2016 Eco-Funds Rating Methodology

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The Eco-Fund Rating assesses equity mutual funds on the basis of their market returns and their environmental performance.

The starting universe consists of a total of 530 equity mutual funds classified into four distinct categories by Fundata based on the composition of the equity investments:

  • Canadian Equity: majority investments in Canadian equities
  • International Equity: majority investments in equities outside of Canada
  • Global Equity: investments in all countries around the world including Canada
  • U.S. Equity: majority investments in U.S. equities

This ranking therefore consists of four separate rankings - one for each category.

The following three quantitative indicators are employed in rating each fund. Note that a given fund is only compared against another fund in the same category, not across categories.

  1. Three-year compound return, net of fees (the "Fund Return Score"): the higher are the three-year compound returns of a given fund compared to other funds in the same category, the higher is its Fund Return Score. This indicator accounts for 50 per cent of the Final Score.
  2. Weighted carbon intensity (the "Fund Carbon Intensity Score"): the weighted carbon intensity of a given fund is calculated by obtaining the ratio of scope 1&2 greenhouse gas emissions (CO2e data provided by South Pole Group) to sales for a given equity multiplied by the weight of that same equity within the fund summed for all equities in that fund. The lower the weighted carbon intensity of a given fund compared to other funds in the same category, the higher is its score; scores range from 0 (worst) to 100 per cent (best). This indicator accounts for 25 per cent of the Final Score.
  3. Green Exposure ("The Exposure to Green Companies"): weighted exposure companies that derive at least 20% of their revenue form environmental markets or new energy as verified by FTSE Environmental Markets and/or Bloomberg New Energy Finance. The higher the weighted green exposure of a given fund compared to other funds in the same category, the higher is its score; scores range from 0 (worst) to 100 per cent (best). This indicator accounts for 25 per cent of the Final Score.
  4. The Final Score is the sum of the individual scores of the above three indicators. The top 20% of funds in a category receive a 5 Tree rating, and the next 20% a 4 Tree rating, and so on. In cases where a Fund Return Score is not available (for instance, a given fund has been in existence for less than three years), the Final Score is calculated as 50% of the Fund Carbon Intensity Score + 50% of the Fund Green Companies Exposure Score.

To enhance the validity of the assessment,we omitted any funds for which we did not have adequate (at least 2/3 of the total holdings) coverage of their securities greenhouse gas emissions data.  After applying this screen, 424 unique mutual funds remained.

Sources: The starting universe of mutual funds, fund categories and all market data such as market weights and three-year compound returns were obtained from Fundata.

Fundata combines analytics expertise and industry intelligence with the most comprehensive investment fund database in the market. We deliver robust, tailored analytics solutions to fulfill data, marketing, and compliance needs.

The weighted carbon intensity and percentage exposure to green companies were obtained from Corporate Knights's Clean Capitalist tool. Created by Corporate Knights and powered by carbon data from South Pole Group, the Clean Capitalist Decarbonizer is an interactive tool that shows the financial implications of divesting high carbon companies in favour of those that derive at least 20 per cent of their revenues from environmental markets or new energy. The Clean Capitalist database covers 8,500 securities (comprising more than 85 per cent of global market capitalization), including all primary public equity securities with a market cap over $2 billion and/or listed on major national and global indices.

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