Within the ESG investment, the managers are paying special attention to those companies that help to meet the Paris objectives in relation to climate change, whose aim was to limit annual warming by 2C at most in relation to pre-industrial levels.
As Petra Daroczi, ESG fixed income analyst at Aberdeen Standard Investments, pointed out, long-term investors have a chance to take care of our planet’s environment.
Not only because it may be the “right thing to do”, but also because the most resilient companies will survive in the long term and offer more sustainable returns.
Which companies do the managers invest in? The investment focus is on those companies that are already meeting decarbonization targets.
By including bonds, “a viable decarbonization strategy would help in part to ensure that the company’s business is resilient, that it will be able to generate cash flow, pay off its debt and continue to access capital markets at a reasonable cost of financing,” said Darozci.
Find out more details about the importance of the transition to a low-carbon economy and read the latest business news with our companion app, Born2Invest.
In the long run, these investments are more resilient and profitable
The transition to a low-carbon economy is particularly challenging for the public service sector in the Asia Pacific region, given its dependence on low-cost, high-volume coal-fired power generation.
However, those companies that embrace these decarbonization goals are more resilient to climate risk, with more resilient business models, especially in the long term.
ETFs focused on climate change
This idea, along with increased investor interest in the wake of the coronavirus pandemic, means that fund managers are expanding their range of socially responsible vehicles with climate change funds and ETFs.
Amundi has just expanded its ETF range. These are the Amundi Euro iSTOXX Climate Paris Aligned PAB UCITS ETF, the Amundi MSCI Europe Climate Paris Aligned PAB UCITS ETF and the Amundi MSCI World Climate Paris Aligned PAB UCITS ETF2.
Thus, this family of funds incorporates a 50% reduction in carbon intensity along with additional activity exclusions.
It is fully complementary to the existing Amundi climate change ETFs, which are expected to meet the criteria of the EU Climate Transition Benchmarks (CTB) and designed for those investors who want a transition to a low carbon economy while maintaining broad market exposure.
However, it is not the only one. Lyxor is also expanding its range of climate change ETFs, with four new ones that exclude companies active in the coalfields from their investment spectrum, and above certain thresholds for carbon-intensive oil, natural gas, and electricity production.
They also avoid companies that undermine the EU’s environmental goals and those involved in controversial weapons, tobacco or violating social standards.
Arnaud Llinas, head of Lyxor ETF & Indexation, justifies these launches by reminding that “the EU’s climate benchmarks are just one way in which Europe is taking a lead on climate.”
Reticence towards green bonds
Green bonds are also playing a major role in this interest in climate change. However, investors are less likely to invest in these corporate bonds.
That is because fixed-income investors were already skeptical of stranded bonds in their early days of trading because of the need for a regulatory framework that defines the eligibility criteria for the use of proceeds from such stranded bonds. That includes the minimum energy improvements to be achieved, how these should be quantified and disclosed, and the extent to which the transaction should be subject to the issuer’s overall transition strategy.
Only in this way will it be possible to gain the confidence of investors and allow the transition bonds to become a more accepted market.
With the right framework in place, energy transition bonds could drive the next evolution in terms of capital allocation towards a low carbon economy.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in finanzas.com, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.
What Fintech Trends Set the Agenda for 2021 in Argentina
The fintech sector in Argentina has strongly developed during the pandemic. There are 238 fintech companies, i.e., almost three times...
Why Plant-Based Meat Could be the Future of the Food Market
Despite this incredible development and potential, vegetable meat is not the only alternative coming into play in this new era....
Uruguay Incorporates Cannabis Clinic into the Health System
Since its legalization in 2013, cannabis has aroused the interest of many Uruguayans, especially those of legal age, because it...
Bitcoin’s Price Forecast: Novogratz Recommends Buying on Price Decline
Although Bitcoin remains in an uptrend, some experts believe that now is not the time to follow Michael Novogratz's suggestion...
Rich Countries Have Only Donated 13% of the Vaccines Pledged
As for Pfizer-BioNTech, AI claims that it has supplied Sweden (10 million inhabitants), nine times more vaccines than all low-income...
Cannabis2 weeks ago
Recreational Cannabis in Argentina, an Unavoidable Debate for the Congress in the Making
Featured2 weeks ago
The Fintech Ecosystem in Latin America is Strongly Developing: Finnovista
Featured2 weeks ago
PwC’s Climate Targets Were Validated by the SBTi Initiative
Crypto2 weeks ago
What Caused the Sudden Crash of the Price of Bitcoin