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.
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.
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.
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.