For Laurent Jacquier-Laforge, CIO Equity at La Française Inflection Point, asset management players cannot steer clear of secular trends and need to make choices to help adopt a carbon-free economy.
It is no longer enough for asset managers to observe companies through the prism of their financial data only.
Although such information reflects the company’s past, it does not identify breaking points, which are increasingly frequent with new technologies and globalisation.
A striking example is that of Nokia, the major leader in mobile terminals in the early 2000s, today reduced to being a minor player due to failing the smartphone transition.
Over the last fifteen years, the emergence of SRI has fostered the integration of non-financial criteria into corporate analyses.
In addition to these environmental, social and governance (ESG) criteria, we felt it essential to consider the company’s capacity for innovation and adaptation.
That is the aim of “Strategically Aware Investing”, as adopted by La Française since its partnership with IPCM (Inflection Point Capital Management).
This approach is particularly suited to the requirements of the energy transition and really strikes a chord in the run-up to the Climate Change Conference (Cop21) that will be held in Paris at the end of the year.
Investors and listed companies are both under rising pressure. The latter represent the raw material of our business activity, so to speak, and are prompted to think about reducing their carbon emissions.
This pressure is universal, and was reflected in the Harvard student protests calling the school to divest funds from corporations in the energy sector.
Their capacity for adaptation to this new reality will therefore be a key factor, especially given that some players are making swift progress in this regard.
When Tesla Motors was launched in 2003 with the slightly crazy project of creating an electric sports car, there were a few laughs. Today, however, their turnover exceeds $3bn and Tesla has launched batteries enabling homes to store energy.
The emergence of a low-carbon economy is creating asset management opportunities, especially at a time when competitive renewable energies are making it possible to consider investments that are both vital to contain climate change and offer the potential for better performance.
It remains to be decided how exactly to build such an offer.
A first solution would be to choose passive management products based on “low carbon” indices, which underweight the least efficient companies in terms of carbon management.
It’s an interesting approach, but one without significant impact.
In contrast, some managers could make the radical decision of divesting from all companies sensitive to this issue. This option has the merit of drawing attention, but it remains impractical and introduces serious bias in portfolios.
There is a third avenue: the “carbon zero” strategy. The investment thesis is simple: companies able to manage the risk and benefit from the opportunities of climate change are more responsive and more agile, in other words better managed, and therefore able to over-perform with respect to their competitors.
With a view to adopting a “carbon-free” portfolio, companies with the lowest carbon footprint within each industrial sector should be selected.
This “best in class” approach is supplemented by investments in solution suppliers, whose business model is based precisely on the reduction or prevention of carbon emissions, and which will act as negative carbon contributors in the portfolio.
The combination of these two business types in a single portfolio meets two objectives: that of financial performance and that of working towards a zero-carbon profile.