A group of global investment funds have signed on as the first participants in a new protocol that will require them to report on the amount of carbon pollution being generated by the companies in their portfolios.
The Montreal Carbon Pledge was unveiled Thursday at the annual conference of the United Nations-supported Principles for Responsible Investment (PRI) organization, held this year in Montreal. It will require investors to calculate the "carbon footprint" of their stock portfolios, measuring each company's carbon emissions and displaying the total as a ratio to each million dollars the fund has invested.
Eight funds are inaugural participants, including the $298-billion (U.S.) California Public Employees' Retirement System, which is the largest pension plan in the United States, and France's public sector pension plan known as ERAFP.
The only Canadian fund to commit so far is Montreal-based Bâtirente, which manages $1.2-billion in assets for members of unions affiliated with the Confédération des syndicats nationaux (CSN).
Bâtirente chief executive officer Daniel Simard said the pledge is the next step in the fund's commitment to socially responsible investing.
"We think we must move to a new stage in responsible investment, and that is about capital allocation," he said in an interview. "For us, measuring our footprint means considering reducing our carbon footprint. So we will need to see how we can rethink our asset management in these terms."
Toby Heaps, chief executive officer of Corporate Knights, which is participating in the PRI initiative, said there is now a "perfect storm" of comparable data available from companies about their carbon emissions, making it feasible for investors to monitor whether they are investing in more or less polluting companies within industry sectors, and to create investment goals aimed at reducing their impact on global warming.
Mr. Heaps said 78 per cent of the 500 largest public companies in the world report publicly on their carbon emissions, as well as 335 of the 500 companies comprising the U.S. S&P 500 index. He said he is aware of 42 investment funds globally that already report the carbon footprint of their investments.
The availability of reported data has allowed consulting firms to develop software programs that investment funds can use to easily calculate the carbon emissions of their portfolio holdings without having to do the work themselves, Mr. Heaps said.
"Carbon is kind of the metric of prime time now because the majority of companies are reporting it, and there is really a lot of investor interest," he said.
While carbon emissions are typically only one of several factors considered by investors as part of their socially responsible investing strategies, Mr. Heaps said it has become the most critical measure for many because of their concerns about the long-term risks of global warming on their investments.
"This brings together arguably one of the most pressing issues of our time – climate change – with one of the most powerful institutions of our time – investors at the top of the economic food chain," he said.
Mr. Heaps said a number of Canadian investors have been reviewing the pledge and may sign on. PRI is seeking commitments by a deadline of Jan. 16 in order for participants to collect data and have it included in a report coming out before the United Nations Climate Change Conference in Paris in December, 2015.
Some of Canada's largest pension funds said they are still considering whether to participate in the pledge, which comes as funds are facing pressure to join a host of varying socially responsible campaigns. The Canada Pension Plan Investment Board said it is assessing the new initiative, while a spokeswoman for the Ontario Teachers' Pension Plan said the fund is studying the carbon reduction issue, but is not currently looking at participating in the pledge.