Laurent Trottier, global head of index management and smart beta at Amundi, espouses a two-pronged approach of investment and engagement. “We believe institutional investors have a fiduciary duty to maximise returns, and so should be properly pricing climate change risk just as they do interest rate or any other measured risk. However, we do not think just divesting sectors is a good strategy. It will hurt returns for investors, so few will pursue this and it doesn’t encourage companies such as heavily polluting steelmakers, or companies with ‘stranded’ fossil fuel assets to mend their ways.”
In May, the French-based group launched two index funds – the Amundi Index Equity Global Low Carbon and the Amundi Index Equity Europe Low Carbon which aim to reduce at least 50% of carbon emissions and minimise the tracking error relative to them – as well as an exchange traded fund.
Other participants such as WHEB Asset Management pursue a thematic approach, investing in climate change through the prism of resource efficiency, clean technology, environmental services, sustainable footprint and water management. This translates into buying global listed companies involved in a range of activities from LED lighting to wind and solar, waste recycling and desalination technology, according to Seb Beloe, head of sustainability at WHEB Asset Management.
AN EYE ON THE FUTURE
Active Earth’s Sheehan is also looking for tomorrow’s greener companies. “It is not just about divesting from companies in extractive industries and investing in solar and wind, but also looking at companies adopting to the future. For example, we invest in listed companies in healthcare and technology who are taking part in the debate, supporting environmental initiatives and using new technologies such as smart electricty grids.”
Hermes Investment Management, on the other hand, focuses on low carbon transportation equities or green power companies. This includes railway Eurostar, Infinis and Greencoat UK Wind – both of whom invest in wind farms. It also has exposure to yieldcos, which are typically a collection of renewable energy assets acquired from a developer that have moved from the greenfield/ development stage to the operational phase and offer long-term stable cash flows and a steady yield.
“As the recent Mercer report points out, there will be winners and losers under the different scenarios,” says Bruce Duguid of the Hermes Equity Ownership Services’ engagement team. “For example, in equities, there are companies such as carbonintensive utilities or suppliers to today’s automotive manufactures that could lose in the shift to a low carbon economy, while climate resilient real estate and certain types of infrastructure such as rail or wind farms should benefit. However, many investors are nervous of investing in emerging market infrastructure because of the political risk of retrospective changes to the policy framework which could undermine the expected returns over the life of the assets.”
Comments