investment viewpoints

Convertible bonds: cutting emissions and promoting efficiency

Convertible bonds: cutting emissions and promoting efficiency


Why does the investment approach to reach net-zero emissions matter? At LOIM, we believe that the energy transition can provide growth potential for investors who are also seeking to achieve real and tangible emission reductions. Our approach invests across all sectors but focuses on companies with credible and ambitious decarbonisation targets. We explore how our TargetNetZero strategy identifies such companies in convertible bonds.


Need to know:

  • Using temperature-alignment metrics, we identify companies whose progress on reducing emissions is aligned with the goals of the Paris Agreement. These companies, which we call ‘ice cubes’ because of their cooling effect, are prioritised in our TargetNetZero convertible-bond strategy 
  • Solution providers that help enable their clients to decarbonise through greater efficiencies, digitalisation, electrification and smartification are also key to transition efforts
  • Our analysis explores what makes ANA Group1 an ice cube and Schneider Electric a solution provider


Finding ice cubes and solution providers

For Lombard Odier, investing in a net-zero future means allocating capital to companies that are decarbonising in order to diminish greenhouse gas emissions in the real economy. Companies in high-emitting sectors with credible plans to decarbonise are key to transition efforts, in our view. Our approach aims to identify those leading the way to cut emissions in order to broaden the investment opportunity set beyond low-carbon companies, ensure portfolios remain diversified and tap into new profit pools.

Our TargetNetZero strategies prioritise investing in what we call ‘ice cubes.’ These are companies whose progress on reducing CO2 emissions is aligned with the goals of the Paris Agreement – their action on achieving carbon-reduction targets helps to cool the economy, including high-emitting sectors, and drives the transition forward.

To identify ice cubes, we apply our in-house implied temperature rise (ITR) methodology to assign them a forward-looking temperature score. This measures how effective they will be in cooling their sectors, and the economy more broadly, in the future – and whether they will keep to the below 2.0°C warming threshold set by the Paris Agreement.

The investible convertible bond universe is smaller than equities and fixed income, so our TargetNetZero convertible bond strategy casts its net a little wider to also invest in solution providers, alongside ice cubes. Solution providers are companies and industries that are helping others to reduce their emissions; their temperature score may not necessarily be as Paris Agreement-aligned as ice cubes, but solution providers nonetheless enable decarbonisation and contribute to more sustainable outcomes. Below, we present our analysis of an ice cube and a solution provider.


Case studies2

  • How the high-emitting aviation industry navigates the transition is critical to the future profitability of airlines. The industry was responsible for almost 800 Mt CO2 emissions in 2022, or just over 2% of global energy-related CO2 emissions. In contrast with other sectors, scope 1 emissions – meaning emissions from the company’s own operations – comprise the majority of the airline industry’s emissions. Relying exclusively on carbon offsets is insufficient to reach net zero – real reductions are necessary.

    Japanese airline company ANA has a clear transition strategy, setting concrete targets to reduce scope 1 emissions. Scopes 2 and 3 emissions are insignificant in the context of the group. It outperforms its sector on several metrics and has multiple initiatives in place to achieve its reduction targets.

    ANA has a carbon investment ratio of 777 tCO₂e / MUSD invested, which is lower than the airline industry’s carbon investment ratio of more than 1000 tCO₂e / MUSD invested.3 Using ITR, we estimate ANA’s temperature score at 1.9°C.4 This means that if the rest of the economy were to pursue a similar level of ambition as ANA, global temperatures would rise by 1.9°C by 2100. Crucially, this is below the airline industry’s temperature pathway of 3.8°C, and aligned with the goals of the Paris Agreement.


    On the way to 2050 carbon neutrality

    ANA aims to be carbon neutral in 2050 and has set 2030 environmental goals on the way to realising this objective. While its targets are not certified as Science-Based Targets, it uses the CDP’s Intensity Targets to which LOIM’s holistiQ analysis ascribes a weight of 60%.

    The company’s goals include:

    • By 2030, it targets a 10% reduction in CO2 emissions vs 2019 levels generated by aircraft flight operations, and converging to net zero in 2050. To achieve this objective, ANA is adopting new aircraft technologies, shifting to low-carbon aviation fuel, including SAF,5 using emission trading schemes and using carbon-offset/negative emission technologies (NET)
    • By 2030, the company is targeting a 33% drop in CO2 emissions vs 2019 levels generated by non-aircraft flight operations on the way to becoming net zero in 2050. This includes using renewable energy and upgrading airport vehicles to electric vehicles


    These shifts in capital allocation to new technologies and SAF highlight that ANA understands the radical need for change and the urgency of adapting to the climate-transition challenge. Given its ITR, initiatives and reduction objectives, we consider ANA to be a decarbonisation leader, or ice cube, which is showing the way to a net-zero future and cooling an otherwise high-emitting sector.

  • Schneider Electric is a leader in electrification solutions and digitalisation efficiency with a strong focus on sustainability. The company provides energy-management equipment and efficiency projects across voltages and uses, industrial automation, software and solutions. 

    Datacentres are a high-growth segment: Schneider has a leading market share in power-management equipment, putting it in a favourable position to capture structural, double-digit growth potential due to rapid AI deployment and rising demand for energy efficiency.

    Overall, Schneider provides an integrated offering of technologies and market-leading solutions tailored to customer needs, promoting the transition towards more electrified, digitalised, decarbonised and decentralised energy.

    Fostering greater efficiency

    Schneider Electric helps customers to use their energy and resources more efficiently whilst reducing their CO2 emissions. By 2025, Schneider Electric aims to help its clients save 800 million tonnes of CO2 emissions. The Schneider Group sees the energy and climate transition as an opportunity for companies that are ‘part of the solution’ to grow their revenues. For instance, smart-grid technologies unlock the potential to electrify and optimise energy usage, powered by renewable electricity.

    Schneider Electric acts as a solution provider to help clients decarbonise through: 

    • Energy-efficient building automation and control systems
    • Grid reinforcement and smart-grid architectures 
    • Services that enhance circularity – by prolonging the lifespan of an asset, for example

    A net-zero commitment

    In 2022 Schneider Electric’s new Net-Zero commitment was validated by the Science Based Targets initiative. Like many other solution providers, 90% of Schneider’s carbon footprint comes from scope 3 downstream emissions, making its temperature score based on ITR appear relatively high at around 3°C6. However, we believe the company’s commitments make a strong case for it as a solution provider. 

    For instance, it has pledged to7 :

    • Increase its sourcing of renewable electricity from 82% in 2021 to 100% by 2030
    • Reduce absolute scope 1, 2 and 3 emissions by 90% by 2050 (vs 2021). These targets are all SBTi verified
    • Lower its scope 3 emissions by 25% by 2030 and by 90% by 2050 against a 2021 baseline
    • Launch the Zero Carbon Project across its value chain, which aims to cut 50% of operational carbon emissions from its top 1,000 suppliers by 2025
    • Increase the proportion of green components in Schneider’s products to 50% by 2025

    As electrification and smartification are key enablers of efficient production, Schneider Electric contributes significantly to decarbonisation and sustainable economic developments, in our opinion.

    It’s impossible to build a full portfolio of ice cubes, as there are not enough in the universe. Our approach prioritises those companies that fulfil our criteria for meeting the goals of the Paris Agreement as well as solution providers, at the expense of decarbonisation laggards who we see facing additional climate risk.

Looking forward to net zero

The greatest positive impact on decarbonisation will come from companies that are currently high emitters but have the commercial need and financial resources to transition to much lower emissions in the future. Other investment approaches relying on simple exclusions to omit all high emitters fail to take this into account, and miss key opportunities to fund the transition.

For investors, reaching net zero requires a forward-looking investment approach to identify the businesses creating and implementing well-defined carbon-reduction strategies – these ice cubes cool high-emitting sectors as well as tapping into growth potential. Solution providers are also crucial to help other companies transition through improved efficiency, electrification and digitalisation. 

By investing in ice cubes and solution providers, LOIM’s TargetNetZero strategy can provide capital to those companies driving the transition forward.

Learn more about how our TargetNetZero convertible bond strategy helps investors decarbonise, diversify, and drive the transition.


Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.
2 Important information on case studies:
The case studies provided in this document are for illustrative purposes only and do not purport to be recommendation of an investment in, or a comprehensive statement of all of the factors or considerations which may be relevant to an investment in, the referenced securities. The case studies have been selected to illustrate the investment process undertaken by the Manager in respect of a certain type of investment, but may not be representative of the Fund's past or future portfolio of investments as a whole and it should be understood that the case studies of themselves will not be sufficient to give a clear and balanced view of the investment process undertaken by the Manager or of the composition of the investment portfolio of the Fund now or in the future.
3 Source: HolistiQ analysis as of January 2024. holistiQ is a trading name of the Lombard Odier Investment Managers group (“LOIM”) and is not a legal partnership or other separate legal entity. Any dealings in respect of holistiQ shall be carried out solely through LOIM regulated entities and their authorised officers. Systemiq Limited is not a regulated entity and nothing in this website is intended to imply that Systemiq Limited will carry out regulated activity in any jurisdiction.
4 Source: HolistiQ analysis as of January 2024.
5 A stable supply of sustainable aviation fuel (SAF) in terms of volume and price is a necessary condition for ANA to achieve this target.
6 Source: HolistiQ analysis as of September 2023.
7 Source: Schneider Electric 2022 Sustainable Development report.

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