by Robert Kropp

Using analysis by Trucost, Green Century Capital Management finds that greenhouse gas emissions of companies in its Balanced Fund portfolio are 66% less than those of S&P 500 companies.

SocialFunds.com -- At a meeting of nearly 500 financial leaders and institutional investors held at the UN in February, 2008, Al Gore said, "If you really take a fine-tooth comb and go through your portfolios, many of you are going to find them chock-full of subprime carbon assets. The assumption that you can safely invest in assets that come from business models that assume carbon is free is an assumption that is about to go splat." 

In April, 2009, Trucost, a global provider of environmental data and analysis, issued a report entitled Carbon Counts USA: The Carbon Footprints of Mutual Funds in the US, which examined the carbon performance of 91 mutual funds in the United States.

According to the report, "The combined global emissions associated with fund holdings analyzed amount to over 615 million metric tons of greenhouse gases (GHG)," or 8.6% of US emissions in 2007.

Believing that "a less carbon-intensive mutual fund (that is, one that holds less carbon intensive companies) is better positioned to succeed in a carbon constrained economy," Green Century Capital Management, a Boston-based investment advisor, asked Trucost to apply its emissions analysis to Green Century's Balanced Fund, which invests its assets in companies that Green Century believes are working to reduce their impact on the environment.

With the analysis, the Green Century Balanced Fund became the first US-based mutual fund to disclose its own carbon footprint.

SocialFunds.com spoke with Erin Gray, Director of Marketing and Strategic Analysis at Green Century, who said, "With this report, we are taking an important step toward more comprehensive carbon accounting. We hope this helps set a new standard for carbon disclosure in the mutual fund industry."

Trucost applied the identical methodology to its analysis of the Green Century Balanced Fund as it did in a recent report entitled Carbon Risks and Opportunities in the S&P 500, which is available for download from Trucost's website. Its analysis of absolute emissions by companies includes direct emissions from operations as well as from direct (first-tier) suppliers to each company, including electricity and business air travel. The report found that "For each million dollars of revenue generated by companies in the S&P 500, 384 metric tons of greenhouse gases are emitted."

"Trucost reviewed the emissions of nine greenhouse gases of companies in our Balanced Fund portfolio, as well as their first tier, or direct, suppliers," said Gray. "Including direct suppliers prevents companies from simply outsourcing their carbon emissions."

Trucost's analysis of the Green Century Balanced Fund found that companies in the Fund's current portfolio emit 126 tons of carbon dioxide equivalent (CO2-e) emissions for every $1 million of revenue generated, which is 66% less than the benchmark of companies in the S&P 500. Three companies in the portfolio—Air Products and Chemicals, General Mills, and 3M—were found to account for 28% of the portfolio's carbon footprint, but only 5% of its value.

The carbon footprint of the Balanced Fund is also about half that of the socially responsible investing (SRI) funds analyzed by Trucost for its April report. The companies in the portfolios of the SRI funds analyzed for that report averaged 226 tons of CO2-e emissions for every $1 million of revenue generated.

For its April report on the carbon footprints of mutual funds, Trucost aggregated fund holdings according to their investment styles, and found that "combined Sustainability/SRI funds have the smallest carbon footprint." However, Trucost also found that "some of the largest SRI funds are more carbon intensive than the S&P 500."

According to Green Century, "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." In fact, as Trucost found in its analysis of S&P 500 companies, "Utilities companies emit 59% of greenhouse gases released from operations owned or controlled by companies in the S&P 500." As a result, according to Trucost, "Utilities could face the greatest exposure to carbon costs incurred under proposed climate change regulations in the US."

"Momentum is building around this issue," said Gray. "Mandatory carbon reduction is becoming a reality for companies." The American Clean Energy and Security Act, commonly referred to as the Waxman-Markey Clean Energy Bill, was passed by the US House of Representatives on June 26, and includes provisions for a federal cap-and-trade program intended to reduce carbon emissions by 17% by 2020 and over 80% by 2050 compared to 2005 levels.

"By disclosing the carbon footprint of our Balanced Fund, we're hoping to set the bar high, and to have others follow in our footsteps," Gray said. "It is important for all of us as investors to say, this is important information that we need to have to make investment decisions."

Lisa Woll, who is Chief Executive Officer of the Social Investment Forum (SIF), a membership association dedicated to the practice and growth of SRI, told SocialFunds.com, "Whenever a financial services company, or any company for that matter, pays attention to its carbon footprint and makes it an important priority, it is a positive step."