New fund rating measures exposure to green companies

If you’ve ever wondered about the carbon footprint of your mutual funds, a Toronto-based research and media company has a rating for you.

Corporate Knights has launched a rating system for mutual funds that measures their environmental impacts, the Eco-Funds Ratings. It looked at 424 Canadian-domiciled equity funds across four categories (Canadian equity, U.S. equity, international equity, global equity), using data from Fundata and South Pole Group. Funds were assessed on three factors: the percent they’re invested in green companies, the weighted carbon intensity of their holdings (tonnes of carbon emitted per dollar of sales), and their compound three-year returns.

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Overall, the mutual funds’ had an average 5.5% exposure to green companies, while the average carbon intensity across all fund categories was 292 tonnes of carbon dioxide emitted (CO₂e) per $1 million of sales.

Using the ratings, Professor Olaf Weber of University of Waterloo found that on average, funds were able to achieve a 0.18% increase in 3-year compound returns for every tonne of CO₂e per $1 million of sales that was reduced, and for every 1% increase in green company exposure.

Meanwhile, for the Canadian equity category, there was a 0.99% decrease in 3-year compound returns for every tonne of CO₂e per $1 million of sales that was reduced, and for every 1% increase in green company exposure. Breaking that down showed that reducing one tonne of CO₂e per $1 million of sales raised 3-year compound returns 0.01%, while a 1% increase in green company exposure reduced the 3-year compound return by 0.8%. “[That’s] possibly due to the small representation of green stocks among Canadian-listed entities (less than 1% of total market cap),” says Weber.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.