Those Green Funds You Own Are Still Massive Polluters

Climate
Strategies
With
The
Highest
Carbon
Intensity

The
table
below
shows
how
the
funds
in
the
different
climate
strategies
compare
to
the
Morningstar
Global
Target
Market
Exposure
(TME)
index.
Among
the
clean
energy
funds,
only
53%
have
a
carbon
intensity
below
the
benchmark,
a
percentage
that
drops
to
43%
for

climate
solution
funds,
but
rises
to
77%
for

low
carbon
funds
(they
invest
in
securities
with
low
carbon
intensity)
and
76%
for

climate
transition
(invest
in
companies
that
consider
climate
change
in
their
business
strategy).

Carbon
Intensity
for
All
Fund
Groups
Versus
Morningstar
Global
TME
Index
(tCO2/USD

Million)

“This
reflects
the
fact
that
alongside
pure-plays
in
the
renewable
energy
sector
like
solar
photovoltaic
system
manufacturers
SolarEdge
Tech
and
Enphase
Energy,
which
score
low
on
carbon
intensity,
many
climate
solutions
and
clean
energy/tech
portfolios
invest
in
more-diversified
companies
that
operate
carbon-intensive
businesses,”
says
Hortense
Bioy,
global
director
of
sustainability
research
at
Morningstar.
These
currently
high-emissions
companies
will
be
key
drivers
of
the
transition
to
a
low-carbon
economy.

Although
the
electric
utilities
industry
is
still
very
carbon-intensive,
Denmark’s
Ørsted
[ORSTED]
has
significantly
improved
its
carbon
footprint
in
the
past
several
years,
following
a
divestment
of
its
oil
and
gas
assets,
a
significant
reduction
in
its
reliance
on
coal,
and
aggressive
investment
in
wind
energy.

Climate
Funds
Most
Involved
in
Fossil
Fuels

Another
metric
to
understand
why
climate
funds
‘pollute’
is
their
involvement
in
fossil-based
activities,
such
as
oil
or
gas
production
or
thermal
coal
mining.
The
Morningstar
study
reveals
that
most
climate
trategies
have
less
exposure
to
fossil
fuels
than
the
global
equity
index,
but
only
25%
of
green
bond
funds
and
58%
of
alternative
energy
funds
meet
this
criterion.
Again,
the
reason
for
this
is
the
presence
of
utilities
in
the
portfolio,
which
invest
in
renewables
but
are
still
heavily
dependent
on
fossil
sources.
For
example,
NextEra
Energy
(NEE),
a
leading
wind
farm
and
solar
builder
and
operator
in
the
US,
still
derives
part
of
its
energy
mix
from
fossil
fuels
(thermal
coal,
oil
and
gas)
and
builds
and
operates
gas
pipelines.

Percentage
of
Fossil
Fuel
Involvement
Versus
Morningstar
Global
Target
Market
Exposure
Index

Strategies
Investing
in
Climate
Solutions

While
the
climate-conscious
investor
must
take
into
account
having
high
carbon-intensive
companies
in
the
portfolio,
he
or
she
can
also
focus
on
funds
that
invest
in
climate
solutions,
such
as
clean
energy
generation,
energy
efficiency,
green
transport
technologies
and
green
building.
According
to
the
Morningstar
study,
86%
of
climate
solution
funds
and
95%
of
clean
energy
funds
have
an
exposure
to
these
industries
that
exceeds
the
global
equity
index.
One
of
the
most
prominent
stocks
in
these
portfolios
is
EDP
Renovaveis
(EDPR),
a
renewable
energy
developer
that
builds,
owns
and
operates
power
plants.
This
company
focuses
almost
exclusively
on
wind
(onshoreand
offshore)
and
solar.

A
Long
Way
to
Net
Zero

The
fact
that
climate
funds
continue
to
pollute
is
not
surprising
if
you
consider
that
none
of
the
major
companies
in
their
portfolios
have
an
Implied
Temperature
Rise,
or
ITR, of
1.5°C
or
less,
which
means
they
are
not
in
line
with
the
Paris
Agreement’s
targets.

The
ITR
is
an
indicator
calculated
by
Morningstar
Sustainalytics,
which,
together
with
the
“degree
of
alignment”
to
the
trajectory
of
limiting
temperature
rise
to
1.5°C,
constitutes
the

Morningstar
Low
Carbon
Transition
Rating
(LCTR),
a
rating
that
provides
investors
with
a

science-based
and
forward-looking
assessment
of
a
company’s
alignment
to
the
trajectory
of
zero
emissions
by
2050. 

According
to
Morningstar
analysis,
the
major
companies
in
the
low-carbon
strategies
are
overall
the

least
aligned
to
1.5°C
trajectory
(in
terms
of
average
values),
but
there
are
exceptions,
including
Redeia
Corporacion
[RED],
which
owns
and
operates
the
Spanish
electricity
grid.
Alternative
energy
funds
appear
to
be
more
in
line
with
COP21,
thanks
mainly
to
companies
such
as
Ørsted,
which
has
solid
management
plans
for
the
climate
transition,
and
First
Solar,
which
has
set
up
an
incentive
scheme
related
to
performance
on
greenhouse
gas
reduction,
is
transparent
about
emissions
data
and
is
a
leader
in
renewables.

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