AMP Capital has cautioned investors against over-inflating their level of risk when assessing their portfolio’s exposure to greenhouse gases.
The company’s latest Corporate Governance Report noted that investors may be counting the same emissions multiple times when analysing the greenhouse gas exposure of their investments.
“Adding up all of the emission figures without careful consideration may lead to a risk of double or triple counting the same emissions, which would artificially inflate the portfolio’s assessed level of exposure,” AMP Capital corporate governance manager Karin Halliday warned.
AMP Capital said the three main risks to company valuations posed by climate change were emission reduction policies, the flow-on effect of those policies on fossil fuel producers and distributors, and the physical impacts of climate change itself.
Ms Halliday said investors also needed to “carefully choose the context” in which they considered emissions.
“Given investors’ exposure is a function of their investment, it makes sense to consider emissions in the context of a company’s market capitalisation rather than a company’s revenue,” she said.
The report found emerging market equities had a greater exposure to carbon emissions due to their exposure to “emission-intense sectors”.
“For investors in the ASX 200, the exposure was 130 tonnes of carbon dioxide per million dollars, while investors in the MSCI Emerging Markets Index are estimated to have an exposure of 373 tonnes of carbon dioxide per million dollars,” the company said.