The Carbon Footprint of Capital Investments - adelphi

022 adelphi • The Carbon Footprint of Capital Investments adelphi • The Carbon Footprint of Capital Investments
023
7 Abstract
This study is an initial approach aimed at achieving
a more detailed analysis of the complex issue of
the greenhouse gas intensity of capital investment
products. It sets out initial results from the analysis
of climate-friendly capital investments by
private households which need to be refined on
the basis of more detailed analyses.
1. There is a significant link between private
capital investments and greenhouse gas emissions.
Every 10,000 euros invested currently
finances five tonnes of greenhouse gas emissions
a year. This corresponds to just under half the
average carbon footprint of a German citizen. In
view of the considerable amounts already saved
up by German households, the question as to how
climate-friendly that money is invested will be
of major importance in future. By their choice of
where to commit their money, investors determine
the capital investments of tomorrow.
2. Private investors can substantially reduce
their carbon footprint by choosing climatefriendly
and sustainable financial investments.
The average potential for reduction across the
investment portfolio is 42 %. If the funds currently
already committed to climate-friendly and sustainable
investment products were invested in
conventional capital investments, they would be
financing an additional 17.5 million tonnes of
greenhouse gases per year.
3. In all relevant product categories provenly
climate-friendly investment products are now
available. Even without modifying their overall
investment strategies, and retaining the structure
of their respective portfolios, private investors
can cut the carbon footprint of their capital
investments across all product categories. In the
individual product categories savings of between
35 % and 87 % can be made.
4. So-called "sustainable investment products",
like original climate-friendly investment products,
generate significantly lower levels of financed
emissions. Depending on product category,
sustainable financial investments or climatefriendly
capital investments have the lower
carbon footprint. On average, both sustainable
and climate-friendly investment products entail
significantly lower greenhouse gas emissions than
conventional products.
5. The range of climate-friendly investment
products available is currently still small, but
the number of offers is rising steadily as clients'
interest grows. The climate-friendly investment
products sector is definitely a growth market.
The necessary shift to a more climate-friendly
economy, rising energy and commodity prices, as
well as the growing awareness of consumers, are
all factors dictating the direction of future market
trends in climate-friendly investment products.
6. The wide spread of financed emissions
within individual product categories indicates
great potential for optimisation. Even without
formulating a consciously climate-friendly investment
strategy, conventional stock funds
vary by well over 100 % in their greenhouse gas
intensity. There is also a considerable spread
among sustainable and climate-friendly products.
Some product offers still exhibit relatively high
figures, which are problematic in terms of their
own stated claims.
7. The carbon footprint is a suitable instrument
for bringing greater transparency to bear in
judging the climate-friendliness of capital investments.
Though there are still various
methodological hurdles to overcome before the
carbon footprint can deliver precise, globally
comparable and reliable data, the instrument in
itself doubtless offers a valuable aid to private
investors. The carbon footprint provides them
with a simple measure to determine the extent to
which their capital investment is contributing to
climate change and what investment alternatives
are open to them.
8. The carbon footprint is also a suitable instrument
for financial services providers in optimising
the risk of their portfolios. By integrating the
calculation of greenhouse gas intensity into capital
investment and loan allocation decisions they can
better estimate the risks of changing climate
policy and energy price rises for their investments.
They can then also manage and optimise their
portfolio planning based on those factors.
9. In the medium term, it is conceivable that the
carbon footprint will become established as a
key performance indicator for capital investment
products alongside return data or market risk
factors. The carbon footprint offers vendors of
conventional capital investment products and of
sustainable and climate-friendly products the
possibility to make their investment strategies
transparent and at the same time to communicate
the investment opportunities and climate effects
of their products.
The core results of the study listed here will in
future doubtless need to be refined by further
studies. Key research issues, such as
• the correlation between the carbon footprint
on the one hand and the profitability and risk of
capital investments on the other;
• the usefulness of the carbon footprint in structuring
portfolios and
• its usefulness in communicating with institutional
investors;
• the communicability of the greenhouse gas
intensity of private capital investments; and
• the still existent large gap between the stated
interest in and practical incorporation of extrafinancial
goals in capital investments
can only be further underscored by the study.
The study has further highlighted the close
correlation between climate protection and financial
services. It thus also embodies an appeal to all key
market players to continue actively driving forward
this issue and to grasp the opportunities arising
for everyone – investors and financial services
providers alike – offered by climate-friendly capital
investments.