This year has turned out rather differently than expected with the Covid-19 pandemic at the heart of news stories, political discussions and companies’ agendas too. Yet it is important to note that we still face many other challenges and climate change is perhaps the biggest of them all. Whilst there has been a small reduction in industrial emissions this year, the long term picture remains bleak and highly concerning. During this year we have therefore continued our work on climate change and 2020 marks the fifth year that we have commissioned carbon footprints of our equity portfolios. This is a timely opportunity to look back on the progress made over this period and reflect on the role of investors going forward. Here are some of the findings from our work over the last five years.
Improvements in disclosure
Getting the right data is one of the main challenges when assessing a portfolio’s carbon intensity. It requires investee companies to disclose their emissions in a transparent manner following a robust scientific methodology such as the Greenhouse Gas Protocol, a widely recognised accounting framework for emissions. Through our engagements with companies, both on our own and as a participant in the CDP non-disclosure campaign, we continuously aim to encourage companies to report this information which is so vital for investors. The progress seen in the number of companies reporting to the CDP climate survey every year is a good indicator that this is improving and that data availability and quality continues to improve year on year. When we started our carbon footprinting work in 2015, 5532 companies had responded to the CDP climate change survey vs 8361 companies in the 2019 survey.1 Despite this progress, data is however not perfect and disclosure remains a challenge especially for smaller companies and outside Europe.
Broadly speaking the emission intensity of our portfolios has reduced
Five years of data now reveals how the portfolio carbon intensity has evolved over this time. Four out of five equity funds have a lower carbon intensity than five years ago, meaning that per £1m invested, associated emissions are lower than previously. The Amity International Fund in particular has realised significant progress, having reduced its intensity by 70%. The carbon footprints have also allowed us to identify the highest emitters in our funds and this has been taken into account in our carbon-aware approach to investing.
During the past five years we have also compared the carbon intensity of our portfolios against their respective benchmarks. In 2020 all five funds show a lower intensity than their benchmarks which is encouraging. We know however that overall our economies are heading towards irreversible climate change, meaning that solely being below the benchmark is not enough. In order to tackle climate change we need businesses and investments to align with the goals of the Paris Agreement. This is more difficult to assess and methodologies to measure whether investment portfolios are fully aligned are still at an early stage.
Companies are setting more ambitious targets, but more progress is still needed
As investors we have a range of tools that we can use to encourage companies to go in the right direction. Engagement with companies is an important part of our responsible investment approach and in parallel with our carbon footprinting work we have engaged with the heaviest emitting companies in our portfolios to encourage science-based emission reduction targets that are aligned with the goals of the Paris agreement to limit global warming to well below 2 degrees Celsius.
In the 2020 results we are encouraged to see that the number of companies that have set science based targets is increasing, although we recognise this is not yet enough. Only the Amity European Fund has so far seen more than half of its holdings set Science-Based Targets, so this is one area where we will continue to engage with companies.
Integrating climate change in our investment decisions.
Carbon footprints are just one of the things we do to monitor climate risks and impacts in the portfolios. Through our thorough screening process, and the environmental management screen in particular, we specifically look at a company’s disclosure on climate change. Every screening and review assesses a company’s disclosure and level of emissions, and the emission trend over time. We also look at any carbon emission reduction targets and whether these are aligned with the Paris Agreement. In addition every research template summarises a company’s disclosure on transition and physical risk disclosed by the company as well as whether it is contributing to a low-carbon economy and any solutions supporting climate resilience or adaptation.
Want to know more?
We are committed to transparency, which is why five years ago we signed the Montréal Pledge. This means we have voluntarily committed to measure and disclose the carbon footprint of part or all of our equity portfolios on an annual basis. The annual results are on our website and you can find fund specific disclosure for 2020 here:
We have also written about our views on fossil fuels in a dedicated expert briefing which you can read here.
 CDP company scores: https://www.cdp.net/en/companies/companies-scores?cid=9205306762&adgpid=95799580720&itemid=&targid=kwd-870315495991&mt=b&loc=9045999&ntwk=g&dev=c&dmod=&adp=&gclid=EAIaIQobChMImuzNoLTc6wIVEoFQBh3pjA6gEAAYASAAEgLAf_D_BwE