Environmental Impact Monitoring Tool

Environmental Impact Monitoring Tool

Investors increasingly need to understand the environmental and societal impacts of their portfolios, and therefore require information on the impact of investment decisions. The Environmental Impact Monitoring Tool helps investors quantify the impact of their portfolios on the four most significant environmental impact indicators namely, GHG emissions, energy consumption, water use as well as waste management.

Why impact monitoring?

Investors increasingly need to be able to demonstrate the environmental impact of their investment portfolios. Before impact can be managed, it first needs to be measured. With this in mind, the Environmental Impact Monitoring Tool was developed as an analytical reporting tool to help investors monitor the impact of their portfolios on a selection of quantitative environmental which are expressed as impact per invested dollar. This information can be used to adjust portfolio company weights to maximize the positive impacts, or limit the negative environmental impacts of their investment portfolios.

Sustainable Investing Research
Sustainable Investing Research
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How it works

1. Quantitative Indicators: We screen a client’s portfolio to determine the aggregate environmental footprint of its holdings on four quantitative environmental indicators: 
  • Greenhouse gas (GHG) emissions: measures direct GHG emissions generated by sources owned or controlled by the company (Scope 1 emissions) and indirect emissions associated with the generation of purchased electricity or heat (Scope 2 emissions).
  • Energy consumption: measures total energy directly consumed by the company. 
  • Water use: measures a company’s total water withdrawal, excluding water discharged with an equivalent quality level than the water extracted. 
  • Waste generation: measures metric tons of dry waste generated by the company, consisting of by-products of the extraction or production process that can no longer be used for production or consumption and which the company intends to discard.
Impact monitoring at a glance
  • Helps investors quantify and communicate the environmental impacts of their portfolios to beneficiaries and stakeholders
  • Enables investors to make better-informed decisions on how to adjust their portfolios in order to maximize the positive impacts and minimize the negative impacts of their investments
  • Leverages the annual S&P Global Corporate Sustainability Assessment (CSA) and Robeco’s long-standing experience in collecting and interpreting financially relevant environmental data
2. The Environmental footprint is calculated for using two different methods in order to yield a more comprehensive perspective of a company’s emissions profile:
  1. Ownership indicator: For each company in the portfolio, Robeco determines the environmental footprint per million USD invested by dividing the company’s exposure to each environmental indicator by total capital (enterprise value in million USD). For example, for GHG emissions, a company that emits 5 million metric tons of CO2-equivalents (CO2-eq) per year and has an enterprise value of USD 10 billion has a CO2 footprint of 500 metric tons of CO2 for every million USD invested.
  2. Efficiency indicator: This is similar to the ownership indicator, except we divide by company revenues (instead of enterprise value) to obtain a measure of carbon efficiency (CO2 and C02-eq emitted per million USD of sales revenue generated).

While measure 1) is more intuitive (GHG emissions per USD invested), it is also subject to market sentiment and swings in share price. Revenues, in contrast, are more stable year by year, and more representative of overall company activity. Measure 1) also penalizes sectors with low price-to-sales ratios (e.g. basic resources) while measure 2) penalizes sectors with high price-to-sales ratios (e.g. real estate). Combined, both measures provide a more balanced view of a companies’ emissions profile as well as yoy changes.

3. Portfolio level impact: The total environmental footprint for the portfolio is calculated as a weighted sum of all the portfolio components’ environmental footprints. The same calculation is carried out for the benchmark components. The portfolio’s environmental impact is defined as the deviation of the portfolio’s environmental footprint from that of the benchmark. A sample report for a client investing USD 100 million in an impact portfolio is provided in Figure 1.

Figure 1: Sample Environmental Impact Report

Source: Robeco

Providing context

Measuring and understanding a portfolio’s environmental footprint is at the heart of impact investing. However absolute figures stating the number of Megawatt hours or metric tons of CO2 emissions are not necessarily meaningful when provided out of context.

To help investors grasp the true magnitude of their portfolio’s impact, the emissions, water use, energy consumption and waste generation data are expressed in terms of tangible examples of everyday household activities to which every stakeholder can relate. 

For example, the portfolio shown in Figure 1 has achieved emissions savings of 3,908 tons of CO2-eq relative to the benchmark, or the annual CO2 emissions of 1,503 European cars.  This visualization makes the impact which their portfolios are contributing to more tangible for investors and stakeholders.

Maximizing impact

An attribution analysis relative to the portfolio’s selected benchmark helps the investor determine whether the portfolio’s environmental impacts are driven by sector allocation or stock selection. Based on this information, we work with our clients to jointly develop a customized impact investing strategy with measurable targets, and help them determine how to adjust their portfolios accordingly. In addition, we help investors enhance the positive impact of their investments by entering into an engagement dialogue with selected companies that have demonstrated areas of weakness on one or more of the environmental measures, as part of our Active Ownership services.

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