Proponent of the Climate Transition: 1 year of LO Funds - Climate Transition

The Lombard Odier Climate Transition strategy recently marked its 1-year anniversary. The strategy has made a promising start in achieving a substantially lower long-term portfolio temperature than the benchmark, while also outperforming on current carbon-intensity metrics.

The purpose of the fund is to unlock the opportunities presented by the transition from a WILD to a CLIC™ economy. The Fund therefore seeks to invest in companies that may benefit from the transition to both a carbon-constrained world, as well as a climate-damaged world. This requires focusing on three sets of opportunities when selecting companies, utilising thematic, activity-driven filtering with a high purity threshold: solution providers, transitioning companies, and climate adaptation. 

The investment team benefits from the expertise and direct involvement of our dedicated Sustainable Investment Research, Strategy & Stewardship (SIRSS) team, as well as our materiality-weighted approach to curating ESG data. By integrating our proprietary methodology, Lombard Odier Portfolio Temperature Alignment (LOPTA), we plot the decarbonisation pathways of companies to determine a portfolio-level temperature outcome, which we believe is essential to ensure alignment with the Paris Agreement.

2020 key metrics 

Investing across all sectors in support of the climate transition, rather than focusing only on today’s low-emission companies, the fund returned 66.89%¹ versus 68.40% for the benchmark while making great inroads in reducing GHG emissions and establishing a sustainable framework.

We are proud to have marked a number of important milestones within this brief over the course of the year. USD 1 million investment in the Climate Transition strategy during 2020 translates to 336 tCO₂e avoided - equivalent to a passenger flying from Paris to New York and back over 330 times. The 11 tCO₂e captured as a consequence of the fund’s activities equates to that of more than four acres of mature trees. The cumulative emissions captured or avoided as a consequence of the aggregate investment in the strategy during 2020 is equivalent to the estimated annual CO₂ footprint of 52,000 people globally.

We have assessed the implied level of global warming that the Fund is aligned to, based on the expected, cumulative owned emissions of the Fund through to 2050. The estimated “temperature alignment” we calculate through this methodology is 2.3°C for this fund, which compares very favourably to the 3.1°C of reference index MSCI World.
As an active manager, we engage companies to encourage positive business practices and ensure the long-term sustainability of their enterprises. Adopting the Oxford Martin Principles for Climate Conscious Investors, in 2020 we engaged 73% of companies on the climate transition, and 60% on ESG business practices. 

We believe it is essential to focus on the ESG issues that are most relevant to the sustainability of business practices based on the industry specific companies operate in. We take a three-tiered approach to understanding the sustainability of a company’s ESG practices, considering long-term, short-term and impact metrics along our proprietary ‘CAR’ methodology. Our LO ESG Materiality Ratings reflect a higher concentration of highest-rated companies in the portfolio versus those of the benchmark.

The UN Sustainable Development Goals (SDGs) are used by many sustainability focused investors as a useful tool for measuring positive contribution to, as well as corporate alignment with, globally accepted social and environmental objectives. All of the portfolio’s holdings have positive contribution to SDGs, with the highest exposure to Affordable and Clean Energy (SDG 7). More than half of companies in the portfolio are aligned with the goals of increasing substantially the share of renewable energy in the global energy mix, and doubling the global rate of improvement in energy efficiency.

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The Fund is authorised and regulated by the Luxembourg Supervisory Authority of the Financial Sector (CSSF) as a UCITS within the meaning of EU Directive 2009/65/EC, as amended. The management company of the Fund is Lombard Odier Funds (Europe) S.A. (hereinafter the “Management Company”), a Luxembourg based public limited company (Société Anonyme SA), having its registered office at 291, route d’Arlon, L-1150 Luxembourg, authorized and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended. The Fund is only registered for public offering in certain jurisdictions. The articles of association, the prospectus, the Key Investor Information Document, the subscription form and the most recent annual and semi-annual reports are the only official offering documents of the Fund’s shares (the “Offering Documents”). They are available on http//www.loim.com or can be requested free of charge at the registered office of the Fund or of the Management Company, from the distributors of the Fund or from the local representatives as mentioned below.
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