Pension Funds Blog
by Guido Bolliger, CIO
In the recent climate survey carried out among 300 institutional and wholesale investors by Robecco, 51% of respondents say that the energy crisis has reinforced the importance of moving away from fossil fuels and towards renewable energy. The same survey shows that the proportion of investors who have made a net-zero commitment, or who are in the process of doing so, has risen slightly from 45% in 2022 to 48% in 2023. The question that arises is how you implement this willingness to transition within your portfolio. During recent years, there has been a proliferation of sustainable investment products with various objectives and investment universes. It ranges from ESG integration strategies to impact investing. Which ones shall investor choose?
Table 1 reports a representative sample of equity products available to investors. ESG products (e.g. best-in-class approach) are not aimed at addressing climate change. On the other hand of the range, impact investing aims at capturing the opportunities offered by the climate transition but its carbon emissions, if not constrained at portfolio level, can be higher than for an ESG strategy (e.g. hydrogen producers are still very high emitters). The low carbon, climate transition and Paris-aligned strategies explicitly target lower emissions with various degrees of ambitions and exposure to green revenues. The same range of products has now become available in the fixed-income space.
In conclusion, if we want the climate transition to succeed, it is our role as asset manager to support pension funds in its implementation by first explaining the pros and cons of the products available in the market and, second, recommending them the products that best fits to both their durability and financial objectives. There is no “magic” solution. Each of these products have advantages and drawbacks. However, their understanding requires a minimum level of knowledge about sustainable investing that may not be available yet by all consultants and product promoters.
Table 1: Sample of sustainable investment products in the equity space
Green revenues: measure the companies’ revenue exposure to products that deliver environmental solutions (e.g. renewable energy, electric vehicles).
Brown revenues: measure the companies’ revenue exposure to products that are detrimental to the environment (e.g. coal, mining).
Paris-aligned: the temperature rise implied by the invested companies’ future emissions is below 1.5°C.