Reducing carbon footprints in portfolios

By Jordan Waldrep, principal and CIO, TrueMark Investments

Jordan Waldrep, principal and CIO of TrueMark Investments, answers ESG Clarity‘s questions.

What are the challenges with materially reducing the carbon footprint of your investment portfolio?

The biggest challenge is simply making carbon a priority. The carbon intensity (tons of CO2/million in revenue) of the worst offenders is significant. If you remove just the five worst GHG intensity companies per sector – so 55 companies of the S&P 500 representing about 7.5% of the market cap – you can reduce the carbon intensity of the resulting index by 35%. Small changes can be made that lead to significant reductions of the carbon intensity of a portfolio. 

How can investors overcome these challenges?

The key is to pay attention to what funds are investing in. There are groups that rate the carbon intensity of ETFs or go more specifically into various areas of concern and highlight what funds own. MSCI does some public measurements that are publicly available, and Fossil Free Funds is another resource that is useful for taking a deeper look at what is under the hood.

How can investors maintain diversified exposure without sacrificing your ESG principles?

Again – look under the hood.  There are funds that have various areas of focus and levels of commitment to impact. 

What does the next growth phase of ESG investing look like?

The next growth phase is going to be when investors care more deeply about the way funds/companies are achieving ESG principles.  It isn’t just lip service or “greenwashing” a portfolio.  In Europe, the concepts of ESG Investing are more developed and investors have greater expectations as to what an ESG fund should really be accomplishing. Under SFDR, article 8 and 9 funds have specific goals that must be achieved in order to be considered at those levels and must publish documentation. I would expect the US to eventually follow suit with that kind of disclosure so investors know what they are getting in these kinds of investments.