Evenlode Investment has released its third annual Portfolio Emissions Report. The report showed portfolio emissions were significantly lower than the MSCI World Index and the FTSE All-Share Index and highlighted a steady increase in scope 3 reporting by investee companies.
The independent Oxfordshire-based asset manager continues to refine the methodology of its portfolio emissions analysis and align it even closer to the PCAF Standard. The 2022 report for the first time included two recently launched funds, the Evenlode Global Equity Fund and the Evenlode Global Opportunities Fund.
Charlie Freitag, stewardship analyst at Evenlode Investment, commented: “We assess the financed emissions embedded in our investments to better understand the impact our companies have on the climate, and the risks they face from regulation and the transition to a low-carbon economy. This allows us to manage the systemic risk from climate change in our portfolios.
“The analysis also helps us identify the highest-emitting companies in our portfolio and prioritise them for engagement. Following our engagement with all portfolio companies reporting less than 90% of their scope 1, 2 and 3 emissions in 2021, this year, we will engage with all companies in sectors with material climate risk that do not already have science-based 1.5C-aligned climate transition plans.
“The message from the most recent United Nations Climate Change Conference, COP26, and the 6th IPCC report, is clear: the world is currently on a trajectory to fail the goals we set ourselves to limit global warming to 1.5°C. However, there is still a chance to prevent the worst outcomes through rapid action to cut greenhouse emissions.”
Evenlode emission intensity significantly lower than MSCI
The report also showed the greenhouse gas emissions associated with investing in an average Evenlode portfolio is many times lower than an equivalent investment in a fund tracking the MSCI World Index or the FTSE All-Share Index. This is for Scope 1 and 2; Scope 3 estimates are still not widely reported for funds and indices.
Compared to last year’s analysis, emissions per £10k invested remained the same for the Evenlode Income Fund, increased for the Evenlode Global Income Fund and the Evenlode Global Dividend Fund, and decreased for the Evenlode Global Equity Fund, due to a mix of pandemic effects, changes in sector exposure and to the underlying holding companies.
Commenting on the report, Chris Elliott, portfolio manager of the Evenlode Global Equity fund, said: “The emissions associated with investing £10k in one of our funds varies between 0.58 tonnes of CO2-equivalents for the Evenlode Global Equity fund, a new growth fund that we launched in July 2020, and 2.35 tonnes for the Evenlode Income fund, across scopes 1, 2 and 3.
“For context, average per-capita emissions for UK residents are 4.8 tonnes per year. The Evenlode Global Equity fund has a higher exposure to services companies, which are generally emission-light, and a lower exposure to companies that produce physical products, such as consumer staples, which tend to be more emission-intensive. That explains why the fund has only a fourth of the emission intensity compared to the Evenlode Income fund.
“But if we put the Evenlode funds in the context of their benchmarks, they are all remarkably low in their emission intensity. For scope 1 and 2, the emissions per £10k invested are between 25 kilogrammes of CO2-equivalents for Evenlode Global Equity and 56 kilogrammes of CO2-equivalents for Evenlode Global Income.
“These emissions generated are over ten times lower than the emissions associated with an equivalent £10k investment in a fund tracking the MSCI World Index or the FTSE All-Share Index – Evenlode funds’ formal comparator benchmarks – which have an emission intensity of 904 and 1,286 kilogrammes per £10k invested, respectively. The difference comes from our process’s inherent low exposure to energy-intensive industries, such as the energy industry itself, utilities, materials, and construction.
“Despite already having lower emissions, our portfolio companies will also need to decarbonise in the coming years to contribute to global efforts for net zero by 2050 latest, so we will continue our engagements with companies on their emissions.”
Emissions in scope
The report also showed there has been a steady increase in emissions reporting by portfolio companies. 93% of Evenlode investee companies now report Scope 1 and 2 emissions, and 86% report at least some Scope 3. Overall, 83% of Evenlode’s financed emissions are now reported by the underlying holding companies rather than relying on modelling, up from 77% in 2020.
“As members of the Net Zero Asset Managers (NZAM) initiative, and to fulfil our fiduciary duty, Evenlode will continue to engage proactively with portfolio companies to improve reporting and drive action to cut emissions, both through direct engagement and collective action. We believe this will make our portfolios more resilient, while contributing to tackling climate change,” Freitag added.