Monitoring the carbon footprint of investment portfolios is an essential first step. However, the many available carbon footprinting methodologies all have certain limitations, ranging from the lack of verifiable and consistent input data to the risk of double counting the carbon emissions of investee companies.
Simply excluding all investment in high-emission sectors is not a sustainable solution: while it may immediately produce a lower carbon footprint, it will also undermine those companies actively developing solutions for energy transition within the high-impact sectors. Blind sector-wide divestment is, moreover, disruptive to overall economic activity, and puts crucial portfolio diversification at risk.
Instead, Candriam advocates a two-pronged strategy for responsible investors wanting to combat climate change: a careful selection of environmental leaders in each sector so as to stimulate both eco-efficiency and a rapid transition to clean or renewable energy, and, at the same time, a drive to measure and lower the carbon footprint of the investment portfolio.
Candriam’s SRI approach combines demanding carbon reporting standards with a proprietary in-depth analysis of companies in all sectors in order to help investors respond sustainably to the challenge of climate change. Our analysis covers both the carbon intensity of the business model of companies (our macro view), and the environmental practices of the company across all its operations (our micro view).
We look at how a company’s goods and services, during their life cycle, i.e., from production to end-use, may deplete resources and be a source of CO2 emissions.
Furthermore, we assess the CO2 emissions across a company’s entire value chain (incl. suppliers), evaluating its level of best practice at each step.
We select companies actively working for a low-polluting energy mix and ignore those that do not, all the while avoiding the trap of investing in sectors that present risks of their own (such as nuclear power). “For example, we will invest in renewables but avoid pure coal players, and engage with mixed-energy firms to reduce coal use”, says Isabelle Cabie, Global Head of SRI at Candriam.
One of the most effective ways to mitigate climate-change risk is to avoid the unnecessary use of energy in the first place.
Hence Eco-efficiency is one of our highest priorities when assessing a company’s management of its environmental impact.
Cabie explains: “Candriam’s SRI Best-in-Class selection results in portfolios with a carbon footprint that is lower than the footprint of the corresponding market. At the same time, our selection fosters a positive future-oriented dynamic within each sector, rewarding best practices and innovative solutions.”
Collaborative initiatives and company dialogue
Candriam is constantly monitoring and evolving its analysis of carbon issues. The firm is a signatory to the Principles for Responsible Investment (PRI) and has signed the Montreal Carbon pledge, which commits to the regular publication of the firm’s Carbon Footprint.
Our SRI analysts and fund managers actively engage with companies in order to improve disclosure and best practices related to environmental challenges.
Candriam has participated in the Copenhagen Communiqué on Climate Change, the Carbon Disclosure Project and the Investor Statement on the Urgent Need for a Global Agreement on Climate Change. The firm has also signed the Paris Pledge for action, and the G20 Eco Efficiency investment statement.