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Climate investing – Solutions

Robeco started offering clients sustainable investments long before climate change became a global concern. Today, from bespoke funds to more thematic strategies targeting the long-term effects of global warming, we’re still at the forefront of climate solutions.

  • 71%

    of investors rate energy storage systems as very attractive

    During the recent lockdowns, there was a mismatch between energy supply and demand (i.e., lower demand for power and high renewables supply), leading to an increased interest in energy storage systems.

  • 67%

    of investors consider forestry as a relevant opportunity

    Forestry, recognized in the Paris Agreement as a key part of the solution to climate change, is increasingly relevant for investors looking for sustainable long-term returns and environmental and social benefits.

  • 64%

    of investors are interested in wind power opportunities

    Renewable energy sources and energy networks and distribution are also seen as attractive investment opportunities by many investors, along with energy efficiency. Wind power and solar energy score the highest.


Source: 2021 Robeco Global Climate Survey

'It is through solutions that we mitigate climate change'

Divestment – the quick fix that isn’t a solution

Investors need to decarbonize their portfolios to meet net zero commitments, and many have begun by removing thermal coal producers. But it’s not the answer to climate change.
  • Divestment offers a quick fix, since selling a holding in a high-carbon company instantly removes its carbon footprint from the portfolio. However, it is not the answer to the wider challenge of decarbonizing the underlying economic activity the company is engaged in. Divesting also simply transfers a problem from one investor to another. Many fossil fuel assets that are removed or excluded are bought by another investor, often taking them into private hands and outside public scrutiny. “We can decarbonize a financial portfolio, but that's not the same as decarbonizing the real world. And in the end, what counts is the real world,” says Masja Zandbergen, Head of ESG Integration.
  •  “Lowering the carbon footprints of our portfolios by divesting simply means that carbon ends up in the portfolio of another investor, and the world stays the same. That's why it's important that we also engage with those companies, so that decarbonization really becomes part of their business strategy.” 

    “Decarbonization has to be part of the way that companies think about long-term value creation. That's the true essence of decarbonization – that there is a new business model based on the low-carbon economy.”

Climate investing is more than just the next big thing

Lucian Peppelenbos (Climate Strategist) and Carola van Lamoen (Head of Sustainable Investing) look at climate change and climate investing from all angles. Listen to the trailer or to the full 25-minute podcast.

The world is drowning in waste – circular solutions provide a lifeline

The linear model of ‘take, make and dispose’ is destroying the planet.
  • The circular economy begins where linear models end by looping discarded output back into the production cycle. Instead of extracting more resources to use as input for production, circular solutions focus on recycling, repairing, and reusing existing materials. In the circular economy, value is rescued and redeployed rather than destroyed.

    Our  Circular Economy and Smart Materials strategies invest in companies at the intersection of sustainability and technology that are creating innovative solutions to help balance resource use and economic growth.
  • The damaging effects of linear supply chains within the global economy are hard to escape. Excess waste piled in landfills, littered along coastlines, and trapped in polluted air are all visible vestiges of a ‘take, make, use, and dispose’ paradigm fueled by business and devoured by consumers. 

    But excessive outputs are only one part of the problem, endless extraction of natural resources to use as input for production is also a serious environmental threat. Circular economy principles help by leveraging every part of the supply chain in order to reduce resource use and maximize input to its fullest potential.

The infinite scope of circular opportunities

the-infinite-scope-of-circular-opportunities.jpg

Source: Robeco

Designing eco-friendly input

  • Redesigning input focuses on reducing waste in the early stages of the supply chain by substituting scarce resources with renewable ones and polluting input with cleaner alternatives. The use of virgin plastics in product packaging is an illustrative example. Plastic feedstock is cheap to source and manufacture but devastatingly costly for the environment. Billions of metric tons have been created in the last few decades, most of which (91%) was quickly used before being discarded.

    Each year millions of tons are burned in waste plants or dumped in landfill and oceans, with devastating environmental consequences. Plastic incineration contributes significantly to greenhouse gas emissions, and plastic litter in oceans entangles aquatic wildlife, damages aquatic habitats and threatens biodiversity.
  • But circular solutions are available. Renewable inputs incorporate bio-based materials like plant fibers, algae oils, and complex proteins into packaging, that reduce the need for plastic feedstock.

    Renewable alternatives and more energy-efficient substitutes are being applied not just to plastic consumer packaging but to other products within other industrial sectors. For example, in the industrial sector, lightweight carbon fibers can replace heavy steel in vehicles and machinery to reduce fuel consumption. Moreover, in construction, bio-plastics are being used to improve the durability of building materials while still remaining eco-friendly. In farming, agri-biologicals are replacing chemical-based fertilizers to protect and nourish plants naturally instead of synthetically.

Repair and reuse

  • Extending a product’s useful life is another key aspect of the circular economy. Here, applying concepts of modular design can help. Modular-designed products can be easily disassembled so that worn-out parts can be replaced or refurbished. In addition, full-service repair and maintenance services that keep products fit and optimally functioning are also important for reducing physical waste.

    Inevitably, products do wear out, which, in the linear model, landed them in the trash heap. However, circular economy solutions use ingenuity and technology to loop expired products back into the production cycle. Companies focused on recycling and end-of-life management systems recover embedded value from disposed products for re-use as inputs in the production cycles of new products or services.

Leveraging the digital economy

  • Transforming conventional supply chains is a herculean hurdle and wouldn’t be possible without a major thrust from technology. But the scope, speed and scale of digital platforms for commerce are opening up new possibilities to apply circular economy principles to later stages of the supply chain. The success of the “sharing economy” that allows consumers and suppliers to collaborate and collectively consume existing assets (e.g. cars, drivers, rooms and offices) demonstrates the combined power of circular principles and technology. 

    But sharing principles are also happening upstream in the value chain, helping to increase collaboration and reduce inefficiencies in the design, production, use, and recycling phases. Manufacturing and production are currently dominated by inflexible, mechanical and physical processes. Robotics, automation and software are modular and highly adaptable so they can be reprogrammed to respond to changing business needs.

  • Moreover, augmented reality (AR), the Internet of Things (IoT) and cloud-based technologies connect sensors in factories with interfaces on remote devices that provide valuable information and a seamless connection between designers, manufacturers, suppliers and even customers. The result is improved product design, enhanced quality, reduced costs, accelerated production, and facilitated waste capture, recycling, and end-of-life management. 

    Our Circular Economy and Smart Materials strategies invest in the technologies that are removing inefficiency and waste in supply chains and preserving resources for future generations. Participating investors not only have access to sustainable, long-term growth themes, but they are also helping extend a lifeline to a planet in need of rescue.

    Circular Economy Equity Smart Materials Equity

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The planet’s growing but resources are shrinking

From field to fork, smart farming uses technology to optimize resources, improve yields, reduce waste, conserve biodiversity and increase food security across the food value chain. Our Sustainable Water and Circular Economy Equities strategies invest in companies focused on applying technological advancements that target depleting water supplies as well as smart farming techniques for soil and crop management.

More people, less land, less water

  • The UN estimates that by 2050 human populations will grow to 9.7 billion. That means more than 65 million additional mouths need feeding every year, adding pressure on food and agricultural sectors to produce more to keep pace. Moreover, land is getting even scarcer as populations and cities expand exponentially. The number of megacities – defined as having more than 10 million inhabitants – is increasing worldwide, particularly in developing markets. 

    Land is not the only critical resource in short supply. As populations boom, so does their water consumption. Global water demand already exceeds supply, with two billion people currently living in areas of acute water stress.

  • Moreover, water withdrawals are dominated by the agricultural sector, as the water used to produce food is exponentially more than what is used for personal consumption. To illustrate, just one apple requires more than 70 liters of water to produce. 

    Worldwide, dietary habits are shifting from staples such as roots, tubers and cereal grains towards animal proteins like meat and dairy that demand exponentially greater inputs of water and other resources. Though some of these shifts are healthy and desirable, they are also resource-intensive and costly and intensify pressure on water supplies. For example, producing one kilogram of beef requires 15,000 liters of water.

Environmental challenges

  • To super-charge crop yields, industrial agriculture has turned to synthetic fertilizers, herbicides and pesticides to stimulate and protect plant growth. However, while effective at improving yields in the short-term, they have also had disastrous long-term effects on the surrounding land and ecosystems. Excess chemicals seep down into natural aquifers and flow into streams, rivers, lakes and ponds, killing native plant species and wildlife.
  • Moreover, farming and agriculture is acutely vulnerable to the damaging effects of global warming. In some regions, crops are lost to over-precipitation and flooding, whereas in other areas crops suffer due to heat waves and drought. Farmers need to adapt at an accelerated pace to avert crop damage and lost harvests. At the same time, to feed the world without damaging the planet, farmers need to optimize resources and develop climate-smart agricultural practices so that productive and resilient agriculture can be achieved.

Increasing supply, protecting quality

  • Robust water supplies are essential for agricultural productivity. Our  Sustainable Water strategy invests in companies providing solutions to maximize water resources across the water extraction and reuse cycle. In areas of water scarcity, portfolio companies are developing methods to secure water from surrounding environment. Many land-locked countries are investing in technologies to capture and clean rainwater. At the other extreme, arid countries with access to ocean waters are investing in desalination plants. Wastewater purification via microfiltration membranes and ultraviolet light are also effective technologies helping regions to counter chronic water shortages.
  • Furthermore, to transport water to fields and farms, efficient networks of pumps, pipes valves and irrigation systems are needed. Thanks to digitalization, these networks and systems are being equipped with sensors that rapidly detect leaks and breaks, monitor soil moisture levels, and customize water doses according to soil need. In addition, advances in water treatment and analytics are helping identify and extract chemicals, fertilizers, and contaminants from waste and run-off water so that it can be safely returned to the environment or recycled back into the system. 

    Finally, the importance of water extends beyond hydrating and nourishing crops. Improving soil’s water retention helps restore organic matter and reduce erosion. This leads to more nutritious crops and healthier livestock.

From plants to plates

  • Ensuring safe water supplies isn’t the only approach to sustainable agriculture. From plants to plates, our Circular Economy strategy is investing in solutions that increase efficiencies across farming and food systems. Smart farming’s focus on reducing inputs and protecting soils and vegetation makes it an area ripe for application of circularity principles. GPS technology is already widely used to navigate tractors and harvesters, reducing costs and CO2 emissions associated with operating farming machinery. 

    Moreover, AI and machine learning can teach agricultural equipment to detect weeds in fields and to automatically apply crop protection chemicals with unprecedented precision and accuracy.

  • As a result, the volume of chemicals required can be reduced by up to 90%, significantly protecting biodiversity without compromising crop yields. 

    Population growth, scarce resources and climate change are straining the agricultural sector as well as the environment. Our Sustainable Water and Circular Economy investment strategies are helping address these challenges by providing solutions that are not only effective and efficient for crops and livestock, but also beneficial for all life on the planet.

    Sustainable Water Equity Circular Economy Equity
Climate investing strategies

Climate investing strategies

Robeco offers a range of investment strategies – both in equities and fixed income – that address the climate challenges our generation faces.

Smart energy equity Smart materials equity Smart mobility equity Green bonds Climate fixed income Circular economy Sustainable water

Clean electrification to drive the global economy to net zero

Getting to net zero in the 21st century and mitigating climate disaster require industry to shift gears, switch fuels and change course.
  • The expansion of renewables is a powerful catalyst that is enabling the development of clean technologies and solutions across the energy value chain. Mass deployment of solar and wind- power is helping decarbonize electricity generation, and intelligent electrical grids ensure energy demand always matches supply. Grid-connected batteries and green hydrogen will ensure surplus electricity is stored for later use. Moreover, the clean electrification of heavy-carbon emitting areas like passenger mobility, transport logistics and building heat are already underway and gaining momentum.
  • As electrification spreads and demand for electricity increases, the energy generated will need to be consumed efficiently. Next-generation technologies are helping to reduce energy consumption in power-hungry applications and end-user devices in buildings, industrials, transportation and IT sectors. 

    Our Smart Energy and Smart Mobility strategies invest across the clean energy and transportation value chains, providing investors diversified exposure to the megatrends of decarbonization and sustainable mobility.

Energy meets urgency

  • Populations and economies need energy. Unfortunately, primary energy supplies are still dominated by hydrocarbons, and global carbon emissions continue to rise. The urgency of climate change has propelled efforts to “green” the global economy, triggering disruptive innovation that is rapidly altering the energy landscape. 

    Governments worldwide have announced massive new initiatives aimed at decarbonizing entire economies. Prominent among them are strong commitments from the US and China, which are finally aligned with global ambitions to tackle climate change.

  • Front and center in the race to decarbonize is the carbon-free electricity provided by renewables. Internal projections show that by 2050, solar power generation is likely to increase by a factor of 20, while wind power generation from on and off-shore sources will increase by a factor of 10. This will allow the share of electricity as a percent of global energy consumption to grow from 20% today to 50% by 2050. In parallel, renewables’ share of the electricity mix will nearly triple.
  • Electrification of transport

    The electrification of the transport sector has already developed considerable momentum in recent years and will continue to be an important theme for energy-related investments. Electric vehicle (EV) sales have risen sharply in key markets like Europe and China and should remain strong. Again, internal estimates show global EV sales in 2021 nearly doubling from 2020 which was already an extraordinary year marked by 130% year-on-year growth in Europe and a significant rebound in China towards year end.

    The strategies’ investments in transportation are not limited to EV producers; they also cover a whole range of ancillary companies within the EV ecosystem that supply essential parts such as power semiconductors, battery storage, sensors and actuators, as well as EV charging infrastructure.
  • Electrification of the built environment

    Transport is not the only high-emission sector being transformed by electrification; the built environment is also in transition. According to the International Energy Agency, buildings and building construction combined are responsible for over a third of final energy consumption globally and nearly 40% of direct and indirect carbon emissions. 

    Driven by stricter emission standards and the prospect of lower energy costs, commercial buildings are turning to clean electrification to power and regulate everything from heat pumps and cooling to energy-efficient lighting and building management systems.

  • Green hydrogen – the missing link

    The trend towards electrification is also driving other essential parts of the energy equation. Solar and wind power are clean but also weather dependent and intermittent. Cheap solutions must be created to temporarily store any surplus energy generated. Within passenger transport, lithium ion batteries within electric vehicles are providing cost-effective energy storage solutions; and further improvements are on the horizon. 

    Larger-scale industries are more energy intensive and difficult to electrify, but even here clean solutions are emerging. Green hydrogen is created by splitting water into hydrogen fuel and oxygen using carbon-free electricity from renewables. As it scales and becomes more cost-competitive, it will provide a critical link in decarbonizing high-carbon emitting industries like long-haul transportation (e.g. trucks, trains, ships and aircraft) and industrial sectors (e.g. semiconductors, fertilizers, and steel production).

  • Powering up an investment portfolio

    Decarbonization of energy goes well beyond the production of solar panels and wind turbines. Reaching net zero in this century will require transformation across the entire energy value chain. 

    Our Smart Energy and Smart Mobility strategies give investors diversified exposure to these long-term investment trends that are transforming the energy sector and moving us closer to a carbon-neutral future.

    Smart Mobility Equity Smart Energy Equity

Video series: meet our climate investing minds

‘We can build Paris-aligned portfolios that still enable strong factor exposures’

Robeco recently announced its ambition to achieve net zero greenhouse gas (GHG) emissions by 2050 across all its assets under management. We will set decarbonization targets for all our strategies, in line with global efforts to limit global warming to 1.5°C, as agreed in the 2015 Paris Climate Accord. But what does that mean in practice for investors? We discussed this with Arnoud Klep, from our quantitative equity team.

How will Robeco’s recent announcements translate for quantitative equity strategies in the short term?
“We now plan to bring several of our ‘sustainability-focused’ strategies in line with the Paris Climate Accord in the coming months. Robeco has a broad range of quant equity strategies, that all integrate sustainability aspects to some degree. Within that subset, we have a ‘sustainability-focused’ range, intended for investors who have preferences that go beyond basic sustainability integration.”

“These quant equity strategies have a dual objective: performance and a strong sustainability profile. Their purpose has always been to lead the way in terms of sustainability integration. So, given the increasing emphasis put by the asset management industry on sustainability and climate risk, we consider it a natural step to bring these in line with the Paris agreement.”

Glossary
Glossary
Explanations of all the main terms used in SI
Glossary

When you say ‘now’, you mean ‘now’, right?
“Yes. We have actually already started. The first quant equity strategy to become ‘Paris-aligned’ is one of our Global Sustainable Conservative Equity strategies, for which we have already completed the client consultation process and received the greenlight from existing clients.”

“The most important change is a much stricter carbon footprint reduction objective. Our entire sustainable quant equity range already had a reduction objective of 20% relative to its reference index. For the Paris-aligned strategy, we implement a 50% reduction as a starting point. In addition, we target a 7% footprint reduction every year thereafter.”

This sounds like a very fast transition. How is that possible?
“We do not start from scratch. Our ‘sustainability-focused’ strategies already feature a carbon footprint reduction close to the 50% level we set as a starting point. Obviously, the 7% reduction will become an additional constraint in the future. But we think we can make this migration while keeping turnover at reasonable levels.”

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Actually, how do you reduce the carbon footprint of these strategies in practice?
“So, to give you an example, while our sustainable quant equity portfolios already have a low exposure to the energy sector, restrictions will become even stricter once they are Paris-aligned. Companies involved with thermal coal will naturally be excluded, and so will most oil & gas companies, especially the oil majors. Restrictions on electric utilities will also be much tighter.”

“Apart from these stricter exclusions, the carbon intensity of companies will be a key component in portfolio construction. Stocks with relatively low carbon footprints will have a higher probability of being selected in the portfolio compared to stocks with high carbon footprints.”

OK. But would these kind of restrictions be realistic for a broader set of strategies, especially the ever stricter target of 7% year-on-year decarbonization?
“That will depend on how our economies evolve. If we, as a global community, do manage to decrease our GHG emissions over time, then the 7% annual decrease target may never become a very restrictive constraint for stock selection. But if companies do not succeed, then asset managers will have to compensate by additional carbon divestments from the portfolio, and the 7% reduction target may become more difficult to achieve.”

Decarbonizing portfolios will necessarily have an impact on their risk/return profile. What consequences should investors expect?
“We have thoroughly researched this aspect. Our simulations show that we can build Paris-aligned portfolios that still enable strong factor exposures. In theory, limiting the opportunity set should bear some cost in terms of performance.”

“And this is what we actually find, although in a global investment universe with ample investment opportunities the impact is limited: Paris-aligned quant equity strategies would be able to capture about 90% to 95% of the risk-return potential compared to the standard quant equity strategies.”

“But these simulations are based on past prices and therefore assume that there is no alpha potential from getting a strategy Paris-aligned. If climate change-related risks, like stranded assets or transition risks, rise and materialize, then we will not be discussing the negative impact of getting Paris-aligned but rather its positive effect. So, it is also a matter of perspective.”

Please also visit the other pages of our climate investing platform.
  • Urgency

    Urgency

    The urgency is really to act now. We need to change.
    Read more
  • Challenge

    Challenge

    If you talk about decarbonization, you talk about data.
    Read more
  • Responsibility

    Responsibility

    Countries have to act. Companies have to act. Investors have to act.
    Read more
  • Opportunity

    Opportunity

    Climate change will create clear winners and clear losers.
    Read more

Introducing Robeco’s climate investing strategies

Our climate fixed income capability puts us at the forefront of the transition to a low-carbon economy.
  • There’s been much talk about the need to decarbonize investments, in order to meet targets that mitigate climate change. What does this require of investors? Is a simple tweaking of existing portfolios, to improve their sustainability criteria, enough, or do asset managers need to make more fundamental changes? 

    Our view is that asset managers have a responsibility to identify and manage climate change risks through the investment decisions they make and the contact they have with investee companies and other institutions. Making superficial changes to existing investment processes is not enough. 

    Instead, a bold new approach is needed, based on a credible and well-founded understanding of sustainable investing, that is embedded in all aspects of the investment approach.

    Robeco is able to harness its extensive know-how and proprietary processes to invest in line with the targets of the Paris Agreement. Specifically, we have pioneered a new investment solution for climate and decarbonization, by launching the world’s first global fixed income strategies that are fully aligned with the Paris Agreement: the Climate Global Bonds and Climate Global Credit strategies.

  • The Robeco Climate Global Fixed Income capability is a unique solution that reflects the decarbonization plan set out by the Intergovernmental Panel on Climate Change. The Climate Global Bonds and Climate Global Credits strategies invest in global fixed income assets in a way that strives to keep the rise in global temperatures well below 2°C above pre-industrial levels, and aims to limit it even further to 1.5°C. 

    These two strategies provide for a 7% year-on-year decline in the portfolios’ overall emission intensity. This is measured per capita for sovereigns and per unit of total capital for corporates. The Climate Global Credit strategy goes even further, by starting with a 50% lower emission intensity than the investment universe at inception, and excluding fossil fuel production. The two strategies are managed against new indices that are aligned with the terms of the Paris Agreement. What’s more, Climate Global Bonds is the world’s first global fixed income strategy to be fully aligned with Paris.

  • Favoring the players of tomorrow’s economy today

    Importantly, the regulatory requirements for a Paris-aligned Benchmark exceed the requirements of the Paris commitment. It is therefore appropriate that the EU Technical Group on Sustainable Finance describes Paris-aligned Benchmarks as “tools for investors with the willingness to be at the forefront of the transition, favoring today the players of tomorrow’s economy”.1

    The high standards Robeco pursues in following a demanding carbon-reduction trajectory for our investment portfolios reflect our commitment to combating climate change.

    1 The EU Technical Expert Group on Sustainable Finance, “Report on Benchmarks”, September 2019.
  • An active, contrarian approach to climate change considerations

    Robeco Climate Global Bonds and Robeco Climate Global Credits are active investment strategies that build on our established global fixed income capability. They combine our top-down perspective on the macroeconomic and credit cycles with bottom-up issuer selection, to navigate market cycles, exploit market inefficiencies, and contribute positively to sustainable activity. Climate change considerations are fully integrated in the investment process and portfolio construction, across multiple components.

    The investment approach is contrarian, value focused and research driven – backed by a highly experienced team of nearly 30 macro and credit analysts, who are able to identify the best opportunities in global fixed income markets. The Robeco Sustainable Investing Center of Expertise shares its input with the investment teams and our data scientist team provides insight into greenhouse gas emissions and their varying intensities.

Bottom-up issuer selection that is in line with the Paris Agreement

  • The top-down view is combined with bottom-up issuer selection that is grounded in rigorous fundamental research and contributes positively to sustainable economic activity. Robeco’s team of seasoned fixed income professionals filter down the available investment universe to a select list of issuers. This incorporates sector, country as well as environmental, social and governance (ESG) considerations. 

    We select issuers by factoring in the CO2 emission intensity of governments, sectors and companies. This ensures that the strategy follows a decarbonization trajectory that reduces the portfolio’s overall emission intensity by 7% on a year-on-year basis.

  • Furthermore, our forward-looking approach is to invest in countries and companies that allocate capital towards activities that are in line with the EU Taxonomy, and that are efficient in reducing their carbon emissions. Importantly, this may include issuers whose emissions are currently high, as our criterion for allocating capital is that sovereigns and companies must be serious about making the transition to sustainable energy, and that they play an important role in facilitating such a shift.

Continuous innovation in our sustainable investing capabilities

  • Robeco acknowledges that urgent and bold action is needed to mitigate climate change. We also recognize the responsibility and stewardship required of the asset management industry in working towards the goals of the Paris Agreement. Our commitment is to contribute to decarbonization through our investment activities, in line with the ambitious target of limiting the temperature rise to 1.5°C. We will do so by managing climate risks as well as seeking out opportunities to bring about innovative, positive change through our investment and engagement activities.
  • Robeco’s Climate Global Fixed Income strategies are the most recent innovation in our sustainable investing capabilities, and are specifically focused on climate impact. We view these strategies as an opportunity for investors wanting to be at the forefront of the transition to a low-carbon economy.
    Climate Fixed Income Green Bonds

'With our dark green product range you really have positive impact'

Victor Verberk - CIO Fixed Income and Sustainability

The new Paris-aligned Benchmark sets the bar

Until 2020, no benchmark existed for measuring the performance of investment funds against the goals of the Paris Agreement. The EU Benchmarks Regulation responds to this need by defining the ‘Paris-aligned Benchmark’. This, however, does not cover corporates or incorporate guidelines and requirements for governments.

Robeco innovated in this area by working with Solactive to create Paris-aligned Benchmarks for fixed income investing – for corporate credits and aggregate bonds. These are the indices against which the performance of the Robeco Climate Global Fixed Income strategies is measured.

The benchmarks start with a lower CO2 emission intensity than the global market universe as a reference intensity, and will decarbonize at a rate of 7% per annum relative to the starting point. In the case of the Paris-aligned index for credits, the starting point will be 50% below the broader market, in line with the EU Benchmark Regulation for Paris-aligned Benchmarks.

Guide to climate fixed income investing
Guide to climate fixed income investing
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The indices are structured on the following principles

For corporate bonds:

  • A process of year-on-year decarbonization is reflected, equaling at least 7% on average per annum, based on the Scope 1, 2 and 3 emissions.
  • All industries except fossil fuels are included, and sector weights are kept close to the broader market index.
  • Emissions are normalized by the total capital of issuers, measured in terms of book values.

For sovereign bonds:

  • A process of year-on-year decarbonization is reflected, equaling at least 7% on average per annum.
  • Decarbonization of the index will be achieved through decarbonization at country level, as well as by adjusting the weights of individual sovereigns to establish a -7% annual trajectory at index level.
  • Country emissions will be normalized by the population size, measured in terms of CO2 emissions per capita.

Despite these carbon-related constraints, we find that the index characteristics mimic those of the general market over time. Specifically, back-testing of the Solactive Paris-aligned Benchmark Indices for credits and bonds against the Solactive Global indices for credits and bonds gives favorable results: the behavior and yield characteristics of the Paris-aligned indices are very similar to those of their equivalent generic indices, with the important difference being that the Paris-aligned indices have a much lower carbon footprint.

Please also visit the other pages of our climate investing platform.
  • Urgency

    Urgency

    The urgency is really to act now. We need to change.
    Read more
  • Challenge

    Challenge

    If you talk about decarbonization, you talk about data.
    Read more
  • Responsibility

    Responsibility

    Countries have to act. Companies have to act. Investors have to act.
    Read more
  • Opportunity

    Opportunity

    Climate change will create clear winners and clear losers.
    Read more
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