La Financière de l’Echiquier’s climate impact fund has just celebrated its first anniversary. It is aimed at companies in all sectors that want to significantly reduce their emissions. The company argues that those who want to create climate impact should invest in all sectors. Even established companies can make a contribution, and a strict model is a must.
The outbreak of the coronavirus has only increased investors’ interest in strategies that devise climate solutions. Investment Officer recently had the opportunity to meet Paul Merle (pictured), who has managed the Echiquier Climate Impact Europe fund since its launch in December 2020. In its first year, the fund achieved a return of more than 12 per cent.
“We have a highly innovative and pragmatic approach. Indeed, we invest in stocks not usually present in competing funds, which will be more exposed to climate change solutions (renewable energy, electric cars, energy efficiency), even though they only represent about a third of our assets under management.”
Three segments
“Instead, we started from the premise that every sector will play a role in the climate transition, and we chose to include in our portfolio companies that have the strongest climate commitments in their sector. The underlying idea is that these companies will have their entire supply chain and their competitors in tow.” This part of the portfolio, made up of pioneering stocks, represents about 40 per cent of the assets under management, with names such as Kering or AstraZeneca in the portfolio.
Finally, the rest of the portfolio is invested in companies in transition, which operate in sectors that are major energy consumers and need support to become low-carbon. It is strongly recommended not to exclude these companies, as long as they are strongly committed to reduce their carbon emissions. For example, he mentioned the Finnish refinery Neste, which over the past decade has switched from refining crude oil to refining vegetable or animal fat to produce biodiesel that reduces air transport emissions by 80 per cent.
Three filters
The selection process consists of three filters to select stocks from the investment universe. The first is a classic filter that takes into account various ESG criteria (Environment, Social, Governance), favouring companies that score higher than 6/10.
The second filter is the core of the investment process, as it takes into account the policies pursued in terms of climate commitments and the impact on biodiversity. It is an internally developed methodology, which takes into account 30% of the climate governance of the company (e.g. at what level the climate commitments are integrated into the company), 60% of the climate and biodiversity commitments and 10% looks at the transition policy (in terms of employment in the event of workforce conversion).
Finally, the third filter is a traditional financial analysis to get an idea of the company’s valuation. “By combining these three approaches, we can get a holistic view of the company, which allows us to build a portfolio that is usually made up of around forty stocks. Echiquier Climate Impact Europe takes a long-term view and aims for a strong climate impact. The follow-up is not judged on the basis of the next quarterly results.”
Balanced portfolio
Before investing in a share, Paul Merle stressed that direct contact is made with the company in order to best assess its sustainability policy. “We want to monitor companies’ progress in three or four areas that we will focus on more specifically when we update our model of a company, for example, in terms of its remuneration policy for top executives in relation to climate challenges. The aim is to make them aware of the need to take certain issues into account in the future.”
From this selection process comes a portfolio that tends to invest in growth companies, which represent 50 per cent of the assets under management. “However, our ambition is to obtain a fund with a balanced style composition. The growth portion of the portfolio suffered from the rotation to value stocks at the beginning of the year, but has since recovered well.” The fund’s main holdings also include DSM, Allianz, BNP Paribas, Deutsche Post, Sika, ASML, Nestlé, Schneider Electric and L’Oréal.