Integrating climate change in a global listed equities portfolio Carlos Joly, chairman of the climate change Scientific Advisory Committee of Natixis Asset Management TBLI, London 11.11.2010
Why the urgency ? GHG emissions pose unacceptable risk The challenge : reduce world greenhouse gas emissions by 50% by 2050 compared to the 2000 level 2009 : 430 ppm CO ² (e) “ business as usual ” scenario = + 2.5 ppm per year Only 70 ppm CO ² (e) left More than 500 ppm CO ² (e): risk of catastrophe 2040: 500 ppm CO ² (e)
Why isn’t climate change being integrated in portfolios? <ul><li>Investors don’t believe climate change is material yet </li></ul><ul><li>Don’t know how to do it </li></ul><ul><li>Asset managers are not being asked, so don’t </li></ul><ul><li>Financial crisis has put stopper on innovation </li></ul><ul><li>Makes no difference to passive investors </li></ul>
How does climate fit in? <ul><li>Climate change risk generally not in price of equities or bonds </li></ul><ul><li>Climate change is real, already present, and affecting the economy of nations. Impacts will get bigger </li></ul><ul><li>CO2 obeys the laws of nature, not electoral politics </li></ul><ul><li>Adaptation to impacts and reduction of GHG our only hope </li></ul>
Ways of integrating climate change in portfolio management <ul><li>Adjust stock and bond indices for carbon emissions of index constituents </li></ul><ul><li>Drawbacks: penalizes cement, steel, alum, etc sectors that use lots of energy. These sectors key to development in EM and necessary for housing, infrastructure, railways, etc. </li></ul><ul><li>Alternative Energy and “Envirotech” Funds </li></ul><ul><li>Drawback: thin markets, too much money chasing too few names, niche sectors prone to bubble and bust cycles </li></ul><ul><li>Comprehensive approach using climate change analysis along with sector and fundamental company analysis Pioneered by Natixis Asset Management and few others </li></ul><ul><ul><li>Drawback: doesn’t work with passive. Needs longer term horizon for performance payoff. Institutional investors want short term verification and have low tolerance for deviations to indices. </li></ul></ul>
Impact Funds - Climate Change : a comprehensive approach broad spectrum of sub-themes and sectors <ul><li>This is example of a </li></ul><ul><li>pioneering approach </li></ul><ul><li>launched year ago </li></ul><ul><li>in France with €100m </li></ul><ul><li>Fund has a scientific advisory committee for thematic input </li></ul><ul><li>Chair: Carlos Joly </li></ul>1. Mitigation : reduction in greenhouse gas emissions Energy substitution (lower carbon energy, alternative energy) Transport Efficiency Building efficiency Modernization of power plants 2. Adaptation to the inevitable consequences of climate change Changing consumer behaviour Cover against extreme events Adaptation of infrastructure 3. Better management of natural resources Waste manage-ment Water manage-ment Soil manage-ment
Impact Funds Climate Change investment process Global equities universe (30,000) NAM equities coverage (1,500+) <ul><li>Quantitative filter </li></ul><ul><li>Qualitative/strategic analysis </li></ul><ul><li>Financial analysis </li></ul>Portfolio <ul><ul><li>1 – Mitigation </li></ul></ul><ul><ul><li>2 – Adaptation </li></ul></ul><ul><ul><li>3 – Management of natural resources </li></ul></ul>Carlos Joly Scientific Committee PM and equities team PM External: Sell-Side External: IPCC, EU, NGOs, academic studies, etc. Exclusion of worst offenders <ul><li>Combination of thematic inputs & bottom-up expertise </li></ul><ul><li>Themes define investment universe: solutions to MAM </li></ul><ul><li>Companies are assessed qualitatively (products, positioning, strategy, management, financials) </li></ul><ul><li>and quantitatively </li></ul><ul><li>Strong convictions: only stocks fulfilling both thematic and financial criteria are eligible </li></ul>Analysis Climate change thematic filter
Portfolio breakdown as of Oct 31st 2010 <ul><ul><li>Assets: $137 Million </li></ul></ul><ul><ul><li>Equity exposure: 96% </li></ul></ul><ul><ul><li>Number of countries: 20 </li></ul></ul><ul><ul><li>Number of holdings: 71 </li></ul></ul>Source: Natixis Asset Management *Breakdown of the part invested in equities (i.e. 96% of the portfolio). Capitalization breakdown* Thematic breakdown*
Portfolio breakdown as of Oct 31st 2010 <ul><ul><li>Emerging exposure : 17% </li></ul></ul>Geographical Breakdown* Sector Breakdown* Source: Natixis Asset Management *Breakdown of the part invested in equities (i.e. 96% of the portfolio).
Performances as of Oct 31st 2010 Performance I Share EUR Since Inception (5th of October, 2009) +14.30%
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