Extra-Financial Report: Pictet- Global Environmental Opportunities (GEO)

Transcription

1 Extra-Financial Report: Pictet- Global Environmental Opportunities (GEO) 12m to

2 CONTENTS Investment Objective 2 Thematic Environmental Approach 3 Planetary Boundaries 4 Conventional ESG Indicators 5 Active Ownership 8 1 of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

3 INVESTMENT OBJECTIVE Pictet-Global Environmental Opportunities (GEO) invests in wellmanaged and financially robust companies that are driving the transition to a more environmentally sustainable economy. The strategy targets capital appreciation by investing in companies who seek to solve environmental challenges through innovation, technology and intelligent use of natural resources. Our core belief is that the true value of natural capital is not properly reflected in market prices, leading to overconsumption of natural resources and excessive pollution. Therefore, over the long term, those business models, technologies and services that help increase the resource efficiency of the economy will be those most in demand. The investment team builds a global portfolio of best ideas with no sector, size or regional constraints, out of an investment universe of around 400 companies. The investment managers identify companies who make a positive active contribution to solving environmental issues while also having a low environmental impact. The strategy exhibits a low overlap with traditional market-cap weighted equity indices, meaning it can be used to diversify an investor s existing global equity portfolio. Figure 1 - Investment process Source: Pictet Asset Management 2 of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

4 THEMATIC ENVIRONMENTAL APPROACH Pictet - Global Environmental Opportunities (GEO) is an innovative environmental strategy, based on the scientific framework of the Planetary Boundaries 1. Planetary Boundaries are ecological thresholds for nine of the most important environmental dimensions (climate change, ocean acidification, ozone depletion, eutrophication, water use, land-use, biodiversity, aerosols and chemical pollution). Transgressing these boundaries would endanger the favourable environmental conditions that have been in place for the last several thousand years. Staying within these boundaries, in the so-called safe operating space, will be crucial for mankind and for all animal species survival on this planet. We operationalize the Planetary Boundary framework and apply it towards an environmental assessment of companies. We analyse whether companies core activities, products and services respect these boundaries or not, over their life-cycle ( from cradle to grave ). Most environmental reporting today is done taking into account emissions related to in-house production and insourced energy (commonly known as scope 1 and scope 2 emissions 2 ). Wider impacts at suppliers, impacts of the products and services during their life time or impacts that lead to desired substitution (commonly known as scope 3 and scope 4 ) are not taken into account. We consider this to be insufficient, because these latter are often crucial. For example, a car s lifetime emissions during its useful life are four to five times higher than the emissions stemming from its manufacturing. Our methodology fully accounts for scopes 3 and 4. The environmental impacts we show can therefore differ very significantly from more conventional measurements. Our methodology occasionally yields negative emissions. For example, a company managing sustainable forests would generate negative carbon dioxide emissions because trees absorb more from the atmosphere than what is emitted by the company through harvesting and manufacturing. Furthermore, the company s products such as lumber and wood panels may substitute for more energy-intensive products. Companies in our investable universe make a particularly active environmental contribution, i.e. not only respect the planetary boundaries themselves but help others to reduce their environmental impact and to stay within the safe operating space. 1 See A safe operating space for humanity. Rockstrom et al. Nature, September of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

5 PLANETARY BOUNDARIES Below we show the profile of our portfolio versus MSCI All Countries along the nine Planetary Boundaries dimensions. As the physical units are different for each dimension, we use a logarithmic transformation to plot them on one and the same graph. The Safe Operating Space (SOP) is located at 2 for each dimension. Values smaller than 2 lie within the SOP, while values larger than 2 lie outside of it, transgressing the stipulated global limits. Figure 2 - Planetary Boundaries Source: Pictet Asset Management, Neosys As per , the impact of Pictet-GEO is significantly lower than that of the MSCI AC along all 9 planetary boundaries. The relative improvement is very meaningful, as Pictet-GEO respects all but one planetary boundary, whereas the MSCI AC transgresses the limits for Climate Change, Eutrophication, Fresh Water Use, Land Use and Biodiversity. Please note that while the Biodiversity impact of Pictet-GEO is still slightly outside the safe boundary for the time being, it is an order of magnitude lower than that of the MSCI AC. Pictet-GEO delivers its best performance along the Climate Change dimension. Taking all combined effects of energy efficiency, energy substitution through renewables and carbon sinks into account, the aggregate emissions of the fund are slightly negative, meaning that companies in the fund actually reduce the overall level of global greenhouse gases that would otherwise be emitted. 4 of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

6 CONVENTIONAL ESG INDICATORS While compatibility with the planetary boundaries is the main sustainability goal of the strategy, we also integrate more conventional Environmental, Social and Governance (ESG) information into our investment process. We rely on information from external research providers and rating agencies where available, complementing it with our own in-house research. CORPORATE GOVERNANCE In response to increased pressure from regulators and shareholders for stronger corporate governance, companies are expected to strengthen board competence and independence, to adopt executive remuneration plans based on long-term performance, to respect minority shareholder rights, and to reinforce risk control and audit functions. We use ISS Corporate Governance 3 scores, which range from 1-10 (the lower the better) and we regroup them into the 5 categories below. Results are based on aggregate company weights in each category for the portfolio and the benchmark. Figure 3 - Governance risk (the lower the better) Source: Pictet Asset Management, ISS The Pictet-GEO has lower exposure to the most risky governance rating categories (7-8 and 9-10), while it is clearly overrepresented in the second (3-4) and third best (5-6) rating categories of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

7 ESG CONTROVERSIES This indicator measures the extent to which companies are exposed to news flow related to ESG controversies such as bribery, corruption, product recalls, pollution incidents and conflicts with local communities. Controversies are evaluated based on their degree of severity and recurrence, as well as company accountability and reliability of information sources. We use Sustainalytics 4 as our main source for controversies, which are measured on a relative scale from 0 (no controversy) to 5 (significant controversies). We also complement this source with data from Reprisk 5. Below we have regrouped the results in 3 categories to represent poor, medium and high ESG standings. Final results are based on company weights in the portfolio and benchmark. Figure 4 - Level of controversies (the lower the better) Source: Pictet Asset Management, Sustainalytics The Pictet-GEO has no exposure at all to the highest controversy categories (4-5), while it is underrepresented in the medium controversy categories (2-3) and clearly overrepresented in the least controversial categories (0-1) of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

8 OVERALL ESG LEVEL A good performance in environmental, social and corporate governance matters mitigates reputational and financial risks while securing better investment results in the long run. We use the Inrate Sustainability Assessment (ISA) 6 to gauge the ESG characteristics of our strategy. The ISA is based on a comprehensive assessment of companies environmental, society, labour and corporate governance practices. The ISA rating thus reflects a stateof-the art assessment of a company s overall ESG performance. We compare the distribution of the ISA scores for Pictet-GEO with the MSCI World. Results are based on company weights in both. Figure 5 - Overall ESG score (the higher the better) Source: Pictet Asset Management, Inrate The Pictet-GEO is not invested in the lowest ESG rating categories (1-2), hardly present in the next lowest categories (3-4), underrepresented still in medium rating categories (5-6), and overrepresented in the best ESG rating categories (7-8 and 9-10) versus the MSCI World AC of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

9 ACTIVE OWNERSHIP PROXY VOTING Voting rights are systematically exercised at general assembly meetings for the companies held in the fund in accordance with Pictet Asset Management voting policy and through the ISS proxy voting platform 7. Our voting policy takes into account internationally recognised standards of corporate governance. Subject to the comments above, we vote against resolutions that are not in shareholder interest. Figure 6 - Proxy voting summary Source: Pictet Asset Management, ISS In the 12 months to , Pictet-GEO voted on 60 meetings, taking a stance on 761 individual agenda proposals. We voted in 706 cases with management, in 35 cases against management, and withheld in 20 cases. We voted in line with the recommendations of our proxy voting agency ISS on 760 agenda points, dissenting only on one single case of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

10 ENGAGEMENT Engagement with the companies held in the fund is done through a Hermes 8 EOS engagement pool and/or directly by the fund s investment managers on an ad-hoc basis. Hermes EOS does not allow their clients to publish detailed reports on individual engagements, but we can show the summary statistics below. Figure 7 - Engagement summary Source: Pictet Asset Management, Hermes EOS Over the last 12 months Hermes EOS engaged on our behalf with 19 companies held across our environmentally-themed portfolios on a wide range of social, environmental, governance and strategic issues. Governance as well as Social & Ethical issues each accounted for about a third each, Environmental and Strategic issues each accounted for about 1/6 of all engagements undertaken on our behalf. No bespoke engagement was taking place over the last year outside of the Hermes EOS pool of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities

11 Disclaimer This marketing material is issued by Pictet Asset Management (Europe) SA. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on or at Pictet Asset Management (Europe) SA, 15, avenue J. F. Kennedy L-1855 Luxembourg. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments. Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management (Europe) SA has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund s prospectus and are not intended to be reproduced in full in this document. Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document. 10 of 10 Extra-Financial Report: Pictet-Global Environmental Opportunities