Another major hurdle to deciding an approach may simply be in the fact that the decarbonisation theme is still a relatively new one for many investors, despite the commitments seen thus far from policymakers, other investors and trade associations.
But it is definitely something that is now coming of age, and investors can no longer ignore the implications, argues Philippe Zaouati, CEO of Mirova, the responsible investment specialist that is part of Natixis.
“Decarbonisation is a major topic and will become in the near future a strong economic driver. Investors must understand its stakes and include them in their decisions.”
“Among institutional investors, some have already implemented a responsible investment policy. They want to go further into decarbonisation. Others only start to think about it
because of recent events such as low oil prices and regulatory targets in order to prevent global warming. But they have not all reached the same level of awareness.”
“We feel that the interest among retail investors for responsible investment is growing. These funds, which have a significance, will attract more
and more retail clients.”
Like Kuh at MSCI, Zaouati also notes the role that international agreements are playing in the development of investors’ responses to them.
“We have chosen to adopt the principles of the Montreal Pledge engaging us to publish the carbon footprint of our investments. With the consulting firm specialised in carbon strategy Carbone 4 and the French agency for development (AFD), we are co-developing a methodology that would allow us to measure how much companies contribute to the energy transition. We will apply it toour own investments. Carbon 4 will use it as a tool to help investors consulting them on taking decisions.”
THE SELECTOR VIEW
For selectors, especially those with longer involvement in the industry, any change driven by decarbonisation may feel like it has been a long time coming.
Jon Beckett, independent CIO at Gemini Investment Management, says that he remembers a decade ago being at a meeting at which fund selectors decided they would not invest in a particular environmentally themed fund.
And although times have changed, Beckett notes that professional fund buyers still face the same dilemma, for example when considering the E in ESG: “Either buy on prospect of better returns through Darwinism – better stocks evolve to new demands – diversification to lower correlated returns to broader markets, or satisfy an environmental objective.”
“The first two aims are natural to an investor, the latter is more reserved for what are called ‘mixed motive’ funds in the charity sector. Is it possible to be green and still be healthily in the greenback?”
That said, Beckett is yet another who acknowledges the initiatives such as the Portfolio Decarbonisation Coalition – and early adopters such as AP4 in Sweden, asset managers such as Amundi and Natixis, and index provider MSCI – and the encouragement this could bring to fund selectors.
“The guinea pig in this instance is the AP4 pension fund, which aims to lower the carbon emissions of its assets by 50-80% without impeding returns. The latter point is interesting to me. If the specially designed MSCI Global and European Low Carbon indices are to be believed then being greener and matching the broad market is possible.
“The unseen but interesting subtext for me then is what positive factor exposures enter your portfolio by seeking out stocks with lower carbon emissions, for example, lower ENP exposure, currency, more efficient operating bases, government incentives, and so on.”