The climate summit in Paris (COP21) is the occasion for several countries to commit to reducing greenhouse gas emissions in the next decades. To meet these goals, a collective effort of all economic actors is required. In this context, institutional investors play an important role as capital purveyors for companies. They are called to be actively involved by urging companies to take into account environmental risks in their activities, by investing in companies with low carbon intensity and by communicating the carbon footprint of their equity portfolios. Ethos contributes actively to reaching these goals.
More and more investors recognize that climate change constitutes not just a huge environmental risk but also a significant financial one for those invested in CO2e (carbon dioxide equivalent) intense companies and the least prone to self regulation. This risk is particularly significant in the fossil energy sector where there is now a “carbon bubble”. In fact, large reserves of oil, gas and coal will quickly become no longer exploitable and will lose their value if the international community reaches an agreement on measures to maintain global warming at below two degrees (stranded assets).
A three step approach for investors
Climate change constitutes not only a major environmental risk but also a significant financial risk for investors. In light of this, institutional investors have a fiduciary duty to act on three levels of their investment policy:
Engage in dialogue with companies on environmental matters
As capital purveyors, investors have a duty and responsibility to engage in dialogue with management on the implementation of the companies’ environmental strategy. Company strategy should be adapted to take into account environmental impacts all along the value chain and lifecycle of the products. Due to the importance of the risk, each company is called upon to publish its CO2e emissions as well as its emission reduction targets.
- Ethos engages in dialogue on this subject in the framework of the Ethos Engagement Pool (EEP), the dialogue programme with Swiss companies in the name of more than 120 Swiss pension funds and non for profit organisations.
Reduce the carbon footprint of equity portfolios
Financial risk reduction requires “decarbonisation” of holdings. This can lead to a “divestment / investment” strategy meaning asset re-allocation toward cleantech and energy efficiency.
- Ethos recently launched the fund “Ethos – Equities Sustainable World ex-CH” which integrates a carbon filter into the traditional environmental, social and governance analysis. This leads to a fund with greenhouse gas emissions (Scopes 1 and 2) four times lower than those of the reference index.
Publicly disclose carbon intensity of equity portfolios
Responsible investors must be transparent by publishing the carbon intensity of their investments. Today, more than one hundred institutional investors (incl. Ethos Foundation) have signed the « Montréal Carbon Pledge ». They thereby commit to publishing, for all or a part of their portfolios, the greenhouse gas emissions for which they take responsibility.
- Ethos is signatory of the Montreal Carbon Pledge and will now publicly disclose the carbon intensity of all of its listed equity funds.