Global wealth and asset manager Lombard Odier Investment Managers (LOIM) announced today the launch of four new ‘TargetNetZero’ strategies, including Global and European equity and fixed income strategies designed to decarbonise portfolios and to help accelerate the transition to a more sustainable economy, while seeking to deliver strong returns for investors.
According to LOIM, the new strategies go beyond the more common practice of simply comparing investments’ carbon footprints, and utilize a forward-looking methodology and proprietary carbon expertise to target investment opportunities that capture the transition to net zero.
Hubert Keller, Managing Partner of Lombard Odier said:
“At Lombard Odier we believe that investors need to re-think their approach to Net Zero. Although the industry has started to understand the urgency around decarbonisation, many of the solutions available in the market are simplistic, don’t sufficiently address the problem and (in some cases) significantly increase the risks and biases within portfolios.
“Carbon footprints alone do not tell us the full picture of climate risks in a portfolio. We believe that maintaining a diversified portfolio that identifies companies on a strong decarbonisation path, irrespective of sector, will help accelerate the transition to net zero and provide compelling returns for investors.”
Instead of avoiding high carbon emitting industries, the strategies take into account the emission trajectories of companies across all emission scopes, as well as considering companies’ exposure to internal, industry and regulatory pressure that may further accelerate the climate transition.
Dr. Christopher Kaminker, Head of Sustainable Investment Research, Strategy and Stewardship at Lombard Odier said:
“The race to net zero has started, with nearly 80% of the global economy now subject to a net zero target – a stunning acceleration from 16% last year. Increased policy ambition is set to follow in the months ahead and powerful economic and market forces are now creating and destroying value across markets. As signatories of the Net Zero Asset Managers initiative, we are committed to the development of new solutions that enable clients to position capital to capture value and hedge the risks that lay ahead.”
The equity strategies, TargetNetZero Global Equity and TargetNetZero European Equities, tilt the MSCI World and MSCI Europe indices, respectively, towards companies in climate-relevant sectors that are aligning to the Paris Agreement through rapid decarbonisation. According to LOIM the companies are often in high-emitting sectors that are often misinterpreted as laggards by investors who only consider a company’s current footprint, rather than its decarbonization trajectory.
The TargetNetZero Global Investment Grade Credit and TargetNetZero Euro Investment Grade Credit strategies employ a low turnover approach focusing on emissions-reducing companies aligned with the Paris Agreement, and target a higher level of yield than the investment grade index, utilising insights from LOIM’s credit and sustainable research to understand the credit-worthiness of the underlying issuers to pay back their debt.
At launch, the strategies will align with the goal of limiting temperature rise of no more than 2°C, and will progressively accelerate the rate of decarbonisation of their constituents to target Net Zero CO2 emissions by 2050, aligned with the more ambitious objective of the Paris Agreement of limiting global warming to 1.5°C.
“We recognise that to get to net zero, we cannot merely shy away from the more difficult, hard-to-abate industries. Rather, we must seek to identify those players that are emerging as the champions of the transition ahead in each of their respective sectors. Doing so requires diversified strategies that are able to distinguish the leaders from the laggards, and re-deploy capital accordingly.”