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TargetNetZero Equities: decarbonisation without performance sacrifice
Nicolas Mieszkalski
Portfolio Manager
Alexey Medvedev, PhD
Portfolio Manager
Cheick Dembele, CFA
Portfolio Manager
Elise Beaufils
Deputy Head of Sustainability Research
key takeaways.
The consistent outperformance with measurable decarbonisation of our TargetNetZero Global Equity strategy shows investors do not need to trade returns for sustainability objectives 1
Over the past half decade, both sustainability and financial factors drove excess returns, and the strategy also achieved faster decarbonisation than the benchmark
As we expand the franchise across geographies, the approach offers a core allocation for investors seeking resilient climate and financial results.
A common perception is that decarbonising portfolios comes at the expense of performance. As we mark its five-year anniversary, our TargetNetZero Global Equity strategy demonstrates the opposite: consistent outperformance versus the benchmark alongside quantifiable decarbonisation1. Indeed, this track record shows that investors do not have to sacrifice returns to meet sustainability objectives.
We examine the drivers of this outperformance, including the real value of our NetZero sustainability factor, while chronicling how the strategy has adapted to evolving market conditions over the years to sustain durable returns. As assets under management for the franchise reach more than USD 5.5 billion2, we have extended the approach into emerging markets and single-country strategies to enable more investors to embed decarbonisation in core exposures.
We designed the TargetNetZero approach to support investors in meeting both financial and climate objectives. These benchmark-aware strategies provide core exposure that aims for low tracking error3 while aligning with the Paris Agreement’s target to limit global warming to 2°C or below. They invest across sectors and geographies in companies with credible decarbonisation plans, building diversified portfolios with minimal style biases. Crucially, this transition approach avoids the pitfalls of traditional low-carbon strategies, which create concentration risk and fail to drive emissions reductions in hard-to-abate sectors.
Powered by LOIM’s proprietary Implied Temperature Rise (ITR) tool, we fully own, control and understand the decarbonisation metrics used in portfolio construction. In equities, our systematic approach uses ITR data to identify fast-transitioning stocks and add value in the NetZero component of the strategy. Managed by highly experienced teams, it combines expertise in climate science, data analytics and systematic portfolio management.
Since inception, the TargetNetZero Global Equity strategy has fulfilled its goal to deliver returns close to the MSCI World benchmark (Figure 1), while outperforming it by 0.51% (annualised)4 since inception.
Fig 1. TargetNetZero Global Equity strategy composite4 gross performance
Fig 2. TargetNetZero Global Equity strategy summary risk indicator5
Performance attribution
How has the strategy outperformed and what role did the NetZero component play? Has targeting a more ambitious portfolio temperature delivered measurable benefits?
Our proprietary performance attribution framework breaks down excess returns into the portfolio’s key drivers. For TargetNetZero Global Equity, five components explain outcomes: NetZero allocation, carbon footprint reduction, ESG exclusions, alpha generation and tax efficiency, including dividend optimisation (see Table 1). The NetZero sleeve implements our proprietary, forward-looking ITR methodology, assessing a company's alignment with the climate transition.
Table 1 presents gross excess returns across the strategy’s objectives and constraints. Since inception, sustainability factors have positively contributed to performance, with financial factors adding further value since their implementation in 2024.
Table 1. TargetNetZero Global Equity strategy: performance attribution4 by objectives and constraints of our optimisation6
2021
2022
2023
2024
2025
2026 YtD
Sustainability factors
0.37%
-0.52%
-0.03%
0.84%
1.23%
0.51%
Portfolio temperature (NetZero allocation)
-0.11%
-0.25%
-0.29%
1.93%
0.10%
0.61%
Reduction of GHG emissions vs benchmark
0.22%
-0.09%
0.10%
-0.69%
1.07%
-0.30%
ESG exclusions
0.26%
-0.18%
0.16%
-0.40%
0.06%
0.20%
Financial factors
N/A
N/A
N/A
0.08%
0.32%
0.03%
Tax efficiency (from end-June 2024)
N/A
N/A
N/A
0.04%
0.05%
-0.08%
Alpha (from end-February 2024)
N/A
N/A
N/A
0.04%
0.27%
0.11%
Gross excess return
0.29%
-0.51%
-0.03%
0.92%
1.55%
0.54%
Faster decarbonisation than the benchmark
A key aim of TargetNetZero is to outpace benchmark decarbonisation and deliver real-world emission reductions. We do not define this as a simple change in total portfolio emissions over time, which can be distorted by shifts in emissions data coverage and portfolio rebalancing.
We instead focus on ‘genuine’ portfolio decarbonisation – emissions changes driven solely by updated company data that we have cleaned through our proprietary process, while also excluding rebalancing and valuation effects. This is measured using company-reported emissions, assessed daily and aggregated, while filtering out distortions such as acquisitions. For further details of our decarbonisation analysis, please refer to our previous analysis: Race against the benchmark to decarbonise portfolios.
Assessing genuine decarbonisation in this way remains complex due to inconsistent and lagged reporting. Scope 3 emissions – the largest share – are still largely estimated, with methodologies yet to be standardised. Despite these challenges, our analysis shows that TargetNetZero Global Equity decarbonised faster than its benchmark since 2021 (see Figure 3).
Fig 3. Portfolio decarbonisation of the TargetNetZero Global Equity strategy (April 2021-April 2026)7
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TargetNetZero over the years
Since inception, the TargetNetZero strategy in equities has been tested across diverse market regimes – from inflation shocks and energy crises to concentrated equity leadership and geopolitical volatility. Throughout, the strategy has aimed to deliver consistent, benchmark-aware performance while advancing emissions reductions in the real economy. In doing so, it has demonstrated resilience through disciplined risk management and diversified stock selection.
The timeline below charts how the strategy responded to a changing investment backdrop, including using strong stock selection to contain headwinds from the strategy’s underweight in energy. Our diversified approach helped mitigate concentration risk as well as heightened volatility.
Timeline: TargetNetZero in action8
Expanding the TargetNetZero horizon
TargetNetZero provides broad market exposure while aligning portfolios with credible decarbonisation pathways through a modular, customisable approach for different portfolio needs and regions.
The launch of TargetNetZero Emerging Market Equities in 2025 extended coverage across all MSCI All Country World Index (ACWI) regions, supporting a global, inclusive transition. The expansion reflects our conviction that decarbonisation must span geographies and sectors within a credible, forward-looking framework. More recently, TargetNetZero Japan Equities has been introduced to respond to the needs of a client for specific regional building blocks in their asset allocation.
Five years on, TargetNetZero Global Equity demonstrates that disciplined portfolio construction can align climate objectives with competitive returns. Proprietary climate data, systematic stock selection and robust risk controls have delivered resilience across market regimes.
As the strategy scales beyond USD 5.5 billion2 and expands across regions, it reinforces a clear message: the climate transition can be embedded within core equity allocations, supporting long-term performance and real-economy decarbonisation.
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Preference Centre
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1 Past performance is not a guarantee of future results.
2 As of end-May 2026. AUM are subject to change.
3 The tracking error target is an internal target and is not part of the investment objective of the fund disclosed in the Prospectus/PPM. It is not guaranteed and may not be achieved. Tracking error ex-ante is based on internal and/or external risk models. Actual returns will vary depending on market performance and investment duration. The fund is not a guaranteed product, and capital may be at risk. Tax treatment depends on the individual circumstances of each investor and may change over time. Performance may also be affected by currency fluctuations. Additional information on assumptions, data, and scenario analysis is available upon request.
4 Source: LOIM. As at June 2026. Past performance is not a guarantee of future results. Strategy performance is based on a composite, starting from 01 May 2021 to 01 May 2026. Composite performance serves as indicative performance of the strategy. TNZ Global Equity strategy
The benchmark is the MSCI World ND USD. Past performance is no guarantee for future results.
Annual Composite and Benchmark Performance and Statistics
Composite Return % (Gross)
Benchmark Return %
Number of Portfolios
Internal Dispersion %
Composite Market Value (Million)
Total Firm Assets, Composite
Standard Deviation, 3Y (Ann) %
Standard Deviation Bench-mark 3Y (Ann) %
YTD
6.22
5.68
1
1,398
60,829
12.83
12.64
2025
22.64
21.09
1
1,181
59,805
11.54
11.50
2024
19.59
18.67
1
465
53,880
16.87
16.88
2023
23.76
23.79
1
161
56,191
2022
-18.65
-18.14
1
37
52,227
May to Dec 2021
11.38
10.94
1
31
63,751
Annualised and Cumulative Returns and Key Statistics
Annualised Returns (%)
Cumulative Returns (%)
Standard Deviation (Ann) (%)
Sharpe Ratio
Tracking Error (%)
Information Ratio
Composite (Gross)
Benchmark
Difference
Composite (Gross)
Benchmark
Difference
Composite
Benchmark
Composite
Benchmark
1 Year
30.69
29.16
1.54
30.69
29.16
1.54
13.52
13.05
1.90
1.85
0.72
2.13
3 Years
20.76
19.70
1.07
76.12
71.49
4.63
12.83
12.64
1.18
1.11
0.79
1.35
5 Years
11.80
11.29
0.51
74.69
70.71
3.97
15.22
15.11
0.51
0.48
0.74
0.70
7 Years
10 Years
SI
11.80
11.29
0.51
74.69
70.71
3.97
15.22
15.11
0.51
0.48
0.74
0.70
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. 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. Claim of GIPS compliance
Lombard Odier Investment Manager claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lombard Odier Investment Manager has been independently verified for the periods 31.12.1996 until 31.12.2023. The verification report(s) are available upon request. A complete list and descriptions of composite is available on request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm wide basis. Verification does not provide assurance on the accuracy of any specific performance report. A complete list and descriptions of composites is available on request. 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. Benchmark Information
The annual benchmark returns are calculated by multiplicative linking of the single-period benchmark returns. Any historic benchmark changes have been made to more closely reflect the composite strategy at a point in time. CFA Disclosure
GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
5 The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you. This product does not include any protection from future market performance so you could lose some or all of your investment. If we are not able to pay you what is owed, you could lose your entire investment. The following risks may be materially relevant but may not always be adequately captured by the synthetic risk indicator and may cause additional loss: Operational risk and risks related to asset safekeeping: In specific circumstances, there may be a material risk of loss resulting from human error, inadequate or failed internal systems, processes or controls, or from external events. Model Risk: Models may be misspecified, badly implemented or may become inoperative when significant changes take place in the financial markets or in the organization. Such a model could unduly influence portfolio management and expose to losses. Financial, economic, regulatory and political risks: Financial instruments are impacted by various factors, including, without being exhaustive, the development of the financial market, the economic development of issuers who are themselves affected by the general world economic situation, and economic, regulatory and political conditions prevailing in the relevant country. There can be no assurance that a return will be achieved or that a substantial loss of capital will not be incurred. Before taking any investment decision, please read the latest version of the prospectus, the articles of incorporation, the Key Information Documents (KIDs) and the latest annual report and semi-annual report. Please pay attention to the Appendix B “Risk Factors Annex” of the prospectus. https://am.lombardodier.com/funds?q=LO Funds - TargetNetZero Global Equity
6 Source: LOIM. As at 30 April 2026. Past performance is not indicative of future results. Sustainability factors covers the strategy from inception on 26 April 2021 to 30 April 2026. The start date for financial factors are based on when they were integrated into the portfolio: Tax efficiency from end-June 2024 and alpha from end-February 2024. For illustrative purposes only.
7 Source: LOIM. For illustrative purposes only. Covers the strategies’ inception end-April 2021 to 31 May 2026. The benchmark is the MSCI World ND USD.
8 Source: LOIM. As at July 2026. For illustrative purposes only.
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.
