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  • Writer's pictureVincent Auriac

72% of equity funds would not survive if carbon had a price

Updated: Feb 22, 2022


We have conducted a study on the carbon risk of the 50 largest funds invested in European and Eurozone equities*, registered in France (with the ISIN prefix .FR). These funds represent 65% of the assets in these categories (AMF).

The Carbon Score® is calculated using a proprietary model developed by Axylia, presented on a scale from A to F. The score materializes the capacitý of companies' operating profit to pay their carbon bill. The carbon bill represents the damages associated with tons of CO2 emissions over the entire life cycle of the company's products and services.

None of the 50 funds achieves the maximum Carbon Score of A. 72% (36 funds totalling €46 billion) achieve a 'negative' Carbon Score of D, E or F. This means that their shareholders run a high risk of losing their savings in the event of carbon pricing. The SRI funds (French Label) in the sample do not avoid this either: 64% of them also obtain a "negative" Carbon Score. It can be seen that the SFDR regulation only provides imperfect information on the real extra-financial impact of funds: indeed, 69% of the so-called Article 8 and 9 funds, which are supposed to integrate ESG criteria, are associated with negative Carbon Scores (D, E and F)

Faced with the systemic risk posed by climate change, Axylia is launching a platform displaying the Carbon Score of companies and funds, helping individuals and professionals to identify the structures that create the least negative externalities. A collaborative approach will allow Internet users to make the inventories of funds usable and import them into the website. Eventually, with the help of Internet users, the site will be able to cover the 10,000 funds offered on the French market. The platform creates transparency to stop greenwashing.


Evolution of the price of the European CO2 quota

In France, since 1997, a growing number of investors have used ESG ratings to guide their investment decisions. Like some academics, think tanks, regulators, big bosses and the Inspectorate General of Finance, we note the complexity and exhaustion of the ESG rating, which turns out to be confused and unsuitable to respond to the first of the dangers: the climate emergency. Climate change imposes its physical law and forces us to reduce CO2 emissions and not simply to improve an ESG rating! The price of CO2 (see graph) and climate impacts are increasing in Europe, but the ESG rating remains insensitive to it. As this method comes under the wrath of greenwashing, the time has come for a change.


CO2 is responsible for increasing climate change. It is released by the combustion of fossil fuels (coal, oil, gas). It is a long-lived greenhouse gas (about 100 years) that traps heat from the sun in the atmosphere. CO2 emissions can be classified into three categories: emissions from operations (Scope 1), from production of goods and services (Scope 2) and, from the use of products and services (Scope 3). However, this third aspect is very often underestimated, or even not informed. CO2 emissions linked to use are much higher than those linked to production alone. This is the case for an automobile whose driving (100 grams of CO2 for each of the 13,000 annual kilometers traveled during the ten to twelve years of ownership) produces 80% of the life cycle emissions compared to 20% for its production. Taking into account the emissions linked to Scope 3 is therefore essential, in order to obtain a complete result and to know the real exposure of companies to CO2. This is the calculation scope of the Carbon Score.


The alarmist speeches of scientists do not seem to be enough to make the world of finance and business change. In our opinion, the explanation lies in the fact that the two parties do not speak the same language: researchers speak in degrees, tons of CO2, while financiers and individuals speak in euros. A common language is missing.

Axylia started from an observation: in contradiction with the polluter-pays principle, the damage associated with CO2 emissions is not borne by the company, even though it is the source of the damage. We have worked on converting CO2 emissions into euros. Research by climate economists, taken up by the IPCC, values a tonne of CO2 at 108 euros. This is a tipping point, much higher than the price of the European allowance (€60) and much higher than other world prices.

Each tonne of CO2 emitted reduces the company's operating result. Companies emit millions of tonnes per year. If Nature were to send its bill to the company and make it pay, a "carbon-adjusted" financial result could be calculated. This stress test shows the extent to which the company's profit depends on CO2 emissions, which is then normalised in the form of a Carbon Score, according to its intensity :


· Breakdown of Carbon Scores

We have studied 50 funds, SRI or not, invested in European and Eurozone equities.

None of the funds score A which is very little impacted by carbon pricing. Conversely, 38% of funds would be under intense or very intense stress (E and F). In total, 72% have a negative score.

Overall, the average company in the funds shows a loss and the funds score D.

- SRI funds vs. conventional funds

The sample consists of 25 SRI funds and 25 conventional funds.

36% of SRI funds have a "positive" Carbon Score (A, B and C) compared to 20% for conventional funds. ESG analysis improves resistance, but both categories, SRI and non-SRI, remain overwhelmingly exposed to priced CO2, with an average score of D. The ESG approach does, however, provide access to a greater number of funds with low carbon exposure (B).

- Carbon Score vs SFDR regulation

Since April 2021, European regulations require management companies to classify their funds according to their ESG intensity. The so-called Article 8 and 9 funds have a high and very high ESG quality respectively; Article 6 funds do not claim ESG quality.

Article 6 funds have only 20% positive Carbon Scores (A, B and C). Article 8 and 9 have almost as many positive scores each. Article 9 funds have the highest proportion of B scores. 67% of Article 9 funds have a negative carbon score!

The SFDR regulation is therefore not sufficient information to know the carbon risk of funds, even if article 8 and 9 funds provide access to the largest number of positive carbon scores.


* Sample of 50 funds under French law invested in European equities for an outstanding amount of 69 billion euros (list of funds in appendix)

Sources: Quantalys, Trucost, websites of management companies

Study Axylia - Carbon pricing
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