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Targeting Sustainability via Decarbonization

Deeper Thought

Carbon Emissions and Carbon Credits
Even though 2050 is a long way off, action must be taken now in order to achieve some of the Paris Agreement goals. Reducing carbon emissions is a critical aspect of this process. In response, many governments and corporate entities have already begun to develop decarbonization strategies in an effort to reach the net-zero target.

But how can investors take these issues into account within their portfolios? This set of papers looks at the pricing of carbon risk, tilting portfolios towards low-carbon strategies, the integration of ESG data, hydrogen power, and other related issues for investors to navigate during the forthcoming energy transition.

Decarbonisation: The Inevitable Policy Response (Morgan Stanley, 2021)

The International equity Team at Morgan Stanley Investment Management have published this attached paper with their views on decarbonisation.

  • The authors are Valdimir A.Demine Head of ESG Research for the International Equity Team and Candida de Silva Executive Director.

    They have tried to seek answers to the following questions:

    • Can and will governments drive a meaningful acceleration of decarbonisation through radical policy mechanisms?
    • What policy tools are available to them, how effective are they today and what is their impact on the economy, individual industries, voter attitudes and, in turn, politics?
    • Why does this matter for investors?
    • What are the ramifications for Quality equity portfolios?
    Targeted Sustainability (FTSE Russell, 2020)

    FTSE Russell looks at ways to optimize portfolios by tilting towards a low carbon (or other relevant ESG-related) objective.

    Carbon Capture (Aviva Investors, 2020)

    For compliance reasons, this paper is only accessible in certain geographies

    How can carbon dioxide levels in the atmosphere be reduced? Can commercial entities capture, store, and reuse it effectively? Aviva Investors brings to light many of the issues surrounding viable carbon capture (and carbon reduction) solutions.

    Hydrogen Power – Enabling a virtuous decarbonisation loop (Candriam, Oct 2020)

    The EU is making significant investments in hydrogen power generation, as hydrogen may play a significant role in the transition to carbon-neutrality.

    Solving the ESG Data Challenge (FactSet, 2020)

    FactSet sets out ways in which investors and asset owners can integrate climate and other ESG data into their strategies. It also provides an overview of the historical landscape of ESG regulation.

    How to Build a Climate-Adjusted Government Bond Index (FTSE Russell, 2020)

    How can investors in government bonds take into account climate risks? The FTSE Advanced Climate WGBI Index has a particular methodology that looks at climate pillars such as physical risk, transition risk, and resilience.

    Deep Decarbonization (BNP Paribas AM, 2020)

    This 60-page paper from BNP Paribas looks at pricing mechanisms for carbon credits within the European Union’s Emissions Trading Scheme (EU-ETS).

    Actively Investing in the Low-Carbon Transition (M&G Investments, Oct 2020)

    For compliance reasons, this paper is only accessible in certain geographies

    Active fund managers can support the low-carbon transition by investing in liquid equities addressing climate change as well as practicing engagement and stewardship of these assets.

    Decarbonizing: Climate data and portfolio construction (State Street, Sep 2020)

    State Street analysts examine the performance of long-short strategies in 43 different industries based largely upon carbon emissions. They combine this data with a more qualitative assessment to develop a comprehensive, holistic framework for the management of climate risk.

    Carbon Pricing, Asset Allocation and Climate Goals (Robeco, Oct 2020)

    Carbon risk is tricky to quantify. In this blog article, Robeco researchers describe how to create a carbon risk factor and how to assess the carbon risk sensitivity of different assets.

    New Order: Navigating the energy transition (Federated Hermes, Nov 2020)

    For compliance reasons, this paper is only accessible in certain geographies

    We are a long way off from the global goal of net-zero emissions by 2050. Oil and gas companies need to embrace renewables technology and non-carbon-intensive offerings in order to reposition their business models and survive this existential threat.

    Measuring and Managing Carbon Risk in Investment Portfolios (Amundi AM, 2020)

    For compliance reasons, this paper is NOT accessible in the United States

    In this quantitative paper, Amundi Asset Management develops the concept of carbon beta in order to study the ways that carbon risk impacts stock prices.

    Timberland Investing and the Promise of Carbon Markets (Manulife IM, Jul 2020)

    For compliance reasons, this paper is only accessible in certain geographies

    Manulife Investment Management comments on the beneficial attributes of timberland investments. Additionally, timberland projects are frequently classified as carbon offset projects and timberland investments can potentially produce carbon credits.

    Raking Over the Coals: Incorporating carbon data into investments (Intech, Jul 2020)

    For compliance reasons, this paper is only accessible in the United States and Canada

    How should investors tackle carbon emissions if strict carbon constraints often directly impact levels of active risk within portfolios? Focusing on CEI (carbon emissions intensity, i.e. carbon emissions over sales) may be part of the solution.

    Climate 101: Understanding carbon emissions (Wellington Management, 2020)

    Wellington Management gets specific in their description of carbon emissions by standardizing them in terms of GWP units (global warming potential), then looking at how to quantify, track, and reduce a variety of emission types.




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