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not reveal portfolio impact improvements made by selecting companies with lower climate intensities of in-house processes, product technologies, or purchased electricity mixes.111 Furthermore, we discovered no significant capital allocation effect for the overall involvement in problematic economic activities. For most of these activities – fossil fuels, nuclear energy, agribusiness & fisheries, transport, mining & metals production, and genetic engineering – no significant allocation effect was shown. However, we found a significant and quite relevant capital allocation with respect to cement production (minus 0.2 percentage points resp. 69%112) and defence (minus 0.3 percentage points resp. 50% 113). Therefore, it appears that significant and relevant portfolio impact improvements of sustainable funds compared to conventional funds were revealed only for a few individual issues: for major environmental controversies, cement production and defence. This suggests that the sustainability funds did not effectively shift capital towards a climate-neutral and overall (more) sustainable economy. A small ESG Impact improvement of half a notch is certainly not enough to bring about effective structural change through capital allocation.
6.2. Asset management effect present, but of limited relevance In contrast to the capital allocation effect, which was hardly visible and only relevant to a very limited extent, we were able to find a highly significant asset management effect. We consider the effect to be partly relevant. The asset management effect was examined by comparing 31 actively managed funds with their respective conventional benchmarks.114 Fund managers usually base their investment decisions on indices. Generally, all or a large proportion of fund assets are taken to map important factors from these indices such as distributions by sectors, regions, countries, etc., as the indices serve as benchmarks for measuring the fund managers' investment performance. Thus, the asset management effect reflects how asset managers applied ESG factors in their capital selection decisions, as compared to the conventional index used as a starting and reference point.
111
Also for scope 1 & 2, we used model-based generic data and the revenue share of invested companies’ economic activities (see chapter 3.2.2). By doing so, we revealed if asset managers improved the portfolio climate impact by selecting climatefriendly sectors or companies with climate-friendly products and services within a sector (e.g. dairy products vs. vegetable and fruit farming, or automobiles vs. light trucks). For companies with the same products and services, we could not distinguish between different climate intensities of product technologies (e.g. different car propulsion technologies for automobiles) and of in-house processes, or for differences in the purchased electricity mix. 112 This percentage was calculated from the average % involvement in cement production (see Table 5). 113 This percentage was calculated from the average % involvement in defence (see Table 5). 114 31 out of the 38 actively managed sustainability funds in our sample were based on conventional benchmarks, 3 used sustainability indices and 4 applied no (known) benchmarks. The 13 passively managed sustainability funds replicated sustainability indices.
INFRAS | 3 May 2021 | Summary
