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A Green Portfolio: Green Century Balanced Fund Releases the First Ever Mutual Fund Carbon Footprint

| Wednesday July 22nd, 2009 | 1 Comment

By Deborah Fleischer, Green Impact
The Green Century Balanced Fund breaks new ground today with the release of its carbon footprint analysis, performed by leading environmental data and analysis firm Trucost.
The results are summarized in a new report, A Green Portfolio: 2009 Carbon Footprint Analysis, now available on their web site.
The Green Century Balanced Fund is the first mutual fund in the country to disclose its carbon intensity. Based on measuring the tons of carbon emissions per million dollars of revenue of the companies held by the Balanced Fund, and those of the companies included in the S&P 500 Index, the carbon intensity of the Balanced Fund is 66 percent less and has outperformed the index.
Sub-Prime Carbon Assets
According to the report, at a 2008 investor summit, “Al Gore encouraged people to give their investments a closer look and warned many may be exposed to ‘sub-prime carbon assets.’ Green Century believes that companies with lower carbon intensities will likely be best positioned to maintain financial competitiveness in a carbon constrained economy.”

It continues, “Green Century also believes that it is increasingly imperative that investors have the data to accurately assess the climate risks and opportunities present in their investment portfolios.”
Kristina Curtis, President of Green Century Funds added: “With emissions restrictions pending in the U.S. and internationally, we believe it is in the best interest of our shareholders to recognize and understand the carbon footprint of the Fund’s investments. This information will better inform investment decisions and will strategically enhance our efforts to encourage companies to further measure, report, and reduce their carbon emissions.”
Other Key Findings
Other key findings in the report include:
* The majority of the Green Century Balanced Fund’s low carbon intensity is attributable to the Fund’s underweighting or avoidance of the utilities, oil and gas and basic resources sectors. Being free of fossil-fuel production or manufacturing companies contributed to the relative positive environmental impact of the Fund.
* Holdings in three companies account for 28% of the portfolio’s carbon footprint, but only 5% of its value: Air Prds & Chems Inco., Gen.Mills Inco. and 3M.
* The carbon footprint of the Green Century Balanced Fund (126 tons of carbon per million dollars of revenue of each of the Fund’s portfolio holdings) is almost half the average footprint of 16 other sustainability and socially responsible investing funds (226 tons of carbon per million dollar of revenue of each of those funds’ portfolio holdings) analyzed by Trucost.
* The Green Century Balanced Fund’s returns for the one-, three-, five-, and ten-year periods ended June 30, 2009 were -13.36%, -3.78%, -1.05%, and 4.64%, respectively. The S&P 500® Index returns for the one-, three-, five-, and ten-year periods ended June 30, 2009 were -26.21%, -8.22%, -2.24% and -2.22%, respectively.
* Although the Green Century fund is a balanced fund, it currently compares itself to the S&P 500 Index because it is the only broad-based index that has a carbon footprint readily available.
What Others Are Saying…
Simon Thomas, Chief Executive of Trucost adds, “There will clearly be winners and losers from climate change regulation, with companies that are less carbon intensive than their sector peers standing to gain competitive advantage. Carbon footprints provide an important measure to understand what fund managers are doing to address carbon risks in their portfolios. We commend Green Century for its open and transparent approach in this important area.”
Lisa Woll, CEO of the Social Investment Forum states, “With the reality of climate change upon us and the economy in flux, it is urgent that we move toward a low-carbon, resource efficient, and sustainable economy. We are proud of our member investment firms that are leaders in addressing critical environmental issues.”
Methodology: The Devil is in the Details
The methodology of Trucost’s carbon audit included calculating the direct and indirect (major supplier) greenhouse gas emissions for each company in the Green Century Balanced Fund portfolio as of April 30, 2009. Each holding’s contribution to the emissions profile of the portfolio is then calculated on an equity ownership basis. The carbon footprint of the Fund is normalized by its value to produce a measure of carbon intensity. The same analysis was also conducted on the S&P 500® Index for the purposes of comparison.
Lingering Questions
The report raised two key questions in my mind:
1. Source of the data: Where did the data come from for the analysis? According to Krosinsky, Trucost uses a hybrid input/output model. Where direct company disclosure is lacking, they base the analysis on estimates that come from their database of the environmental impacts of over 5,000 companies. When data is estimated, a company has the opportunity to review and respond to the data gathered. Trucost estimates that about half of the company carbon footprint data used in the analysis was gathered from direct company disclosures, while the remainder was estimated.
2. Supply Chain Impacts: I wanted to confirm that the data includes emissions from a company’s supply chain. Cary Krosinsky, Vice President at Trucost explained, “Suppliers are firmly in Scope 3, but there are different tiers within Scope 3 – we cover Scope 1 (direct operations impacts), Scope 2 (purchased electricity) and first tier indirect portion of Scope 3, which are direct suppliers of the companies we cover as mentioned, which is again directly consistent with GHG Protocol.”
Take Home Message
It seems clear that there is going to be winners and losers when the inevitable price on carbon hits. Forward thinking companies, minimizing their carbon footprints, will be better positioned to succeed in a carbon-constrained economy. Green Century Balanced Fund is taking the lead in making it easier not only green your IRA or 401(k), but to ensure higher returns in a carbon-constrained world.
They are also taking an important step toward more comprehensive carbon accounting, setting a new standard for transparency and disclosure within the mutual fund industry. And hopefully this report will encourage more companies to continue to increase their carbon disclosures.
To learn more check out Trucost’s recent report Carbon Risks and Opportunities is the S&P 500.
Trucost’s analysis of 500 of the largest companies in the United States finds that financial risk from carbon costs varies greatly. The study, commissioned by the Investor Responsibility Research Center Institute (IRRCi), examines the global greenhouse gas emissions, carbon intensity and exposure to carbon costs of companies in the S&P 500 Index.
Deborah Fleischer is the founder and president of Green Impact, providing strategic environmental consulting services to mid-sized companies and NGOs who want to launch a new green initiative or cross-sector collaboration, but lack the in-house capacity to get it up and running. She brings expertise in sustainability strategy, program development, stakeholder partnerships and written communications. And you can follow her occasional tweet at GreenImpact.

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  • http://www.sustainablebizconsulting.com Kevin Wilhelm

    This is a significant moment for SRI in this country. I can’t overemphasize what this report has done. It now sets the standard not only for SRI reporting, but more importantly for those companies that want to be included in mutual funds like these in the future. I wrote in my book “Return on Sustainability”, that companies are going to be full of “sub-prime carbon assets” and this really puts light to that argument.

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