What can green investors learn from funds' value chain carbon footprint? Evidence from Spain

Luis Antonio López; Raquel López; Luis Antonio López; Raquel López

doi:10.3934/GF.2025012

Green Finance

2025, Volume 7, Issue 2: 332-362. doi: 10.3934/GF.2025012

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Research article

What can green investors learn from funds' value chain carbon footprint? Evidence from Spain

Luis Antonio López ,
Raquel López ^,

Department of Economic Analysis and Finance, University of Castilla-La Mancha, Plaza de la Universidad 1, 02071 Albacete, Spain

Received: 10 February 2025 Revised: 14 April 2025 Accepted: 06 May 2025 Published: 27 May 2025
JEL Codes: G11, G23, Q51, Q54

The Task Force on Climate-related Financial Disclosures (TCFD) provides an industry-led framework for the calculation of investment portfolios' carbon footprint metrics aimed to assess their carbon risk exposure. This is the framework that financial institutions (including fund managers) in the European Union should consider when disclosing their sustainability reports according to the EU's Corporate Sustainability Reporting Directive (CSRD). However, currently, global fund data providers either do not publicly offer such metrics (e.g., Morningstar) or do so partly by considering only investees' Scope 1 and 2 carbon emissions in their calculation (e.g., MSCI). In this paper, we analyse how informative the TCFD's fund metrics computed from investees' emissions along their full value chain (including Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions) are for investors specifically committed to climate change. To that end, we collected reported emissions by Spanish equity funds' investees (from the sustainability reports issued by every investee) as our primary data source and employ a hybrid environmentally extended multiregional input–output model (hybrid EE-MRIO) to fill in the missing data, mainly for Scope 3. We show that disregard for Scope 3 emissions leads to a wrong identification of funds with low/medium-low exposure to carbon risk. The evaluation of funds' risk-adjusted financial performance further indicates that funds with medium-low exposure to carbon risk outperform funds more exposed to carbon emissions. Finally, we find that funds' WACI (weighted average carbon intensity) including Scope 1, 2, and 3 upstream emissions allows for a deeper screening of funds by carbon risk exposure than the Morningstar portfolio carbon risk score.
- Spanish funds,
- carbon footprint,
- value chain,
- reported emissions,
- financed emissions,
- green investment
Citation: Luis Antonio López, Raquel López. What can green investors learn from funds' value chain carbon footprint? Evidence from Spain[J]. Green Finance, 2025, 7(2): 332-362. doi: 10.3934/GF.2025012

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Abstract

The Task Force on Climate-related Financial Disclosures (TCFD) provides an industry-led framework for the calculation of investment portfolios' carbon footprint metrics aimed to assess their carbon risk exposure. This is the framework that financial institutions (including fund managers) in the European Union should consider when disclosing their sustainability reports according to the EU's Corporate Sustainability Reporting Directive (CSRD). However, currently, global fund data providers either do not publicly offer such metrics (e.g., Morningstar) or do so partly by considering only investees' Scope 1 and 2 carbon emissions in their calculation (e.g., MSCI). In this paper, we analyse how informative the TCFD's fund metrics computed from investees' emissions along their full value chain (including Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions) are for investors specifically committed to climate change. To that end, we collected reported emissions by Spanish equity funds' investees (from the sustainability reports issued by every investee) as our primary data source and employ a hybrid environmentally extended multiregional input–output model (hybrid EE-MRIO) to fill in the missing data, mainly for Scope 3. We show that disregard for Scope 3 emissions leads to a wrong identification of funds with low/medium-low exposure to carbon risk. The evaluation of funds' risk-adjusted financial performance further indicates that funds with medium-low exposure to carbon risk outperform funds more exposed to carbon emissions. Finally, we find that funds' WACI (weighted average carbon intensity) including Scope 1, 2, and 3 upstream emissions allows for a deeper screening of funds by carbon risk exposure than the Morningstar portfolio carbon risk score.

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