Indrakshi Kundu | MEL Candidate | Dec 3, 2024.
Mentors: James Dick, Genus Capital Management Inc.
Abstract
The project evaluates the Genus Fossil Free High Impact Equity Fund to assess its role in climate mitigation through fossil-free investment strategies. By comparing its carbon intensity and sustainability metrics to traditional portfolios and benchmarks like the MSCI World Index, it also explores emissions reduction, risk mitigation, and alignment with UN Sustainable Development Goals (SDGs), such as SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). Using qualitative and quantitative methods, the research examines outcomes like reduced Scope 1 and Scope 2 emissions and competitive financial performance. Results include lower carbon intensity, responsible SDG contributions, and reduced transition risks. The project highlights how fossil-free investments can balance environmental impact with financial returns.
Introduction
Fossil-free investment strategies are a growing approach to addressing climate change while achieving competitive financial performance. These strategies exclude high-carbon industries, focusing on reducing carbon intensity and supporting global sustainability efforts. This study evaluates the fund’s effectiveness in reducing emissions, mitigating transition risks, and driving positive environmental impact. By comparing it to traditional portfolios, the project aims to highlight fossil-free strategies as a viable tool for climate action.
Methods and Materials
This study employs both qualitative and quantitative methodologies to evaluate the effectiveness of the Genus Fossil Free High Impact Equity Fund in driving climate mitigation and sustainability.
Methods
•Carbon Intensity Analysis– Measure and compare Scope 1, Scope 2 and evaluated the impact of excluding fossil fuel reserves on overall portfolio emissions
•Impact Assessment– Analyzed alignment with UN Sustainable Development Goals (SDGs)
•Risk Analysis– Examined reduced exposure to transition risks and physical risks associated with high-carbon sector
•Comparative Performance Evaluation – Compared financial returns of the fossil-free fund with traditional portfolios to assess the trade-off between financial and environmental performance
Materials
•Portfolio Data– Historical performance data from the Genus Fossil Free High Impact Equity Fund.Benchmarks like the MSCI World Index for comparison
•ESG Metrics– ESG ratings, Net Impact Scores, and carbon intensity metrics from MSCI, Sustainalytics, and Impact-cubed
•Reports and Case Studies– Sustainability and financial reports from companies in the portfolio.
•Software and Tools-ESG Alpha BT for portfolio analysis
Results
Key Observations:
•The rise of Carbon Intensity between 2021 and 2023 indicates an increased focus on high-revenue sectors with slightly higher emissions or a temporary setback in sustainability initiatives.
•The sharp drop in 2024 suggests significant progress in reducing carbon emissions or a strategic shift toward low-carbon investments.
•The overall ESG score shows a steady upward trend from 2021 to 2023, indicating consistent improvement in environmental, social, and governance practices across the portfolio.
Discussion
The analysis of the Genus Fossil Free High Impact Equity Fund highlights its effectiveness in driving climate action and achieving sustainable investment goals. By excluding fossil fuel reserves, the fund significantly reduces carbon intensity compared to traditional portfolios, demonstrating its contribution to climate mitigation. Despite its focus on sustainability, the fund delivers competitive financial returns comparable to industry benchmarks, showcasing the viability of fossil-free strategies for achieving dual objectives of impact and profitability. Additionally, it mitigates transition risks associated with high-carbon industries, strengthening resilience in evolving regulatory and market conditions.