The strategy will allow institutional and private investors to invest for climate change, without making concessions on financial performance.
Impact investing has until now been almost exclusively reserved for unlisted markets. This situation is changing, thanks to the commitment of the Swiss sustainable investment company responsAbility and ESG Asset Management (ESG-AM). The fund, which has been authorized for public distribution from June 23, 2022, will allow institutional and private investors to invest in sectors relevant to climate change, without making concessions on financial performance. Its sustainability strategy, structured in the form of funds under Article 9 of the European Union’s SFDR regulation, is characterized by the pursuit of clearly measurable climate objectives.
The focus is on companies taking credible steps to substantially reduce their CO emissions2 and achieve long-term carbon neutrality. About 70% of the bonds in the initial portfolio are in the industrial sector, whose influence on the reduction of greenhouse gas emissions is by far the most important. Almost 25% of the bonds come from the financial services sector and some 5% from the utilities sector. In terms of country breakdown, the US (around 40%), the UK (13%), Germany (9%) and France (8%) make up the bulk of the portfolio. Switzerland is represented by a small number of bonds, including those from Holcim, an issuer exemplifying the Transition to Net Zero Bond Fund’s consistent approach to sustainability.
Holcim, innovative engine towards net zero emissions
Cement, which is among the main construction materials, is responsible for around 7% of CO emissions2 in the world. Most of the emissions come from the decarburization (decrease in carbon content) of the limestone and the high temperatures required for the manufacturing process, which generally result from the combustion of fossil fuels.
As an innovative Swiss company in the field of building materials, Holcim is a force for change in this sector, thanks to the development of new types of cement, the increased use of waste-based fuels and the exploitation of pilot plants capturing unavoidable carbon emissions. The cement group Holcim, which is following a concrete reduction path towards net zero emissions, is therefore a good example of a company targeted by the strategy.
Strong demand from institutional investors
Initial funding for the launch of the Transition to Net Zero Bond Fund was provided by German and Swiss institutional investors. Demand from institutional clients remains strong, particularly from pension funds, banks, insurance companies, family offices and fund of funds managers supporting the climate transition strategy.
For Stephanie Bilo, Chief Client & Investment Solutions Officer at responsAbility, it is clear that “the urgency of decarbonisation requires investors to take credible action. The currently most widespread approach, that of company exclusions, is however proving to be too limited. Excluding carbon-intensive sectors from impact investing may seem like the obvious solution, but it does not achieve the desired goal. On the contrary, it is important to include companies from these sectors. Thanks to the influence of investors, it is indeed possible to set incentive targets for companies generating high greenhouse gas emissions, so that they take effective measures to reduce them. This results in a significant leverage effect, which can significantly reduce carbon emissions and take us a big step towards carbon neutrality.”
And Philipp Good, CEO of ESG-AM, added: “Our portfolio focuses on issuers of all rating categories, with an average initial rating of BBB, which are distinguished by the fact of having defined concrete climate change and pursue them systematically. From an investment universe of around 750 issuers, we select the 100 bonds that additionally feature an attractive risk-return profile, while currently benefiting from a target yield in USD of over 5.5%. We are convinced that we can generate an interesting performance, both financially and sustainably.”
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