Publication Cutting Carbon: What the rush to divest fossil fuels means for emissions reduction and engagement: 6. Carbon exposure metrics

The net-zero frameworks discussed in the previous section and many of the commitments announced by institutional investors to date, include targets to reduce carbon exposure. This usually involves reducing investments (either in dollar or percentage terms) in companies with relatively higher carbon footprints or carbon intensity.

S&P Dow Jones Indices define and calculate four “carbon exposure metrics”[1] for its suite of indexes:

  1. Carbon Footprint (metric tonnes CO2e/USD 1 million invested)

    The aggregation of operational and first-tier supply chain carbon footprints of index constituents per USD 1 million invested.

  2. Carbon Efficiency (metric tonnes CO2e/USD 1 million revenues)

    The aggregation of operational and first-tier supply chain carbon footprints of index constituents per USD 1 million in revenue.

  3. Weighted Average Carbon Intensity (metric tonnes CO2e/USD 1 million revenues)

    The weighted average of individual company intensities (operational and first-tier supply chain emissions over revenues), weighted by the proportion of each constituent in the index.

  4. Fossil Fuel Reserves (metric tonnes CO2e/USD 1 million invested)

    The carbon footprint that would be generated if the proven and probable fossil fuel reserves owned by index constituents were burned per USD 1 million invested.

There does not appear to be a standard measure against which Australian investors report, despite the fact that these metrics have been in common use for several years.

Carbon footprint analysis became prominent in the investment sector after the founding of the Montreal Pledge,[2] a voluntary initiative launched in 2014 that encourages asset owners (such as superannuation funds) and investment managers to “measure, disclose and reduce their portfolio carbon footprints.” Australian signatories include Australian Ethical, HESTA, Catholic Super, Local Government Super, UCA Funds Management (now U Ethical), VicSuper (now part of Aware Super), Solaris Investment Management, Commonwealth Super Corporation and BT Financial Group. However, commitments to the Montreal Pledge appear to have waned in recent years, superseded by more comprehensive disclosure frameworks such as the Taskforce on Climate-related Financial Disclosures (TCFD).[3]

Currently, within Australia’s superannuation sector, reporting of carbon exposure metrics is limited in several respects: the low number of funds disclosing; the variability of metrics used for disclosure; the infrequency of disclosures, and; the presentation of data.

Of the thirty largest superannuation funds, just eleven funds disclose any of the four carbon exposure metrics defined by S&P Dow Jones.

Of those eleven funds, only seven disclose the actual carbon exposure metric (which varies) of their portfolio, while the other four disclose a measure relative to their own benchmark. Catholic Super[4], Local Government Super[5] and Vision Super[6] disclose the most comprehensive suite of metrics. Australian Ethical[7] also discloses the Weighted Average Carbon Intensity of its portfolio.

The Taskforce on Climate-related Financial Disclosures (TCFD) recommends that asset owners and asset managers “report to their beneficiaries and clients” the Weighted Average Carbon Intensity metric (metric tons CO2e/USD 1 million revenues) and consider reporting other metrics.[8] Weighted Average Carbon Intensity captures the relationship between carbon emissions and company revenue, which allows for greater comparability between companies and markets. It is also less volatile than the Carbon Footprint, which is based primarily on a company’s market value rather than its revenues.

Just six funds report Weighted Average Carbon Intensity: Australian Ethical, Catholic Super, Cbus, Local Government Super, Sunsuper and Vision Super. These metrics are displayed below, alongside various equity indexes. The lack of consistent metrics from superannuation funds and index providers is a problem that could be addressed through standardised, regular disclosure by all parties.

Table 1: Disclosed Weighted Average Carbon Intensity

Fund/IndexWeighted Average Carbon Intensity (tonnes of CO2/$m sales)Date
MSCI Emerging Markets298.130 April 2020
S&P/ASX200277.6930 October 2020
Sunsuper257 (benchmark=241)30 June 2019
S&P 500205.7530 October 2020
Catholic Super186.9 (benchmark=215.4)30 June 2020
Cbus174 (benchmark=199)30 June 2020
MSCI ACWI178.530 April 2020
MSCI World162.430 April 2020
Local Government Super113.3 (benchmark=162.3)30 June 2020
Vision Super102.4 (benchmark=164.1)30 June 2020
MSCI ACWI Low Carbon Target58.230 April 2020
Source: MSCI, S&P Dow Jones and fund reporting. Note: Australian Ethical was excluded from this table, as it reports its Weighted Average Carbon Intensity in AUD.

Carbon footprint—the amount of carbon emissions per dollar invested—is also commonly disclosed by some superannuation funds. AustralianSuper*, Colonial First State and UniSuper describe this metric as “carbon intensity”. This lack of common language is confusing for members but could be easily addressed through an industry standard.

Just five Australian superannuation funds report the actual carbon footprint of their listed equities portfolios: BT Financial Group, Commonwealth Super Corp, Local Government Super, Sunsuper and Vision Super. Another four funds report a relative figure, i.e. the relative difference between each of its investment options and the relevant benchmark, but not the actual carbon footprint: AustralianSuper, AMP, Aware Super and UniSuper. This lack of disclosure across the sector prevents meaningful comparison between funds.

Table 2: Disclosed carbon footprint

Fund/IndexCarbon to Value Invested (tonnes of CO2/$1m invested)Date
S&P Emerging Markets Core267.6530 October 2020
BT Financial Group (most options)175-18030 June 2020
S&P/ASX200156.3930 October 2020
Local Government Super (Australian Equities)139.1 (benchmark=179.6)30 June 2020
Sunsuper135 (benchmark=110)30 June 2019
MSCI ACWI124.830 June 2020
Local Government Super (International Equities)110.8 (benchmark=124.5)30 June 2020
Commonwealth Super Corp90 (benchmark=98)31 December 2019
Vision Super82.9 (benchmark=124.8)30 June 2020
S&P 50064.2530 October 2020
Source: MSCI, S&P Dow Jones and fund reporting.

  1. S&P Dow Jones Indices LLC, “Index Carbon Metrics Explained”, 2020, p6. ↩︎

  2., accessed 2 December 2020. ↩︎

  3., accessed 2 December 2020. ↩︎

  4. MyLifeMyMoney Superannuation Fund, Carbon Footprint Summary 2020, November 2020, pp1-2. ↩︎

  5. Local Government Super, “LGS Carbon Footprint Report”, June 2020, pp1-2. ↩︎

  6. Vision Super, “Annual Report 2020”, October 2020, pp38-39. ↩︎

  7., accessed 2 December 2020. ↩︎

  8. Task Force on Climate-related Financial Disclosures, “Implementing the Recommendations of the Task Force on Climate Related Financial Disclosures”, June 2017, p42. ↩︎

Our work