Most investors focus on reducing the carbon footprint of their portfolio; but having a green portfolio in a ‘dirty’ world does not necessarily translate to the goals that society is trying to achieve, according to Sarita Gosrani, director of ESG and responsible investment at bfinance, an investment consultancy.
“To decarbonise your portfolio, the real world needs to decarbonise. So the companies in which you’re invested in over the long-term should be on a reduction trajectory,” she said.
So besides funding renewable energy technologies and innovations, Arnaud Bisschop, portfolio manager and head of ESG at Thematics Asset Management, likewise described it as “imperative” that all major players in the economy take steps to decrease their emissions as the world transitions to a low-carbon economy.
Gosrani at bfinance added that if investors exclude certain sectors, then the investors who are investing in those areas may or may not be concerned about decarbonisation.
“If you’re able to steward your assets to drive that change, then it’s related to the real world,” said Gosrani.
“When you talk about decarbonisation, it’s not about the portfolio looking low-carbon today. It’s about the real world, and I think that’s the connection that is missed out.”
While current carbon footprints of some investments may not appear to be compatible with a sustainable investment approach, Emma Harvey-Smith, programme director at the Green Finance Institute, drew a parallel with the principles of early green bonds.
“It’s a focus on additionality,” she said. “So, you can pivot your portfolio to green assets by acquiring or investing in already green assets.
“But we know that one of the big focuses for green bond investors, and when you’re issuing a green bond, is to demonstrate the additionality, i.e. that that project is helping to reduce greenhouse gas emissions - not just that it already doesn’t emit that many emissions.”
Chloe Cheung is a senior features writer at FTAdviser
