Paris-based quantitative asset manager TOBAM and Swedish pension scheme AP1 announced today the launch of new fossil fuel-free strategies for emerging market and global high yield investments.
TOBAM stated that it has begun applying a 100% fossil-fuel free approach to the Anti-Benchmark Emerging Markets Equity and Global High Yield strategies funds, which employ TOBAM’s proprietary Maximum Diversification methodology. According to this new approach, companies with significant involvement in the production, sales or extraction of fossil fuels such as coal, coal power generation, oil and gas, are excluded from the investment universes of both strategies.
TOBAM’s Maximum Diversification methodology aims to generate returns through improved beta exposure, by utilizing superior diversification methods relative to typical market cap-weighted strategies. The approach maximizes the degree of diversification when selecting the weighting of assets in the portfolio allocation process, to produce a portfolio designed to access risk premium evenly from all the effective independent sources of risk available in the market at any given time.
TOBAM stated that the fossil-free focus also aligns with the firm’s long-term, research driven investment view and its long-held sustainability beliefs which notably includes the application of a systematic carbon footprint reduction across all TOBAM’s portfolios and enhanced engagement.
Tatjana Puhan, Managing Director and Deputy CIO at TOBAM said:
“The further integration of ESG into our investment process while preserving the integrity of our approach is a significant achievement. Our research indicates that excluding assets involved in fossil fuel activities, does not significantly affect the profile of our approach in terms of performance, volatility, drawdowns, or the diversification benefit characteristics as measured by the Diversification Ratio.
“Most interestingly our research has demonstrated that risk exposures remain virtually unchanged. This is one of the core properties of the Maximum Diversification approach: its capability to remain evenly exposed across all effective independent sources of risk available in the market.”
Majdi Chammas and Tina Rönnholm, External Partnerships and Innovation at AP1 said:
“We believe this initiative represents a real milestone, with TOBAM’s analysis clearly demonstrating that ESG can be incorporated via a systematic approach in vastly different asset classes, without sacrificing returns or the nature of an underlying investment thesis. This approach aligns perfectly with AP1’s commitments to both supporting sustainable development and secure optimal investment returns for the benefit of our scheme’s members.
“We have been invested in the Maximum Diversification strategy for many years. This new development reconfirms the robustness of the approach.”