Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Amundi links with Asian investment bank for climate change financing
The climate finance investment gap is limiting the integration of climate change for companies and the financial sector across Asia, jeopardising the success of green finance globally, according to the Asian Infrastructure Investment Bank (AIIB) and Europe-based fund manager Amundi. The two groups plan to launch this week the ‘AIIB-Amundi Climate Change Investment Framework’, a tool aimed at helping with sustainable and responsible financing.
The ‘AIIB-Amundi Climate Change Investment Framework’, to be detailed on September 9, translates key objectives of the Paris Agreement into fundamental metrics to assess an investment’s level of alignment with climate change mitigation, adaptation and low-carbon and climate resilient development objectives.
The relative absence of Asian financial firms from climate commitments and key international financial sector climate groupings has severe implications for the future of global green finance. This is particularly so given the region’s scale and significance. Despite more than a quarter of the world’s heaviest-emitting firms located in Asia, the region represents a mere 5 percent of the signatories of ‘Climate Action 100+’. Climate Action 100+ is one of the world’s most prominent institutional investor initiatives using shareholder engagement to pursue climate goals, representing US$40 trillion in assets under management.
According to a prepared statement from London last week, AIIB and Amundi identified areas where climate change investment risks and opportunity have already materialized, which is only expected to increase. For example, urgent physical risks to Asia include severe vulnerability to sea level rise, especially major cities and parts of China, Vietnam, Thailand, Indonesia and Bangladesh, with significant areas with dense economic activity to be below annual average flood level as soon as 2050. Increased typhoons and extreme precipitation leading to floods present a significant threat to Asia and disruption of its commercial activities.
“Furthermore, compounding transition risks and a lack of regional climate finance leadership is in part due to a regulatory environment where there are no mandatory requirements for financial firms to provide climate reporting and less incentives to demonstrate climate commitments,” the statement said.
Stefan Shin, AAIB principal investment officer for capital markets and structured products, said: “This is an important wake-up call to the industry. For climate-aligned finance to become mainstream, Asia must now come fully on board. To mobilize action, asset managers and owners must be equipped with the tools and be incentivized to invest. Alongside our partners Amundi, AIIB will soon announce a Climate Change Investment Framework designed to help investors holistically assess climate change risk and transition opportunities at the issuer-level for the first time.”
Jean-Jacques Barbéris, head of the institutional and corporate clients’ division and ESG at Amundi, said: “There is a vital need for investors to commit in climate-aligned ways to avoid losses from the materialization of both physical and transition risks. Strong performance in environmental, social, governance (ESG) and climate impact are increasingly considered alongside traditional performance metrics. Climate concerns should be treated as a priority as we emerge from the pandemic crisis.”
Amundi is represented in Australia by third-party marketer Shed Enterprises. The fund manager, which has a long pedigree in ESG investing, is the largest in Europe, with an estimated A$2.6 trillion under management.
– G.B.
