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A 2°C roadmap to guide the decarbonisation of our portfolios

News - 3/4/2019

Through a robust and ambitious roadmap, Edmond de Rothschild Asset Management’s Responsible Investment team is leading by example, decarbonising its portfolios in an effort to keep global warming below 2°C between now and 2100.

 

If world temperature rises are to be kept below the two-degree goal set by the 2015 Paris Agreement, global CO2 emissions will have to be reduced 25% by 2030. For the time being, however, the upward trend continues, with CO2 emissions from fossil fuels and industrial activities expected to increase by more than 2% in 2018[1].

Coal is the most carbon-intensive fossil fuel, but remains the world’s leading energy source, with India and China leading production. Despite the efforts made since the peak witnessed in 2013, CO2 emissions from coal started to rise again in 2018. This rise was the main reason for the significant increase in CO2 emissions in 2018.

The banking sector has a vital role to play in the energy transition



Through its importance to the financing of the economy, the banking sector has a vital role to play in the energy transition and is duty-bound to gauge its exposure to climate risks and help businesses in their efforts to reduce their dependence on fossil fuels. This responsibility was formalised in 2014 through the Montreal Carbon Pledge, which obliges institutional investors to measure, publish and reduce the carbon footprint of their portfolios.

Edmond de Rothschild Asset Management signed the agreement in 2015, and in 2018 measured the carbon exposure of 26 of its open-ended investment trusts. This measurement is based on the carbon intensity of each company in the portfolio, i.e. its CO2 emissions – be they direct (from the burning of fuels, vehicles owned) or indirect (electricity, steam purchases) – divided by its revenue.

2017 marked a new stage in the decarbonisation of our portfolios, with the adoption of an official 2°C roadmap for the 2017-2040 period. The roadmap uses a proprietary internal rating model based on the categories and guidelines set out in the TCFD[2] and quantifies and ranks the main climate risks and opportunities in the various sectors and sub-sectors of the economy. Regarding risks, our main conclusions are as follows:

  • We are focusing on a limited number of sectors and emitters, as 10% of emitters operating in fewer than ten economic sectors account for 90% of climate risks (scopes 1, 2 and 3).
  • By reviewing four aspects – regulation, technology, markets and reputation – we have identified 10 high climate risks, five of which need to be addressed now and throughout the 2017-2020 period, starting with coal.
Tomorrow's economic framework will be different from today's



Adopting this roadmap and applying it to our management reflects our conviction that tomorrow's economic framework will be different from today's. The activities on which our economy is based must now prove their social and environmental impact, be it positive or negative. Investors should therefore seize the opportunities arising from the energy and environmental transition and reduce their exposure to climate change risks.

 

[1] Source: Global Carbon Project 2018

[2] TCFD: The Task Force on Climate-related Financial Disclosures, which aims to promote disclosure of climate-related financial risks.

 


March 2019 This document is issued by Edmond de Rothschild (France). This document is non-binding and its content is exclusively for information purpose. Any reproduction, disclosure or dissemination of this material in whole or in part without prior consent from the Edmond de Rothschild Group is strictly prohibited. The information provided in this document should not be considered as an offer, an inducement, or solicitation to deal, by anyone in any jurisdiction where it would be unlawful or where the person providing it is not qualified to do so. It is not intended to constitute, and should not be construed as investment, legal, or tax advice, nor as a recommendation to buy, sell or continue to hold any investment. EdRAM shall incur no liability for any investment decisions based on this document. This document has not been reviewed or approved by any regulator in any jurisdiction. The figures, comments, forward looking statements and elements provided in this document reflect the opinion of EdRAM on market trends based on economic data and information available as of today. They may no longer be relevant when investors read this document. In addition, EdRAM shall assume no liability for the quality or accuracy of information / economic data provided by third parties. The figures referred to in that document are related to the past. Past performance is not a reliable indicator of future results. They may be independently affected by exchange rate movements. Edmond de Rothschild Asset Management refers to the Asset Management division of the Edmond de Rothschild Group. In addition, it is the commercial name of the asset management entities of the Edmond de Rothschild Group.