Investing in response to climate change – from divestment to engagement

Opportunities for portfolio decarbonization

RobecoSAM uses its proprietary Corporate Sustainability Assessment data and its newly launched Environmental Impact Monitoring Tool  to measure the carbon footprint of its core equity investment strategies. This allows us to systematically measure, manage, and monitor CO2 emissions associated with individual portfolios. In addition, RobecoSAM measures each company’s approach to climate change management in order to understand the more qualitative aspects that contribute to a portfolio’s carbon footprint. Using this data, we aim to reduce the carbon footprint while also controlling sector exposures and risk/return characteristics.
 
When it comes to the process of decarbonizing a portfolio, the results of our work to date have highlighted that substantial decarbonization is possible with a modest adjustment in portfolio construction, and without a critical change in the overall sector exposure of the portfolio. Importantly, this appears feasible without a significant impact on the risk/return profile or portfolio imbalances that are introduced through a policy of outright fossil fuel divestment.
 
The chart below illustrates how a substantial reduction in the carbon impact of a portfolio based on the MSCI World Index can be achieved by avoiding the highest contributors to CO2 emissions in the four sectors most exposed to fossil fuels – utilities, materials, energy and transport – and replacing them with lower contributors. 
  
Figure-5.jpg | GSImage