The European Commission released its anticipated European Green Deal on Wednesday, laying out 50 policies to be implemented over the next three years that would renew rules and regulations aimed at helping to achieve set climate goals.
The Commission, led by Ursula von der Leyen, also wants to cut emissions by 50 to 55% in 2030, up from the current target of 40%.
In this context, with the European Union seeking to become the first big economic bloc to reach zero carbon emissions by 2050, but balanced against the pending flotation of part of Saudi Aramco, buy side professionals ponder whether to select funds that either maintain exposure to fossil fuels or that seek to explicitly exclude such exposure in favour of renewables.
Madalena Teixeira, senior portfolio manager and fund selector at BPI Vida e Pensões, a division of the Portuguese bank Banco BPI, shares with InvestmentEurope 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?
Yes, for sure. You can no longer ignore ESG criteria, being it E S or G!
Many of us have been adopting sustainable and responsible investment procedures for some time, but it is also important to follow how the "other half lives". The follow up of carbon footprint and stance over the matter is essential, specially if you intent to follow the principles of responsible investment.
Are you looking for more exposure to renewables, and if so, is this leading you to formulate search strategies in any new way?
May be not increasing exposure to renewables per se, but replacing some names by others with a lower footprint, or a better environmental approach. In my opinion, the sector's regulation can be seen as an investment barrier, since at the end of the day it can bias an investment strategy to a mere regulatory issue. As long as we keep track of the investment objective, there are plenty options to go "green" ranging from green/blue bonds, to mutual funds, or equity.
Which renewables exposure are you most interested in, eg, wind, solar or other?
This area is evolving continuously and presenting us day after day more efficient solutions to preserve this planet. Being Portuguese, the sea and the sun are always present when I think about renewables, namely ones that make all sense in this country. The solar exposure advantage of Portugal is already being exploited, but I think we could profit more from our vast shoreline.
Are you looking for hard exclusion of oil and gas in the strategies you are selecting?
I do not think exclusion is the strategy to implement, oil and gas companies will not vanish at least for the next 100 years. I think the best approach is to engage with these companies and make them more environmental aware, and give back at least as much as they take.
We can all remember what happened with BP back in 2010, almost 10 years over this tragedy with countless consequences. BP image was almost destroyed, huge fines payed, years in court…but BP became a better company after all this, and regulation is harsher so there will be no excuses not to comply with the rules.
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?
On a pure dividend strategy, you can always replace oil and gas with any other utility, but make sure that the utility you are choosing is going green and reducing its carbon footprint!