investment viewpoints

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

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.

Investiamo in tutti i 17 obiettivi di sviluppo sostenibile dell'ONU.

Highlights d'impatto 2018.

We monitor a range of positive contribution metrics as part of the assessment of positive outcomes the Climate Transition Fund helps to achieve.

 

Click here to learn more about the LO Funds – Climate Transition fund

Investment case study - Cummins 

Cummins2 designs, manufactures, distributes and services powertrains (diesel, natural gas, electric and hybrid) as well as powertrain-related components (incl. filtration, fuel and control systems, batteries, etc.). Cummins has a history of innovation and adaptation and today is focused on transitioning to more efficient engines with mild electrification, heavy use of semiconductors and a digitalised offering. The company is also very active in the transition to a green hydrogen economy. The world’s first two hydrogen trains were powered by Cummins Fuel Cells. The trains successfully completed an 18-month trial in 2019 with over 180,000 km driven, a proven and economic success. Over 40 trains will be powered by 82 Cummins Fuel Cell systems by 2022.

In terms of business practices, the company ranks among the best in its sector. It scores well in Environmental impact of products and services, the most material ESG dimension for Cummins, thanks to strong eco-design capacity and a green procurement policy. Cummins’ PLANET 2050 strategy is a visionary effort to design a long-term blueprint to achieve a net zero environmental footprint and carbon neutrality, with eight quantifiable targets already for 2030, namely: 

  • Reduce absolute GHG emissions (scope 1/2) by 50%. 
  • Reduce scope 3 absolute lifetime GHG emissions from newly sold products by 25% and from existing base in 55 metric tons.
  • Reduce volatile organic compounds emissions from paint/coatings by 50%, (v) redesign every part for circular lifecycle. 
  • Generate 25% less waste in facilities/operations (as % of sales), (vii) reduce absolute water consumption by 30%. 
  • Reuse or recycle 100% of packaging plastics and eliminate single-use plastics. 

We also estimate Cummins to be aligned with a 1.9°C temperature outcome. The relevance of its emissions to the climate transition is higher than average, due to its higher-than-average carbon footprint. We estimate that the company’s projected reduction in emissions make it well-aligned with the Paris Agreement.

 

sources.

1 Past performance is not a guarantee of future results.
2 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.

Informazioni importanti.

FOR PROFESSIONAL INVESTOR USE ONLY
This document is issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
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.
Austria. Supervisory Authority: Finanzmarktaufsicht (FMA), Representative: Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, 1100 Vienna - Belgium. Financial services Provider: CACEIS Belgium S.A., Avenue du Port 86C, b320, 1000 Brussels - France. Supervisory Authority: Autorité des marchés financiers (AMF), Representative: CACEIS Bank, place Valhubert 1-3, F-75013 Paris - Germany. Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Representative: DekaBank Deutsche Girozentrale, Mainzer Landstraße 16, D-60325 Frankfurt am Main - Gibraltar. Supervisory Authority: Gibraltar Financial Services Commission (GFSC), Information agent: Lombard Odier & Cie (Gibraltar) Limited, Suite 921 Europort - Greece. Supervisory Authority: Hellenic Capital Market Commission. Paying agent: PIRAEUS BANK S.A., 4, Amerikis Str., 105 64, Athens - Italy. Supervisory Authority: Banca d’Italia (BOI) / ConSob, Paying Agents: Société Générale Securities Services S.p.A., Via Benigno Crespi, 19/A - MAC 2, 20159 Milano, State Street Bank International GmbH - Succursale Italia, Via Ferrante Aporti, 10, 20125 Milano, Banca Sella Holding S.p.A., Piazza Gaudenzio Sella, 1, 13900 Biella, Allfunds Bank S.A.U., Milan Branch,Via Bocchetto 6, 20123 Milano, BNP Paribas Securities Services, With its registered office in Paris, rue d'Antin, 3, and operating via its Milan subsidiary at Piazza Lina Bo Bardi, 3, 20124 Milan - Liechtenstein. Supervisory Authority: Finanzmarktaufsicht Liechtenstein (“FMA”), Representative, LGT Bank AG Herrengasse 12, 9490 Vaduz - Netherlands. Supervisory Authority: Autoriteit Financiële Markten (AFM). Representative: Lombard Odier Funds (Europe) S.A. – Dutch Branch, Gustav Mahlerlaan 1212, NoMa House, 1081 LA Amsterdam - Spain. Supervisory Authority: Comisión Nacional del Mercado de Valores (CNMV), Representative: Allfunds Bank, S.A.U. C/ de los Padres Dominicos, 7, 28050, Madrid – Sweden. Supervisory Authoriy: Finans Inspektionen (FI). Representative: SKANDINAVISKA ENSKILDA BANKEN AB (publ), Kungsträdgårdsgatan, SE-106 40 Stockholm – Switzerland. Supervisory Authority: FINMA (Autorité fédérale de surveillance des marchés financiers), Representative: Lombard Odier Asset Management (Switzerland) SA, 6 av. des Morgines, 1213 Petit-Lancy; Paying agent: Bank Lombard Odier & Co Ltd, 11 rue de la Corraterie, CH-1204 Geneva. UK. Supervisory Authority: Financial Conduct Authority (FCA), Representative: Lombard Odier Asset Management (Europe) Limited, Queensberry House, 3 Old Burlington Street, London W1S3AB, 
NOTICE TO RESIDENTS OF THE UNITED KINGDOM The Fund is a Recognised Scheme in the United Kingdom under the Financial Services & Markets Act 2000. Potential investors in the United Kingdom are advised that none of the protections afforded by the United Kingdom regulatory system will apply to an investment in LO Funds and that compensation will not generally be available under the Financial Services Compensation Scheme. This document does not itself constitute an offer to provide discretionary or non-discretionary investment management or advisory services, otherwise than pursuant to an agreement in compliance with applicable laws, rules and regulations.
Singapore: This marketing communication has been approved for use by Lombard Odier (Singapore) Ltd for the general information of accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the Securities and Futures Act (Chapter 289). Recipients in Singapore should contact Lombard Odier (Singapore) Ltd, an exempt financial adviser under the Financial Advisers Act (Chapter 110) and a merchant bank regulated and supervised by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with this marketing communication. The recipients of this marketing communication represent and warrant that they are accredited investors and other persons as defined in the Securities and Futures Act (Chapter 289). This advertisement has not been reviewed by the Monetary Authority of Singapore.
Hong Kong: This marketing communication has been approved for use by Lombard Odier (Hong Kong) Limited, a licensed entity regulated and supervised by the Securities and Futures Commission in Hong Kong for the general information of professional investors and other persons in accordance with the Securities and Futures Ordinance (Chapter 571) of the laws of Hong Kong.
An investment in the Fund is not suitable for all investors. There can be no assurance that the Fund's investment objective will be achieved or that there will be a return on capital. Past or estimated performance is not necessarily indicative of future results and no assurance can be made that profits will be achieved or that substantial losses will not be incurred. Where the fund is denominated in a currency other than an investor's base currency, changes in the rate of exchange may have an adverse effect on price and income. All performance figures reflect the reinvestment of interest and dividends and do not take account the commissions and costs incurred on the issue and redemption of shares/units; performance figures are estimated and unaudited. Net performance shows the performance net of fees and expenses for the relevant fund/share class over the reference period. This document does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before making an investment in the Fund, an investor should read the entire Offering Documents, and in particular the risk factors pertaining to an investment in the Fund, consider carefully the suitability of such investment to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This document contains the opinions of LOIM, as at the date of issue. The information and analysis contained herein are based on sources believed to be reliable. However, LOIM does not guarantee the timeliness, accuracy, or completeness of the information contained in this document, nor does it accept any liability for any loss or damage resulting from its use. All information and opinions as well as the prices indicated may change without notice. Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Any benchmarks/indices cited herein are provided for information purposes only. No benchmark/index is directly comparable to the investment objectives, strategy or universe of a fund. The performance of a benchmark shall not be indicative of past or future performance of any fund. It should not be assumed that the relevant fund will invest in any specific securities that comprise any index, nor should it be understood to mean that there is a correlation between such fund’s returns and any index returns.
If the funds are denominated in a currency other than that in which the majority of the investor’s assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds’ underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks including, but not limited to, currency fluctuations and political instability.
Because of the smaller number of stocks held in the portfolio, the Fund may be subject to greater risks than a more diversified fund. A change in value of any single holding may affect the overall value of the portfolio more than it would affect a diversified fund that holds more investments.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
LOIM does not provide accounting, tax or legal advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A. prior consent. In Luxembourg, this material is a marketing material and has been approved by Lombard Odier Funds (Europe) S.A. which is authorized and regulated by the CSSF.
©2021 Lombard Odier IM. All rights reserved.