Hot topic Carbon takes star role on earnings calls as investors turn a deeper shade of green

 Mentions of carbon and associated keywords have tripled over the past three years to around 1,600 per quarter, according to a UBS analysis of earnings call transcripts. Searches for the word in a financial context on Google have also reached an all-time high, according to the Swiss bank. The increased emphasis on emissions of greenhouse gases such as carbon dioxide comes during a period of swift growth in investments based on factors such as the environment, governance and social impacts. Global sustainable fund assets climbed 18 per cent in the first quarter of 2021 compared with the final three months of 2020 to almost $2tn, led by strong inflows into Europe, Morningstar data show. “Carbon emissions are high on the political agenda across many countries and investors are also increasingly thinking about this issue,” UBS said. UBS analysts found that investing in a portfolio of companies across sectors and regions with lower emissions intensity — the amount of CO2 emitted per dollar of revenue — led to improved returns over the past decade against the broader market. The low carbon intensity strategy generated returns of 11.6 per cent a year over the period, exceeding the MSCI World index of global developed market equities by 1 percentage point. The gains were driven in part because firms with strong emissions performance also tended to be more efficient in other ways, generating higher returns and profitability. But the momentum behind green investing itself also appears to be a big driver as accelerating flows of cash into low-carbon companies and funds have driven up valuations. The bank said the momentum effect could drive outperformance “at times when public interest in carbon emissions is likely to increase”, such as during the COP26 climate summit in Glasgow later this year. Critics have argued that ESG outperformance has been propelled by momentum alone rather than any underlying value. If this is the case, “the outperformance of low carbon may come to an end when interest in sustainability stabilises”, the UBS analysts said. “But we do not expect that to happen in the near future.”