Environmental Investing emphasizes a focus on environmental issues and considers a company's performance as a steward of the natural world - both in operations and across supply chains. Research in this area sweeps in considerations of environmentally focused policies and practices, in addition to related financial, regulatory, and stakeholder risks. Organizations such as S&P Global, which provide investment analytics, assess four key environmental factors: "greenhouse gas emissions, water use, waste and pollution, land use and biodiversity."1 Within those four factors, however, are dozens of potential metrics.
Until a stronger consensus about how and what to measure emerges, however, we think dozens of metrics are far too many - especially because they don't necessarily tell a reliable story. Consider this: in one analysis, an assessment of two credit rating agencies showed a strong (90 percent) correlation when evaluating corporations' financial strength; a similar assessment of two ESG rating agencies, however, showed a dramatically weaker (32 percent) correlation.2
At One Day In July, we focus our evaluations of environmental investing around two key metrics - carbon intensity and fossil fuel reserves - believing these are the most straightforward ways to fairly consider a company's environmental impact.
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