BayernLB

Low-carbon portfolios

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Low-carbon strategies in asset management

With awareness growing of the multiple climate risks, increasing numbers of institutional investors are looking to make their portfolios as low-carbon as possible. They are then less susceptible to the consequences of climate change. In an effort to build a low-carbon portfolio, investors are taking a range of measures from excluding high-CO2 industries from their investments to specifically selecting environmentally friendly companies or sectors, guided by carbon rating and CO2 footprint data.

Moving away from coal?

The exclusion of companies active in the fossil fuel value creation chain is the simplest way to reduce the CO2 footprint of an investment portfolio. This method has recently garnered attention due to the international divestment movement. Across the world, increasing numbers of investors have voluntarily agreed to sell their shares in (or refrain from investing in) companies that are active in the extraction or use of fossil fuels such as coal and oil. However, critics of this approach claim that this move by investors prevents them from exerting any active influence on precisely those companies that could make a huge contribution to climate protection measures.

Climate-friendly investment alternatives

Investors specifically wishing to select climate-friendly investments, build low-carbon portfolios and make a positive contribution towards protecting our climate have a range of options available to them:

  • Asset categories: Investors can examine their investments in areas such as renewable energy or the associated infrastructure.
  • Green bonds: Allow investors to finance selected climate and environmental protection projects.
  • Equity and corporate bonds: The carbon ratings of companies are a key decision-making factor when selecting bonds. They show which companies are well-prepared for the risks of climate change and which companies have a comparatively small CO2 footprint.

Evaluate risks regularly

When investing in equity and company bonds in particular, it is a good idea for investors to regularly evaluate the CO2 footprint of their portfolio. In France, section 173 of the French Energy Transition Act requires investors to do this. The analysis provides the investor with information on the energy performance and greenhouse gas emissions of the companies listed in the portfolio. This data can then be used to determine how susceptible the portfolio is to changes in energy prices and policy measures to reduce greenhouse gas emissions. The CO2 footprint of a portfolio can also act as an important target value in the management of climate risks.