The Carbon Footprint of the UC Public Equities Holdings

The Carbon Footprint of UC Investments’ Public Equities Portfolio

In September 2015 at the United Nations-supported Principles for Responsible Investment annual conference in Montreal, Canada, the Office of the Chief Investment Officer of the Regents of the University of California (“UC Investments”) became a signatory to the Montreal Carbon Pledge. By so doing, we pledged to measure and disclose the carbon footprint of our public equities investment portfolio annually.

The chart below compares the carbon footprint of UC Investments’ public equities portfolio as of June 30, 2019 to that of June 30, 2020, both in absolute tons emitted and as a rate (emissions per $million invested).   Year over year, our carbon emissions footprint shrank by 44%. Our portfolio emits 3.5 million tons less than it did in 2019. According to the USEPA, this is equivalent to taking 756,152 passenger vehicles off the road.

 

What accounts for the year over year decrease?

Over the course of 2019, in order to reduce risks, UC Investments sold roughly $1 billion in holdings of companies that own reserves of thermal coal, oil and gas. As a result of our decision, the carbon footprint of our investment portfolio shrank.

Why perform carbon footprinting analysis?

UC Investments takes a broad view of the risks and opportunities associated with sustainable investing. Measuring the carbon footprint of our public equity portfolio helps us understand its overall climate related risk and opportunities. This information, in turn, enables UC Investments to adapt our public equities portfolio to a low carbon economy.

In addition to the carbon footprint of our public equities portfolio, we track the transition risk and the physical risk of our portfolio. We are also interested how our portfolio companies are managing their carbon risk.

How does UC Investments calculate its carbon footprint?

To prepare our carbon footprint, UC Investments relied on data from MSCI. MSCI’s methodology and analysis are based on the best available carbon emissions data for companies’ direct emissions (scope 1 emissions) and indirect emissions from purchased energy (scope 2 emissions). Due to data limitations, Scope 3 emissions data (emissions from sources not owned or controlled by the company, such as use of the products and services it sells) are not included in our carbon footprint. Calculations are made on UC Investments’ portfolio of public equities, based on weightings of the relative size of our equity holdings.

What are some of the limitations of carbon foot-printing?

While measuring our carbon footprint is useful, it has some limits.

Limited Data & Reliance on Estimates: Not all publicly traded companies around the world disclose their rate of carbon emissions. Some markets in particular lack transparency, and, as a result, MSCI and other data providers must rely on estimates for some of their data. However, the data availability for our 2020 footprint is 96%, up from 91% in 2019.

One Piece of the Puzzle: Lack of publicly reported corporate greenhouse gas emissions data hinders the ability of investors to fully and accurately assess the carbon risk in investment portfolios. To address this obstacle, UC Investments became a signatory to the Task Force on Climate-related Financial Disclosures (TCFD) in 2017. The TCFD recommends accurate and timely disclosure of climate related risks by corporations, and encourages asset owners to request and acquire this information.

Narrow Focus: Carbon footprinting does not tell investors how well companies held in their portfolio are transitioning to a low carbon society because future plans and strategies are not measured. A corporation’s ability to manage transition risk is based, in large measure, on the level of investment in climate solutions, which is not revealed through a carbon foot-printing assessment.