Rathbone Greenbank portfolios. It then shows the % change from this starting point over time.

Engaging for change: Climate Action 100+

No single metric captures all aspects of climate risk and opportunity. While carbon footprinting provides a useful snapshot of emissions at a given time, it does not account for the impacts associated with companies’ products and services. For example, carbon footprinting doesn’t capture the net climate benefit of a solar panel manufacturer. Nor does it take account of the embedded carbon associated with extractives companies’ reserves of oil, gas and coal.

This highlights the need to look at a range of factors when considering how aligned – or misaligned – a company’s strategy, performance and targets are with the low carbon pathways that would see the world meet the ambitions of the Paris climate accord.

For a number of years, this has been a major focus of Rathbone Greenbank’s engagement activity. Beginning with a focus on ten of the UK’s highest emitting companies and subsequently broadening out to include oil & gas, mining and utility groups worldwide, we have worked with a growing number of investors to ensure that climate change is fully embedded in the strategic decision-making processes of companies. 

This engagement work reached a major milestone in September 2017 with the launch of the Climate Action 100+ initiative. This brings together investors from Europe, Asia and the Americas to engage with over 100 global companies in high impact sectors on the issue of climate change. It aims to improve company governance around climate change, curb emissions, and strengthen the quality of climate-related disclosures.

We will continue to play an active role in this engagement programme as investor action on climate change reaches a truly global scale.