The French asset manager has boosted its low carbon offering with the launch of three funds in Europe.
The financial system must consider the risk of climate change. Such were the words of the French minister of Finance Michel Sapin at the Climate Finance Day hosted in Paris in May.
Amundi, with some €2.2bn of assets invested in low carbon strategies, does not want to miss the opportunity.
After the launch, last September, of low carbon indices developed with index provider MSCI and two major European pension funds – Fourth Swedish National Pension Fund AP4, and Fonds de Réserve pour les Retraites – the firm has expanded its low carbon range by launching three funds in Europe.
“Since the end of 2013, climate change is increasingly considered as an important risk by both asset managers and investors,” says Laurent Trottier, global head of Index and Smart Beta management at Amundi.
Among the drivers having led the manager to launch low carbon indices and funds remains the concept of “stranded assets”. “Oil and gas companies have reserves underground that they might exploit and that are part of their valuation.
“However, scientists have suggested the goal of limiting the increase of the global surface temperature to two degrees affects the amount of greenhouse gas emissions the planet can absorb over the long term.
“They have discovered that those reserves are significantly bigger than the amount the planet can absorb in terms of greenhouse gas emissions.”
As a consequence, most of the reserves will remain underground and the valuation of oil and gas firms will be impacted.
Two of the firm’s low carbon products are open-ended index funds – the Amundi Index Equity Global Low Carbon and the Amundi Index Equity Europe Low Carbon – replicating their respective MSCI low carbon indices.
The third fund is an ETF tracking the MSCI World Low Carbon Leaders index.
The MSCI low carbon methodology targets at least a 50% reduction in the level of carbon emissions, consisting of present emissions and reserves representing potential future emissions, compared to the parent indices.
“Our approach excludes companies with the worst carbon emission intensity – present emissions compared to sales and reserves compared to market capitalisation – but it retains a similar sectorial composition relative to the parent index.”
Trottier says it creates “virtuous competition between companies” without banning a whole sector.
“If you exclude a sector, companies within that sector would not be incentivised to improve to have a chance of getting selected by the fund.”
Stocks’ exclusion should reach 30% maximum for each sector market capitalisation.
The largest part of Amundi’s low carbon portfolios are managed through mandates on European and North American equities. A de-carbonisation methodology has already been developed by Amundi in order to implement it on the corporate bond space through dedicated mandates.
However, Trottier adds that implementing a low-carbon strategy on government bonds would be complex “as there is no definition of what the carbon footprint of a country is so we cannot assess it.”
According to Trottier, avoiding exposure to the most polluting companies can already represent a source of performance.
“Being pioneers in this market gives us an advantage, as many investors are now starting to alter the exposure of their portfolios in order to make them more sustainable,” he says.
Changes are on the way ahead of the Cop21 conference in Paris at the end of 2015.
France has recently passed a law obliging institutional investors to publish their carbon footprint in their reports. Trottier expects more countries to follow on the legislative side.
“The fact that Paris is hosting the Cop21 meeting at the end of the year will definitely strengthen the willingness of asset managers to take climate change into account in their strategies,” Trottier concludes.