Participants
Viktor Andersson, Co-Head, ESG Analysis, SEB Wealth Management
Joost Bergsma, CEO, BNP Paribas Clean Energy Partners
Matt Christensen, Executive Director, Eurosif
Carlos Joly, Chairman, Climate Change Scientific Committee, Natixis Asset Management
Lars Kalbreier, Head of Global Equity and Alternative Research, Credit Suisse
Andreas Knoerzer, Head of Asset Management, Bank Sarasin & Co. Ltd
Steve Triantafilidis, Head of Global Equities, Vontobel Asset Management
Panel Moderator: Elisa Trovato, Deputy Editor, PWM
Elisa Trovato: Welcome to the roundtable about climate change and sustainable investing. The aim for today’s discussion is to assess the impact of climate change on investment decisions. More broadly, we will analyse the integration of ESG factors into the investment process, as well as the opportunities and challenges in distributing responsible investment products in the wealth management space. Carlos, can you outline how tackling climate change is affecting your investment decisions and what investment approach do you favour?
Carlos Joly: The climate change issue brings back nature in a very central way in investment management. It is interesting how throughout history, nature was really very integral to how one did business and how one made investment decisions: think of shipping, agriculture and transportation. Think of storms at sea affecting merchant fortunes, flooding of farms and villages affecting livelihoods, droughts and freezing weather. With the progress of the industrial revolution in the 19th and 20th Centuries, and particularly recently with the emergence of modern portfolio techniques in the latter part of the 20th century, it is as if nature did not matter. There was a redefinition of risk. Real risks got supplanted by technical risks. That needs a rethink and needs to change. We have to begin to seriously consider how nature interacts with how we make investment decisions, and climate is the most evident way. There are various approaches to doing that. What makes sense is to avoid passive approaches that tie you to the broad indices.
At Natixis we have decided to take a thematic approach, with three major thematic clusters. The first is mitigation of carbon emissions; the second is adaptation to the inevitable consequences of climate change; and the third is better management of natural resources: soil and water. These themes help us identify strong companies with solid growth and good profit margins. We apply this approach to various funds, and particularly in our Impact Funds-Climate Change.
Joost Bergsma: The impact of climate change on investment decisions is probably bigger than one thinks. You have to focus on leaders and pick themes, but at the same time, it is an evolution that has been ongoing and is accelerating. That impacts on more or less all sectors, starting with the energy sector, but it is also going into transport, chemicals and steel. You have leaders who are leading the pack and at points will be ahead of the pack, but even the followers will have to clean up their act. I think the energy sector is interesting and at the forefront, also because of the EU 20-20-20 directive. That is a hard law, which makes clean energy tremendously attractive. In these uncertain times with oil, another key driver of clean energy is energy security. I think it is an absolutely major reason why Europe, is investing in clean energy.
Today there are certainly a lot of attractive unlisted, illiquid-type opportunities, which are a barrier for private clients. Product innovation, taking illiquid opportunities such as clean energy and developing simple financial instruments to make them liquid, will help the growing demand from private clients.
Elisa Trovato: Looking at the at the government policies in the clean energy sector, what is the impact of subsidies on market efficiency and how do you take into account of the distortions they generate?
Steve Triantafilidis: Clearly, government policy has had a large impact in the last year or two with changes in subsidies, notably in Germany. It probably has seen some distortions in where, for example, the solar industry has developed. I think that is of concern to investors in this space that a lot of the investing has been driven by subsidies, rather than truly being an alternative to traditional sources of energy. In China, overall the government is very interested in the topic and wants to be a player in new technologies related to alternative. It has simply realised that it cannot use oil and coal in the quantities that a large, industrialised nation would normally. What that may mean is further distortions because they are encouraging these players with a different agenda than in most markets. In the US, although there has been a lot of talk about green jobs and the stimulus package that was announced put a lot of effort in that area, not much has actually happened.
So it may be a function of free markets that you cannot make it that easily, compared to China, which still has a government that can dictate, in some ways.
If you are investing based on subsidies, you need to be very careful, because they will change as governments have pressures in terms of meeting lower budget deficit targets. If companies are only surviving because of subsidies, then clearly you should be very careful about investing in them. On the other hand, if there is not some encouragement in some way, then maybe the industry does not get off the ground either. So there is a balance there. From our perspective, we do not want to be only investing in companies that are too heavily reliant on government subsidies and balance with opportunities driven by market forces.
