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.
Rest expands decarb mandate with Calvert
The $68 billion Rest has expanded its enhanced responsible investment mandate with Calvert Research and Management (headed up globally by CEO John Streur, photo at top) to include a carbon reduction tilt that will cover its entire Australian equities portfolio.
“By tilting towards stocks that contribute to the realisation of a low-carbon economy we can aim to reduce our equity portfolio’s carbon emissions targeting net-zero emissions for our equity exposures by 2050,” said Leilani Weier, head of responsible investment and sustainability at Rest. “We are confident with Calvert’s capability in ESG integration, and this ongoing relationship will assist Rest in creating sustainable portfolios for the future.”
In February, Rest awarded Calvert and Parametric (both owned by Morgan Stanley) a mandate to implement ethical and sustainable screens and tilts across its listed real assets portfolio, including global listed infrastructure and global and Australian REITs. Rest previously handed a combined mandate to Calvert and Parametric to manage the equities allocation across its Sustainable Growth option in 2021. Under the expanded mandate, lowering the portfolio exposure to greenhouse gas emissions is considered under a risk control framework.
“We have always been keen to ensure that we tailor portfolios to our clients’ unique ESG-related priorities,” said Anthony Eames, Calvert managing director of responsible investment strategy. “For Rest, this can mean a lower carbon tilt which aims to reduce the greenhouse gases emissions in portfolios with low risk. This follows Rest’s goal, and in the context of a Your Future, Your Super benchmark.”
Rest has a long-term goal of achieving a net zero carbon footprint for the fund by 2050 and aims to increase its investment in renewable energy and low-carbon assets to $2 billion by 2025. It previously announced that it intended to divest from all listed companies that derive more than 10 per cent of their revenue from thermal coal mining – unless the company has a credible net zero by 2050 plan or “science-based targets”.
“We view ESG-related tilts as a logical extension of risk control,” said Daniel Vanden Boom, managing director of Morgan Stanley Investment Management Australia. “We’ve spent many years conducting research on events that could trigger volatility across global markets including the potential impact of climate related risks. The necessity of tackling climate change for environmental reasons is evident and the need to consider ESG factors in investment decisions has also become increasingly clear.”
