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    Net-zero investing shows resilience in a year of shocks and shifts

    Nicolas Mieszkalski - Portfolio Manager
    Nicolas Mieszkalski
    Portfolio Manager
    Alexey Medvedev, PhD - Portfolio Manager
    Alexey Medvedev, PhD
    Portfolio Manager
    Net-zero investing shows resilience in a year of shocks and shifts

    key takeaways.

    • Our TargetNetZero strategies showed resilience in 2025’s challenging market, delivering outperformance versus the benchmark while maintaining a low tracking error and benefiting from the NetZero component
    • Enhancements to our portfolio construction process – a systematic alpha overlay and dividend tax optimisation – buttressed performance 
    • Looking forward in 2026, real decarbonisation opportunities and emerging market strength offer potential upside despite stretched valuations and policy headwinds.

    Upside through the bumps

    What a year! Global equities didn’t just keep the momentum from 2024 – they accelerated. But the ride was not without bumps. The late-2024 ‘Trump trade’ quickly lost steam and reversed as favour shifted to Europe and China. Then came Trump’s tariffs, which reshuffled the deck completely – disrupting growth, inflation and trade expectations before negotiations restored stability by the third quarter. Meanwhile, geopolitical tensions added to uncertainty. Corporate earnings remained robust despite these challenges, underpinning equities.

    Of course, the exponential progress of generative artificial intelligence also dominated market headlines in 2025, with strategic moves from major players like Nvidia, Microsoft, Google, and Meta1 reshaping value chains. While markets swung between optimism and doubt about AI, the overall trend stayed positive.

    All of these dynamics drove significant rotations across regions, sectors and investment styles in 2025. Despite sharp market swings and heightened volatility, our approach demonstrated resilience, outperforming the benchmark while maintaining a low tracking error (see Figures 1-3). It is also worth noting that our emerging market TargetNetZero strategy, launched in July, delivered successfully on its stated objectives.

    Here we analyse how much the net-zero component of our strategies contributed to performance last year and explore how enhancements to our portfolio construction process benefited investors. Finally, we look ahead to what 2026 may bring.

    Read also: Forward thinking in net-zero investing: four myths debunked

     FIG 1. TargetNetZero Global strategy gross composite2 excess return vs benchmark3

    FIG 2. TargetNetZero Europe strategy gross composite4 excess return vs benchmark5

    FIG 3. TargetNetZero Global ex-CH strategy gross composite6 excess return vs benchmark7

    How much did NetZero contribute?

    Every year, we ask ourselves the same question: how much did the NetZero component of our strategy actually add to performance? Put differently, has aiming for a portfolio temperature more ambitious than the benchmark started to pay off, and are we seeing a clear trend?

    To dig into this, we used our in-house performance attribution model, which breaks down excess returns into the contributions of the portfolio’s building blocks. For TargetNetZero strategies, excess returns can be explained by four key components: NetZero, carbon footprint reduction, ESG exclusions, and the key enhancements to our portfolio construction process (alpha and dividend optimisation).

    Figures 4 and 5 show the performance of the NetZero component for the TargetNetZero Global and Europe strategies since inception, both including and excluding the Energy sector. Assessing results ex-Energy is particularly interesting because the energy sector is highly sensitive to macroeconomic and geopolitical factors – often the main drivers of short-term performance, independent of climate-transition dynamics.

    Overall, the trend is positive, and it is even more pronounced in global equities.

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    FIG 4. TNZ Global: performance contribution from NetZero component8

    FIG 5.  TNZ Europe: performance contribution from NetZero component9

    Portfolio enhancements

    In 2025, the TargetNetZero Global and Global ex-CH strategies benefited from additional enhancements in the form of systematic alpha overlay and dividend tax optimisation.

    Systematic alpha overlay strengthens the integration of the net-zero theme by targeting short-term performance opportunities. The approach applies style tilts across equities, guided by momentum, macro and machine learning models under tight risk controls. This adds an extra layer of diversification to the portfolio and builds resilience, while ensuring alignment with net-zero goals.

    While not all of those signals delivered in 2025, momentum was strong enough to ensure the overall positive result (see Figure 6).

    Dividend tax optimisation aims to reduce the amount of withholding taxes by dynamically shifting the portfolio away from stocks with upcoming dividend payments. This strategy delivered savings close to the target of 0.1%, which, however, was partially offset by a negative impact on gross performance.      

    FIG 6. TNZ Global: performance contribution from systematic alpha10

    Looking Ahead in 2026

    The recent shift in U.S. climate policies has created headwinds for sustainable investing this year, especially for low-carbon strategies, where some investors worry the climate theme might be overcrowded.

    In our view, focusing on real portfolio decarbonisation rather than simply favoring low emitters remains an untapped source of value creation for 2026, regardless of policy changes. And the momentum is clear: the number of companies with validated decarbonisation targets keeps rising steadily. Today, more than 80% of MSCI World Index constituents have set such targets, compared with fewer than 50% just three years ago11.

    Read also: What do the EU’s SFDR 2.0 proposals mean for sustainable investing?

    From a macro standpoint, a mix of soft growth and a less restrictive monetary stance is creating a reasonably supportive environment for financial assets. That being said, 2026 will come with its own risks. After two years of stellar market returns, valuations look stretched – particularly in the U.S. and around the AI theme. If a bubble were to form, it would likely start with missed earnings expectations. That hasn’t happened yet, but markets will be extremely sensitive to any disappointment.

    Emerging markets stand out as particularly attractive, supported by a weaker US dollar and compelling valuations. This could not only benefit EM equities, but also provide a tailwind for developed markets, keeping the overall market environment risk-on.

    As in previous years, we will remain committed to implementing a disciplined and truly diversified investment approach for the transition to net zero.

    To learn more about our TNZ equity strategy, click here.
    view sources.
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    1 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 Risk statistics are calculated with monthly composite and benchmark returns. Risk-free rate:  compounded return of the FTSE 3-month Eurodeposit Index from inception to 31/08/23, then JPM 3-Month Cash Index from 01/09/23 in the relevant reporting currency.  Composite and Benchmark 3 year volatility is, at each end-of-period, the Composite/Benchmark annualised volatility calculated on the prior 36 month data series.  3-year volatility is presented only if there are 36 or more monthly returns available.  Internal Dispersion of individual portfolio returns are only present for calendar years when there are 5 or more portfolios in the composite for the full year.  Sharpe Ratio:  ratio of the composite returns in excess of the risk-free rate of relative returns Tracking Error:  annualized standard deviation of monthly difference between composite and benchmark returns Information Ratio:  ratio of the composites excess returns over the Tracking Error Gross returns were used to calculate all risk measures presented in the GIPS Composite Report.
    Composite and Benchmark Definition
    The strategy is a long-only, systematically managed, core global equity strategy launched in April 2021.   It invests in securities within the MSCI World index based on proprietary sustainability processes, aiming to reduce the risk of climate transition. Moreover, the strategy seeks to select and allocate to issuers with the objective to form a universe compatible with the fight against global warming. It integrates a wide range of climate objectives covering the risk of transition, the opportunities and the physical risk linked to climate change.  It aims to increase exposure to issuers which can contribute to a reduction in global CO2 emissions and the eventual achievement of net zero CO2 emissions by 2050. This will include issuers already targeting such net zero CO2 emissions by 2050, as well as issuers that may not yet have set such targets but that progressively may be brought into alignment, including through regulatory action, investor engagement and market changes.   The Investment Manager will aim to ensure a faster rate of reductions in CO2 emissions in the portfolio when compared to the MSCI World index. The achievement of these aims are dependent on regulatory, technological and commercial developments external to the Investment Manager and there can be no guarantee that they will be achieved in respect of the above referenced aims.  Risk management is performed by fund managers at a portfolio level, alongside independent teams who oversee investment, counterparty and operational risks. The composite benchmark is MSCI World ND USD. The composite leverage at year end was: 2021- 0.01% for the LOF - TargetNetZero Global Equity USD IA. The composite currency is USD.
    Management Fees and Other Information
    All returns are presented gross of fund total expense ratio. The maximum TER for LOF - TargetNetZero Global Equity is 1.17% based on the PA share class (investment above CHF 1 million), with a management fee of 0.25%. Withholding tax on income is treated on a cash basis, whereby recoverable withholding tax, dependant on where a client is domiciled, is added back performance when occurring. Further information on calculation methodologies and composite management procedures is available upon request.
    GIPS Firm definition
    Lombard Odier Investment Managers (LOIM), the institutional asset management unit of Lombard Odier worldwide comprising all discretionary institutional mandates and all Lombard Odier public investment funds managed at the LOIM unit, but excluding Private Equity mandates and funds and the 1798 Hedge Fund family (as of 01.01.2013) as subject to a different management process.   LOIM Exchange Traded Funds (ETF's) have been included since launch in April 2015.
    Past performance
    Past performance is no guarantee of future results.
    Firm definition
    The firm definition was recently changed by mentioning the non-inclusion of the LOIM Private Equity portfolios and the exclusion of the 1798 Hedge Fund family as of January 1, 2013.  This change was done for accuracy purposes and involves no change in the composite list or no material change in the assets under management figures.
    Significant Cash Flow Policy
    The firm applied a Significant Cash Flow Policy for this composite until December 31, 2010 whereby portfolios were temporarily excluded from the composite on any significant cash flow occurrence.  This practice was abandoned on January 1, 2011 and no portfolios were excluded for significant cash flow reasons as of that date.
    3 Source: LOIM, as of 31 December 2025. For illustrative purposes only.
    4 Risk statistics are calculated with monthly composite and benchmark returns. Risk-free rate:  compounded return of the FTSE 3-month Eurodeposit Index from inception to 31/08/23, then JPM 3-Month Cash Index from 01/09/23 in the relevant reporting currency.  Composite and Benchmark 3 year volatility is, at each end-of-period, the Composite/Benchmark annualised volatility calculated on the prior 36 month data series.  3-year volatility is presented only if there are 36 or more monthly returns available.  Internal Dispersion of individual portfolio returns are only present for calendar years when there are 5 or more portfolios in the composite for the full year.  Sharpe Ratio:  ratio of the composite returns in excess of the risk-free rate of relative returns Tracking Error:  annualized standard deviation of monthly difference between composite and benchmark returns Information Ratio:  ratio of the composites excess returns over the Tracking Error Gross returns were used to calculate all risk measures presented in the GIPS Composite Report.
    Composite and Benchmark Definition
    The strategy is a long-only, systematically managed, core Europe equity strategy launched in April 2021.   It invests in securities within the MSCI Europe index based on proprietary sustainability processes, aiming to reduce the risk of climate transition. Moreover, the strategy seeks to select and allocate to issuers with the objective to form a universe compatible with the fight against global warming. It integrates a wide range of climate objectives covering the risk of transition, the opportunities and the physical risk linked to climate change.  It aims to increase exposure to issuers which can contribute to a reduction in global CO2 emissions and the eventual achievement of net zero CO2 emissions by 2050. This will include issuers already targeting such net zero CO2 emissions by 2050, as well as issuers that may not yet have set such targets but that progressively may be brought into alignment, including through regulatory action, investor engagement and market changes.   The Investment Manager will aim to ensure a faster rate of reductions in CO2 emissions in the portfolio when compared to the MSCI Europe index. The achievement of these aims are dependent on regulatory, technological and commercial developments external to the Investment Manager and there can be no guarantee that they will be achieved in respect of the above referenced aims.  Risk management is performed by fund managers at a portfolio level, alongside independent teams who oversee investment, counterparty and operational risks. The composite benchmark is MSCI Europe ND. The composite leverage at year end was: 2021- 1.95% for the LOF - TargetNetZero Europe Equity EUR IA. The composite currency is EUR.
    Management Fees and Other Information
    All returns are presented gross of fund total expense ratio. The maximum TER for LOF - TargetNetZero Europe Equity is 1.02% based on the PA share class (investment above CHF 1 million), with a management fee of 0.20%. Withholding tax on income is treated on a cash basis, whereby recoverable withholding tax, dependant on where a client is domiciled, is added back performance when occurring. Further information on calculation methodologies and composite management procedures is available upon request.
    GIPS Firm definition
    Lombard Odier Investment Managers (LOIM), the institutional asset management unit of Lombard Odier worldwide comprising all discretionary institutional mandates and all Lombard Odier public investment funds managed at the LOIM unit, but excluding Private Equity mandates and funds and the 1798 Hedge Fund family (as of 01.01.2013) as subject to a different management process.   LOIM Exchange Traded Funds (ETF's) have been included since launch in April 2015.
    Past Performance
    Past performance is no guarantee of future results.
    Firm Definition
    The firm definition was recently changed by mentioning the non-inclusion of the LOIM Private Equity portfolios and the exclusion of the 1798 Hedge Fund family as of January 1, 2013.  This change was done for accuracy purposes and involves no change in the composite list or no material change in the assets under management figures.
    Significant Cash Flow Policy
    The firm applied a Significant Cash Flow Policy for this composite until December 31, 2010 whereby portfolios were temporarily excluded from the composite on any significant cash flow occurrence.  This practice was abandoned on January 1, 2011 and no portfolios were excluded for significant cash flow reasons as of that date.
    5 Source : LOIM, as of 31 December 2025. For illustrative purposes only.
    6 Risk statistics are calculated with monthly composite and benchmark returns. Risk-free rate:  compounded return of the FTSE 3-month Eurodeposit Index from inception to 31/08/23, then JPM 3-Month Cash Index from 01/09/23 in the relevant reporting currency.  Composite and Benchmark 3 year volatility is, at each end-of-period, the Composite/Benchmark annualised volatility calculated on the prior 36 month data series.  3-year volatility is presented only if there are 36 or more monthly returns available.  Internal Dispersion of individual portfolio returns are only present for calendar years when there are 5 or more portfolios in the composite for the full year.  Sharpe Ratio:  ratio of the composite returns in excess of the risk-free rate of relative returns Tracking Error:  annualized standard deviation of monthly difference between composite and benchmark returns Information Ratio:  ratio of the composites excess returns over the Tracking Error Gross returns were used to calculate all risk measures presented in the GIPS Composite Report.
    Composite and Benchmark Definition
    LO IS (CH) – TargetNetZero Global ex-CHF a long-only, systematically managed, core global equity strategy which launched in March 2022, which resulted from the transformation of LO IS (CH) - Global Equities Tracker+ESG that was launched in 2019).  It invests in securities within the MSCI World index based on proprietary sustainability processes, aiming to reduce the risk and capture opportunities of the climate transition while reducing CO2 emissions of the portfolio at a faster rate than the benchmark. The strategy aims to increase exposure to issuers that can contribute to a reduction in global CO2 emissions and the eventual achievement of net zero CO2 emissions by 2050. This will include issuers already targeting such net zero CO2 emissions by 2050, as well as issuers that may not yet have set such targets but that progressively may be brought into alignment, including through regulatory action, investor engagement and market changes. Moreover, the strategy seeks to reducing exposure to companies that cannot achieve these objectives. This forward-looking decarbonisation approach maintains a diversification in line with the benchmark as it allows finding leaders and laggards of the climate transition in all sectors of the economy, including “hard-to-abate” ones.  The strategy targets an ex-ante tracking error of 0.5% to 1%. Composite currency is CHF. Composite benchmark is MSCI World ex Switzerland (div. reinv.: US gross - others net).  The composite was previously known as Equity - Global Equities Tracker +ESG.
    Management Fees and Other Information
    All returns are presented gross of fund total expense ratio. The maximum TER for LO IS (CH) – TNZ Global Equity ex CHF is 0.28% based on the IA share class (investment above CHF 50 million), with a management fee of 0.18%. The presented internal dispersion is an equal-weighted standard deviation of annual portfolio returns considering at least five portfolios in the composite for the entire year. Withholding tax on income is treated on a cash basis, whereby recoverable withholding tax, is added back to performance when occurring. Further information on calculation methodologies and composite management procedures is available upon request.
    GIPS Firm definition
    'Lombard Odier Investment Managers (LOIM), the institutional asset management unit of Lombard Odier worldwide comprising all discretionary institutional mandates and all Lombard Odier public investment funds managed at the LOIM unit, but excluding Private Equity mandates and funds and the 1798 Hedge Fund family (as of 01.01.2013) as subject to a different management process.   LOIM Exchange Traded Funds (ETF's) have been included since launch in April 2015.
    Past Performance
    Past performance is no guarantee of future results.
    Firm Definition
    The firm definition was recently changed by mentioning the non-inclusion of the LOIM Private Equity portfolios and the exclusion of the 1798 Hedge Fund family as of January 1, 2013.  This change was done for accuracy purposes and involves no change in the composite list or no material change in the assets under management figures.
    Significant Cash Flow Policy
    The firm applied a Significant Cash Flow Policy for this composite until December 31, 2010 whereby portfolios were temporarily excluded from the composite on any significant cash flow occurrence.  This practice was abandoned on January 1, 2011 and no portfolios were excluded for significant cash flow reasons as of that date.
    7 Source : LOIM, as of 31 December 2025. For illustrative purposes only.
    8 Source : LOIM, as of 31 December 2025. Performance in USD. Past performance is not a guarantee of future results. For illustrative purposes only.
    9 Source : LOIM, as of 31 December 2025. Performance in EUR. Past performance is not a guarantee of future results. For illustrative purposes only.
    10 Source: LOIM, as of 31 December 2025. Past performance is no guarantee of future results. For illustrative purposes only. Systematic alpha was integrated in February 2024.
    11 Source: SBTi, LOIM, as of October 2024.

    important information.

    For professional investors use only

    This document is a Corporate Communication for Professional Investors only and is not a marketing communication related to a fund, an investment product or investment services in your country. This document is not intended to provide investment, tax, accounting, professional or legal advice.

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