April 15th, 2009
Do Your Mutual Funds Have A High Carbon Footprint?
Stumble it!
It’s mid-late 2009, Friday afternoon. The Dow has crept above 9,000 for the first time in months, businesses are beginning to hire, and consumers are starting to consume again (we hope without using too much credit). On Monday morning, President Obama holds a press conference and announces a nationwide cap-and-trade system. Market panic! The Dow drops 500 points and Fox News launches into a 24 hour-a-day war room broadcast, spittle flying against camera lenses throughout. We sit back and smile … finally! Long-term, this is what we need to kick-start the next great American growth industry. If only I’d known what carbon-efficient companies or funds to invest in several months earlier …
Lucky for us, the folks at UK financial data firm Trucost have just released a study (free registration required) that estimates the carbon footprints of 91 large US mutual funds. What is the carbon footprint of a mutual fund, you might ask? It’s basically a sum of the carbon footprints of the individual companies that comprise the mutual fund (per million dollars of revenue), weighted by the fund’s holding in that company. There aren’t that many companies out there that report their carbon footprints yet, so Trucost has developed a sophisticated model (explained in the Appendix to their report) to estimate carbon footprints based on other factors.
So why should a fund’s carbon footprint matter? If you’re like me, then you might choose a fund just because it has a lower carbon fooprint (thereby rewarding the fund manager and the companies in the fund), all other performance metrics being equal. However, we’re heading into a world where there will be a cost assigned to carbon emissions. This cost will hurt companies and mutual funds with high emissions the most. According to Trucost, the portfolio companies of the top-performing fund in their survey would only see a 0.1% revenue decline in a carbon-capped world, while some of the poorer performing funds could see as high as a 3%+ revenue decline. That will definitely take a bite out of fund performance!
Although the report doesn’t display the carbon footprints of each of the 91 different funds (I suspect you have to pay big bucks for that!), there are some pretty useful stats nonetheless:
Carbon Footprint of the S&P 500: 384 tons CO2 / $ million of revenue
Five Funds With The Lowest Carbon Footprints (all in tons CO2 / $ million of revenue):
- Financial Select Sector SPDR Fund (XLF): 40
- Vanguard Health Care Fund (VGHCX): 48
- PowerShares QQQ Trust (QQQQ): 69
- Ariel Appreciation Fund (CAAPX): 98
- Oppenheimer Global Fund (OPPAX): 111
Five Funds With the Highest Carbon Footprint (all in tons CO2 / $ million revenue):
- Energy Select Sector SPDR Fund (XLE): 613
- Sentinel Sustainable Core Opportunities Fund (MYPVX): 692
- Janus Fund (JANSX): 744
- Fidelity Capital Appreciation Fund (FDCAX): 758
- iShares FTSE/Xinhua China 25 Index Fund (FXI): 1,549
Trucost also does an interesting job of calling out sector-specific performance across funds. Socially responsible funds (SRI funds) had the lowest aggregate carbon footprint (226 tons / $ million revenue), while country-specific / regional funds had the highest (460 tons / $ million revenue).
Even within a sector, though, performance can vary greatly. Take the SRI category, for example. Of the 16 SRI funds reviewed, the lowest-carbon fund is the Ariel Appreciation Fund, clocking in at 98 tons CO2 / $ million revenue, while the Sentinel Sustainable Core Opportunities Fund produces a whopping 692 tons CO2 / $ million revenue! Why the difference? According to Trucost, the Sentinel Fund is invested in some high-carbon utility and and industrial stocks (ConocoPhillips and Devon Energy among them, according to Sentinel’s latest annual report). The fund’s holdings must be sustainable in other ways, but certainly not in relation to climate change!
So how can you use this information to aid in your investment decisions? Right now, you can invest in (or not) the funds specifically called out in the report. However, a number of fund managers are likely to launch carbon-related investment products in the US. Standard and Poor’s now publishes the US Carbon Efficient Index, which attempts to mimic the returns of the S&P 500 via a basket of low-carbon companies. The aggregate carbon footprint of the companies in the index is about 50% of that in the broader S&P 500. It shouldn’t be long before mutual funds based on the new index appear in the market. That is, if there’s a market left to appear in!
Popularity: 3% [?]
February 25th, 2009
Is Starbucks Finally Becoming a Green Bean?
There are few companies on earth that have a better-known consumer brand than Starbucks. We’ve always hoped that they would use this brand power to take a strong leadership role in promoting sustainability. After all, Starbucks literally depends on the health of the earth for the quality of its products! Starbucks has embraced green practices in some ways, but in others they’ve been lacking. We’ve written about some of their inconsistent waste management practices in the past, and behind the scenes we’ve wondered about the carbon footprint of all that coffee and bottled water.
Well, there are more signs that they are making progress towards becoming a much greener company. Last week they announced the opening of a LEED-certified roasting plant in South Carolina. And they’ve promised that all new company-operated stores will be LEED certified by the end of 2010.
Some of the green elements of the new roasting plant include the following:
- Overall, building materials were comprised of 20% recycled content;
- Seventy-five percent of construction waste was recycled;
- Energy efficient lighting systems were installed;
- High efficiency water fixtures and drought-tolerant landscaping were used;
- Some electricity is provided by wind power, although it doesn’t say whether Starbucks actually operates wind turbines or has just bought renewable energy credits, or RECS. There’s a big difference between the two, and we’d prefer the former!
Now, having done some sustainability consulting in the coffee industry, we noticed one major component of a coffee roasting plant NOT mentioned: improvements to the roasting process itself, which is far and away the most energy-intensive aspect of a roasting plant. If you look at coffee as a product BEFORE it gets to retail (i.e., excluding Starbucks stores), the primary source of carbon emissions comes from the roasting process. In 2003, the last year for which Starbucks reported greenhouse gas emissions, roasting counted for about 53,000 tons of carbon dioxide. All other emissions associated with the roasting plant (office energy use, heating/cooling, etc) are minor in comparison. There are ways to cut down on roasting emissions, and we hope that Starbucks is using them. One is to recirculate waste roasting gases to conserve energy (and reduce air pollution). If they were truly on the green cutting edge, Starbucks could also use this same waste gas to power space heating and cooling equipment for their entire plant.
Outside of the plant, we’d also like to see Starbucks focus on other greening initiatives that they haven’t fully addressed yet:
- Shipping. From our analysis, shipping can comprise 25% or more of coffee’s non-retail carbon footprint. That includes the whole chain from farm to store and all associated packaging materials. These emissions can be hard to cut, but quantifying and reporting them is a first step. We hope that Starbucks’ 2008 CSR report will include this information.
- Packaging. The airtight plastic/metallic bags that coffee is often packaged in are very carbon-intensive. The plastic comes from petrochemicals, and the metallic components are often aluminum, one of the most energy intensive metals. There are major opportunities here to develop more sustainable packaging. Especially if you are an industry leader like Starbucks.
- Bottled Water. Just stop selling it. Please. Sell filtered, augmented or carbonated water made in-store instead. If consumers really want to buy water, allow them to bring in a thermos or water bottle and buy special Starbucks/Ethos water. That is, if there really is something worth paying for aside from convenience in the bottled water that Starbucks sells. We happily buy water made from the Natura system at many of the restaurants we frequent. No shipping impacts, and no waste associated with plastic bottles.
One last point. As mentioned above, Starbucks hopes to attain LEED certification for all new company-owned stores. It’s pretty clear if you read Starbuck’s latest sustainability report that the bulk of their overall impacts come from the operation, not construction, of their stores. The LEED standards associated with construction (LEED for New Construction, Commercial Interiors, etc) help with these operational impacts somewhat. But we’d really be excited to shop at Starbucks if they instead decided to certify existing stores with the USGBC’s LEED for Existing Buildings: Operations and Maintenance standard. That would require Starbucks to not only operate energy- and water-efficient stores, but to also put in place comprehensive recycling, sustainable sourcing and green cleaning practices among other things. Now that will turn Starbucks coffee into some really green beans!
Popularity: 5% [?]
