RESPONSIBLE INVESTMENT professionals like to use the expression: “What gets measured, gets managed.” And, for the first time in Canada, an asset- management firm will measure the environmental impact of one of its mutual funds.
In late September, Toronto-based AGF Investments Inc. announced it would disclose the impact that the investments in AGF Global Sustainable Growth Equity Fund have on a range of environmental factors, including carbon emissions, greenhouse gases, water usage and waste. The results will help in the management of that fund’s portfolio.
AGF Global Sustainable Growth Equity Fund, which has been in place since 1991, has a management expense ratio of 3.22% and net assets under management of $45.4 million. The fund invests in companies that provide potential solutions to sustainability issues, which fit within one of four themes: energy and power technologies; water and waste-water solutions; waste management and pollution control; and environmental health and safety.
“Why [this disclosure] is exciting is because at least now investors can say, ‘I’m investing in a fund that is providing a solution and one that has a reduced environmental footprint’,” says Martin Grosskopf, vice president with AGF Investments and lead portfolio manager for the fund.
AGF now publishes a quarterly briefing that shows unitholders the portfolio’s impact on the environment compared with the impact produced from an adjusted MSCI world index benchmark.
For example, one graph in the most recent quarterly briefing demonstrates the total environmental footprint of the portfolio in terms of what costs there are to the environment to produce 100% of revenue from the portfolio’s listed holdings. In June, the portfolio had an environmental cost of 2.88% in order to produce 100% of revenue, an improvement over the same standard of measurement in March 2014, when the fund’s result was 3.06%. The fund’s June result also was better than the total calculated environmental cost of 3.66% derived from the companies found in the MSCI world index.
The research that produces the AGF fund’s environmental footprint – as well as that of the holdings within its benchmark index – comes from Trucost PLC. That London, U.K.-based company converts a product’s environmental risk into business terms by determining the financial cost of the producing company’s environmental impact.
Trucost researches the environmental performance of approximately 6,000 companies throughout the world, says Libby Bernick, senior vice president with Trucost North America in New York. The firm conducts this work by using information provided by the companies. When that information is not made readily available, Trucost uses its own proprietary model, in which more than 500 industry categories have been studied so that estimated environmental costs can be attributed to a company.
Any additional information is a good thing for investors who want to know where their investment dollars are going, says Deb Abbey, CEO of the Toronto-based Responsible Investment Association.
“[Investors] are increasingly becoming more aware of environmental, social and governance [ESG] risks,” she says. “To have a fund begin to measure those risks and disclose them to unitholders is a great thing.”
The publication of this information makes the AGF fund’s environmental impact more tangible to unitholders and shows AGF’s commitment to the environmental cause, says Ryan Colwell, financial advisor in Georgetown, Ont. with Mississauga, Ont.-based Investment Planning Counsel Inc. Colwell specializes in responsible investing practices and incorporates AGF’s Global Sustainable Growth Equity Fund into his planning for clients.
The briefing also will help the AGF fund’s portfolio-management team understand where changes to the fund’s holdings may have to be made to produce more positive results, Colwell adds.
Having more information also has influenced Grosskopf: “We’ve made decisions around names where we thought the emissions were relatively high compared with what we expected. We’ve reduced names because of that.”
AGF is only one of several organizations that recently decided to increase the amount of information they share publicly regarding the impact of investment funds and publicly listed companies on the environment.
New York-based index giant MSCI Inc. announced in September that it will begin reporting the carbon footprint of its global indices in response to demand from institutional investors.
As well, Chicago-based Morningstar Inc. says it plans to launch ESG scores for mutual funds and exchange-traded funds later this year. Morningstar’s plan to provide these ratings will establish a system in which funds’ levels of social responsibility can be compared.
That’s not possible with the AGF fund’s current level of disclosure, as it is the only mutual fund in Canada providing an environmental metric.
© 2015 Investment Executive. All rights reserved.