Global investors managing collectively $37tn in assets have joined forces to call for action against global warming as world leaders gather in Madrid for the UN's COP 25 conference on climate change.
The investors' group wants to put an end to fossil fuel subsidies, the phasing out of thermal coal used in power generation and a price for carbon, according to the FT. Over 600 asset managers and asset owners have signed the initiative.
In this context, with 2020 as the "make or break" year for committing to carbon emission reductions in order to keep aligned with the climate change objectives outlined in the Paris Agreement, InvestmentEurope asks Roberta Rudelli, head of fund selection at the Italian wealth manager Cordusio SIM, for her views on the matter.
Are you looking for managers of funds you already hold to provide more insight into how they are dealing with carbon emission reduction targets?
This topic is usually investigated during the due diligence process of ESG funds and it is regularly checked in the update with PMs. So far, no formal qualitative reporting is required. Should we have to report the data to clients, we'd ask for regular quantitative data communication.
Are you looking for more exposure to renewables, and if so, is this leading you to formulate search strategies in any new way?
Renewable energy is a great investment opportunity considering the goal to reduce carbon fossil in favour of clean energy solutions. Exposure to this segment can be reached through public or private markets although the last one requires a very long term horizon which is suitable only for few clients.
Which renewables exposure are you most interested in, eg, wind, solar or other?
Within renewables, demand has been stronger for solar than for wind over the past years since companies have benefitted from a lower cost of production. Anyway, even in a such specific market segment diversification is key: a good mix of different renewables allows investors to balance specific risks e.g. high exposure to southern countries and subsidized dynamics in case of solar compensated by a stable production vs wind power.
Are you looking for hard exclusion of oil and gas in the strategies you are selecting?
Cordusio advices clients according to their own needs. For this reason the best funds are selected according to different ESG approaches. This allows Cordusio to offer dedicated solution fitting specific client's preference and guidelines. Hard exclusion is an option although not suitable for clients who prefer to have an active role in environmental improvement.
If oil and gas companies are paying dividends, and you seek to reduce exposure to them to meet carbon emission objectives, what do you replace them with for income purposes?
For stock selection, dividend is not the only factor to consider: volatility and drawdown are also important, especially if they are higher due to ESG specific risks. In the new market environment, the risk/reward analysis requires to compare dividend yield with the overall risk of each stock, not only the financial one. This provides a more sound and stable investments' total return over the mid-long term horizon.