Companies that emit high levels of greenhouse gases can account for a significant reduction in an investment portfolio’s returns, according to a report released on Wednesday by Vancouver-based Genus Capital Management Inc.
That means that “there is genuine financial risk” associated with investments in these firms, the report says.
Genus Capital’s Carbon Emissions Report concludes that an investment portfolio’s carbon intensity — which refers to the volume of a company’s carbon dioxide emissions for every US$1 million in revenue the company produces — had a “cumulative drag” of 9.2% on portfolio performance during the seven-year period, ended March 31.
The research was based on an analysis of global investments in the energy sector, using MSCI carbon metric data.
“We tested a hypothetical portfolio with historical data where we bought the top 10% of carbon emitters and sold short the bottom 10% of carbon emitters,” the report notes.
Many investors see “carbon and returns as an unfortunate but necessary pairing,” the report says. This “misperception” is especially so in Canada, where energy stocks make up about 20% of the market, a much higher percentage than most other developed countries.
“High-intensity emitters tend to be penalized by the market because their businesses are neither efficient nor forward-facing,” says Wayne Wachell, CEO and chief investment officer at Genus Capital, in a statement. “Divesting from fossil fuels is one way to minimize the carbon intensity of a portfolio.”
“Canadians are seeing an opportunity to tackle climate change through their investments while reducing the risk they’re assuming,” Wachell adds.
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