The commitments made by countries under the Paris Climate Agreement have a significant impact on the investment landscape. On the one hand, they create opportunities for investors to put their money into companies that focus on renewable energies, energy efficiency and low-carbon technologies. On the other hand, they also harbour transition risks. These include stranded assets in particular. These are assets that lose value prematurely or are no longer profitable due to technological, economic, regulatory or environmental changes. In the debate about climate change and the transition to a low-carbon economy, the coal, oil and gas industries, for example, are increasingly coming under pressure.
Setting a price for CO2 through the introduction of emissions certificate trading represents a further transition risk. Affected companies must purchase certificates to be allowed to emit CO2. The greater the demand for certificates, the higher the price. The latter has risen significantly in recent years. This has a significant impact on the capital costs of companies that are heavily dependent on fossil fuels. At the same time, a rising CO2 price incentivises companies to invest in low-carbon technologies and renewable energies, as these become more competitive compared to fossil fuels. Companies that invest in these areas at an early stage could potentially benefit from lower operating costs and an improved competitive position in the long term.
Due to the risks and opportunities arising from climate change and the transition to a low-carbon economy, we decided in 2020 to align our investment activities in actively managed investment products (investment funds and investment groups) in traditional asset classes with a <2 degree target or partially with the 1.5 degree target in line with the Paris Climate Agreement. This means reducing the CO2e emissions of our investments by at least four per cent each year for the <2 degree target. For "Sustainable" products (investment funds and investment groups), the reduction rate is at least 7.5 per cent per year for the 1.5 degree target. The "Swisscanto (LU) Bond Fund Responsible Emerging Markets Opportunities" fund was exempted from this policy.
The basic principles of our climate strategy
- Our top priority is to optimise the management of the client assets entrusted to us in terms of their risk/return profile. In doing so, we also include opportunities and risks arising from climate change in our investment decisions. However, if compliance with climate-related portfolio requirements leads to unfavourable risk-return profiles in our portfolios, the risk-return aspect takes priority.
- With investment stewardship and capital allocation, we have two tools at our disposal with which we can integrate climate-related aspects into portfolios. Through dialogue with company management and by exercising voting rights, we can call on companies to formulate and implement effective CO2e reduction targets. On the other hand, we can underweight investments in companies and countries with high greenhouse gas emissions without their own reduction plans in our portfolios or replace them with investments in CO2e-efficient companies and countries with ambitious reduction targets.
Where does the market stand today?
Our model of a reduction pathway to lower the CO2e intensity in the relevant Sustainable and Responsible product lines is based on the assumption that the market is moving towards climate neutrality. According to current analyses by the Intergovernmental Panel on Climate Change (IPCC) and other scientific institutions, the current national climate plans submitted as part of the Paris Agreement (Nationally Determined Contributions or NDCs) are unlikely to be sufficient to achieve the "well below 2 degree target". In emerging countries in particular, decarbonisation will take longer due to technological backlogs, a lack of financial resources and, in some cases, a lack of political will. The emerging economies are continuing to record an increase in greenhouse gas emissions, while the industrialised countries are recording a slight decline (see chart).