2017 Carbon Emissions Report

Carbon dioxide is a greenhouse gas that exerts a major influence on the planet’s temperature.

But what is its impact on your portfolio?

A company’s CO₂ emissions, or carbon emissions, is a particularly significant measure for those investors who are concerned about climate change. However, many investors see carbon and returns as an unfortunate but necessary pairing. This misperception is especially common in a country like Canada, where Energy comprises approximately 20% of the stock market.

 

In the seven years from January 2010 to March 2017, our Genus research team found that carbon intensity actually had a 9.2% cumulative drag on portfolio performance.

 

In other words, a portfolio with greater carbon intensity would have underperformed a portfolio with less carbon intensity. That means that carbon emissions not only have a negative environmental impact, but there is genuine financial risk associated with exposure to fossil fuel companies.

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Lower emissions

Genus Fossil Free CanGlobe Equity Fund and Genus Fossil Free Dividend Fund, part of the climate-friendly Genus Fossil Free funds, both have carbon intensities that are more than four times lower than their benchmark.

Canada’s market is carbon intense

Canada has significantly higher carbon intensity than other developed markets, with an intensity that is more than double that of the U.S. market.

Reduce the carbon impact of your portfolio

Divesting from fossil fuels and reinvesting your money into cleaner and more efficient energy solutions is one effective strategy to reduce carbon emissions and help mitigate portfolio risk.

We believe fossil fuel divestment has the potential to reduce overall portfolio risk due to potential energy sector volatility, the negative effect of carbon emissions and stranded asset risk.

Methodology

The Carbon Emissions Report studied the investment implications of removing the top carbon emitters. Our research examined the seven-year period from January 2010 to March 31, 2017, based on MSCI Carbon Metric data.  We tested a hypothetical portfolio with historical data where we bought the top 10 per cent of carbon emitters and sold short the bottom 10 per cent of carbon emitters. We also used statistical methods to isolate the carbon intensity variable and see its effect on performance.

 

Ultimately, our research revealed that top carbon emitters had a negative relative performance during the seven-year period.

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