What does the environmental balance sheet of an investment product look like?

Environmental balance sheets have concrete effects on companies.

Rosalie Vendette | Desjardins group 

Integrating environmental criteria into investment decisions is one of Desjardins's 7 major implementation strategies for responsible investing. That being said, how do we assess the real impacts of this strategy?

Using the Desjardins SocieTerra Environment Fund as an example, here are some helpful explanations of the concrete effects that environmental balance sheets have on companies.

How do we evaluate the companies included in a responsible investment fund?
To create a company's environmental balance sheet, we must compare its environmental impacts with the Fund's reference index (a stock market index[1] that serves as a basis for comparison). 

As of December 31, 2015, the companies included in the Fund posted environmental impacts that were 73% smaller than those of the companies included in the reference index. 

The largest contrasts can be found in 3 sectors with substantial greenhouse gas (GHG) emissions: 
industrial goods (87% lower)
utilities (86% lower)
basic materials (84% lower)
How are impacts calculated?
The environmental impacts above were calculated by Trucost, a firm that specializes in applying environmental data to portfolio management. 

Calculations are based on 6 indicators:
Greenhouse gas (GHG) emissions
Water consumption
Waste production
Emission of pollutants into water and soil
Emission of pollutants into air
Use of natural resources
Trucost gathers the information provided by companies and uses the data in its calculations. When there is no data available, Trucost makes an estimate. 

Does it work?
Enel Green Power, from the utilities sector, shows us one way in which companies can stand apart. Enel has set itself the ambitious goal of achieving carbon neutrality (zero emissions) by 2050. Already, 47% of the energy it produces comes from sources that emit no carbon dioxide. 

The recent Paris Agreement is the result of considerable discussion and negotiations on climate change. These debates focused on the issue of decarbonization and the transition to a lower-carbon economy that is less dependent on fossil fuels. 

Greenhouse gas emissions are one of the indicators assessed during the investment process because one of the Fund's objectives is to invest in companies that produce less greenhouse gas. 

For example, in order to generate a revenue of US$1 million: 
The companies included in the Fund produce 54.6 tons of CO2. 
The companies included in the Fund's reference index produce the equivalent of 285.4 tons of CO2.
This means that the Fund shows an 81% reduction in direct and first-tier greenhouse gas emissions. 

Can investors truly contribute to change?
These results prove that the companies selected using strict environmental criteria are more efficient than the portfolio of companies included in the reference index, for several environmental indicators.

The more investors prioritize the environment when choosing their investment products, the more clearly and loudly their voices will be heard. 

By choosing a product that integrates environmental concerns, investors:
Back the right players and encourage companies to continue reducing their environmental impacts in a context where they are continually compared to one another.
Penalize companies who aren't environmentally conscious and were not selected, which will encourage them to improve.
The methods for selecting which companies will be included in responsible investment portfolios are still relatively new and will evolve over the coming years.

Until everyone decides to optimize their environmental practices, investors can push companies to improve through shareholder activism, another influential strategy for responsible investment.

The Desjardins Funds are not guaranteed, their value fluctuates frequently and their past performance is not indicative of their future returns. The indicated rates of return are the historical annual compounded total returns as indicated the date of the present document including changes in securities value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. 

Please read the prospectus before investing. The Desjardins Funds are offered by such registered dealers as the Desjardins Financial Services Firm, a mutual fund dealer belonging to the Desjardins Group that distributes the Funds in caisses throughout Quebec and Ontario, as well as through the Desjardins Financial Centre.

[1] According to the Autorité des marchés financiers, a stock market index is a "statistic that measures stock market developments and is frequently used as an indicator of economic conditions." 

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