As the world transitions to a low carbon economy, the impact climate change related initiatives and legislations are likely to have on portfolio returns can no longer be ignored. Amundi Index Equity Global Low Carbon tracks the MSCI World Low Carbon Leaders Index. This Index, which was created in collaboration with Amundi seeks to track the performance the MSCI World Index, whilst reducing its exposure to the most “emissions intensive” and “reserve intensive”  businesses.


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Carbon risk explained

Carbon intensive assets can be defined as stocks with a high carbon footprint, that is stocks with a current high level of emissions (per unit of sales), or stocks whose valuation depends on fossil fuel reserves. These are the assets which are the most at risk in the event of an increase in environmental regulations and carbon related taxes. The likelihood that such legislative changes will be introduced can no longer be waived off as a zero probability risk. However, there is a great deal of uncertainty surrounding the timing, nature and consistency of these policies. In addition, carbon intensive assets are also likely to be impacted by any technological breakthrough within the clean energy sector thus increasing the risk for investors exposed to these assets.

Amundi has designed a range of low tracking error, low carbon exposure index funds to make portfolio decarbonisation as straightforward as possible. These simple yet innovative investment strategies seek to allow long-term investors to hedge climate risk without sacrificing financial returns.

Why Invest?

We believe the benefits to UK institutional clients are threefold:

1. Cutting your risk, not your return

A decarbonised portfolio has a very similar structure to the parent portfolio with a similar sector, style and country exposure.Thus like it’s parent index (the MSCI World Index), the decarbonised index includes large and mid-cap stocks across 23 Developed Markets (DM) countries1.  The only significant difference is that carbon intensive businesses will be underweighted relative to the initial portfolio with the aim of achieving at least a 50% reduction in its carbon footprint. We therefore expect the decarbonised portfolio to outperform market index, if and when the implicit and explicit cost of emitting greenhouse gases significantly increase. If no such a thing happens, given the low tracking error of the decarbonisation process, we expect a market like performance. 

2. Hedging of oil price exposure

A decarbonised portfolio offers a potential hedge against a fall in oil price as it is underweight the most carbon intensive assets. We believe this is a particularly attractive feature for UK investors as they tend to be biased towards FTSE 100 companies in their equity allocation and are thereby already significantly exposed to oil and coal prices through their exposure to Oil & Gas and Metals & Mining companies. 

3. Simple, innovative solution to stay ahead of the curve

A number of large asset owners have already committed one way or another to reducing their exposure to carbon risk2. Financial regulators are also becoming increasingly aware of the issue and are summoning institutional investors to measure, if not mitigate, their exposure to carbon intensive businesses3. By proactively reducing the carbon footprint of its equity allocation, UK investors could reinforce and be at the forefront of the UK’s push towards the Low Carbon economy, and this at a minimum risk given the low tracking error of the decarbonisation solution relative to standard market indices.

Benefits of decarbonising with Amundi

Portfolio decarbonisation made easy

with our innovative range of low carbon index funds

Market-like performance whilst mitigating carbon related risks4

Bespoke solutions benefitting from our proven ESG, quantitative research and index capabilities

Amundi, co-Founder of the Porftolio Decarbonisation Coalition

Along with AP4, the United Nation Environment Programme and its Finance Initiative (UNEP/FI), and the global environmental disclosure system CDP, Amundi is a founding member of the Portfolio Decarbonisation Coalition (PDC). With the recognition of UN Secretary General Ban Ki-moon, the Coalition pledged to reduce the carbon footprint of institutional investors’ portfolios in the amount of up to US$100bn by December 2015 for the COP21. This target was surpassed with the PDC members having decarbonised over $600bn Assets5. The coalition also serves  as a platform for the development and sharing of portfolio decarbonisation best practices.

1. DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.

2. For example Norway’s oil fund is divesting its coal assets http://www.nytimes.com/2015/06/06/science/norway-in-push-against-climate-change-will-divest-from-coal.html?_r=0

3. Bank of England Governor Mark Carney warns investors face huge climate change losses http://www.ft.com/intl/cms/s/0/622de3da-66e6-11e5-97d0-1456a776a4f5.html#axzz46AlwqG6s

4. The sub-fund does not offer a performance guarantee. See relevant KIID and legal documentation for further information. 

5. Commitment of the 25 members of the coalition as at 07/12/2015

How to subscribe AMUNDI INDEX EQUITY GLOBAL LOW CARBON

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