Carbon intensity of listed investments continue to fall

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The carbon footprint of the University of Sydney’s share portfolio is the lowest it has been since the University launched its carbon reduction strategy nearly five years ago.

In February 2015 the University set the three-year goal of ensuring the carbon footprint of its listed equities was 20 percent below a composite benchmark, which measures the emissions intensity of a hypothetical share portfolio with an asset allocation similar to the University’s. The benchmark’s mix is roughly in proportion with the University’s allocation of Australian shares, overseas developed market shares and emerging market shares.

Income from the University’s shareholdings is used to finance scholarships, Chairs and research programs stipulated by donors. The University has an obligation as Trustee to ensure these funds, endowed by donors and alumni, are used for the benefit of students and staff while adhering to its environmental, social and governance (ESG) commitments.

Since the 20 percent goal was met in 2017, the emissions intensity of the University’s share portfolio has continued to fall. As of September this year, it was a record 55 percent below the composite benchmark, 21 percentage points lower than the 34 percent measured in 2018. Since 2014 the listed equity portfolio’s carbon footprint has fallen 71 percent in absolute terms.

The University’s Chief Investment Officer Miles Collins said this lower relative and absolute carbon footprint reflects both changes to the fund manager line-up and investment decisions made by its fund managers.

“At the University level, last year we changed the managers of shares bought in emerging markets, in order to work increasingly with firms that target sustainable industries and business practices,” he said.

“More broadly, fund managers have increased University holdings in small and mid-capitalisation stocks, which decreases exposure to larger, more carbon intense companies. Additionally, active managers have shied away from stocks that are exposed to the uncertainty of energy commodity price fluctuations.”

The University is in the process of reviewing policy around sustainability at a broad institutional level, which will include consideration of the investment portfolio during 2020. Importantly, the University’s internal and external investment managers are alert to the ongoing challenges of a world, which is changing rapidly in a variety of different ways.

“While the University’s policy can be a useful way to signal an intent, the day-to-day research for and management of an investment portfolio has the most impact because achieving long term risk adjusted returns requires forward thinking and an adaptive mindset.”

The carbon footprint intensity of the University’s portfolio is published in the fourth quarter of each calendar year. Latest results can be found in the most recent carbon footprint release.