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Carbon footprinting our equity portfolios helps us to understand better the risks of climate change in our portfolios and therefore act to reduce them. Esmé van Herwijnen, Responsible Investment Analyst at EdenTree, takes a more detailed look at this year's set of results.

An analysis of our 2019 carbon footprinting reports

Esmé van Herwijnen Esmé van Herwijnen Responsible Investment Analyst
An analysis of our 2019 carbon footprinting reports
Opinion

An analysis of our 2019 carbon footprinting reports

Esmé van Herwijnen

Esmé van Herwijnen
Responsible Investment Analyst

In 2015, world leaders came together for the Paris Agreement with an ambition to limit global warming to well below 2 degrees. Since then, the Intergovernmental Panel on Climate Change (IPCC) has published a frightening report stating that in reality 1.5 degrees should be the target if we really want to have a chance to limit climate change. Yet June 2019 was the hottest since 1880, and CO2 concentration in our atmosphere has broken new records once again. Whilst scientists and climate activists keep warning that we need to act as if our house was on fire, the world shows no sign of reversing the situation. 

As temperatures rise and the climate changes, people will lose their homes to rising sea levels, whilst at the same time more people will experience water scarcity. Arctic ice will melt, crops will fail and we’ll see even more species disappear as they lose their habitats. As responsible investors, this matters to us. Climate change is already well integrated in our investment approach, through our screening process and active approach to engagement. Carbon footprinting our equity portfolios helps us to understand better the risks of climate change in our portfolios and therefore act to reduce them. We first started carbon footprinting our equity portfolios in 2016; this year is our fourth consecutive year of reporting. This year we have seen significant changes in some of our portfolios.

As our analysis has shown over the last four years, emissions within portfolios are often concentrated in a handful of stocks and that is once again true this year. 

Whilst emissions per £1 million invested have remained broadly stable over the last year for the Amity UK Fund, Amity European Fund and Amity Global Equity Fund, we saw some significant changes in our Amity International Fund and UK Equity Growth Fund. This is driven in large part by the sale of Engie, an electric utility company, in the Amity International Fund, which led to a sharp reduction in carbon intensity. In contrast, the purchase of Applegreen, an Irish petrol station operator, in the UK Equity Growth Fund, has led to the increase in carbon intensity for the fund.

It is extremely positive however, that this year once again all of the funds continue to report a lower carbon intensity than their respective benchmarks. The benchmarks exhibit a ‘business as usual’ emissions trend, however we believe that a carbon aware approach to stockpicking is vital given the current climate crisis. 

The lower carbon profile of the Amity Funds in particular are the result of our thorough screening process, where we actively look for companies with strong environmental management practises. We aim to invest in companies that fully integrate climate risks and opportunities into their business strategies and seek to reduce the emissions in their direct and indirect emissions.

Whilst the results help to show the carbon-aware profile of our portfolios, this exercise is not just done for this reason. In practise the results are used to drive our engagement with the heaviest emitters in each portfolio. Our engagement focusses on transparent disclosure, emission trends and emission reduction targets. This year we will continue to ask companies to report in line with the Taskforce for Climate related Financial Disclosures (TCFD) recommendations and encourage companies to set science based targets. Science based targets are greenhouse gas emission reduction targets that are in line with the Paris goal to limit global warming to well below 2 degrees. If we really want to have a chance at tackling climate change, investors like ourselves will have a key role to play in encouraging more urgent emission reductions from the companies we invest in.

For more detail about each of the funds and an explanation of the methodology, please have a look at our 2019 portfolio carbon footprinting reports, which provide transparent disclosure in line with the Montréal Pledge.

 

Amity UK Fund

Amity European Fund

Amity International Fund

Amity Global Equity Fund

UK Equity Growth Fund