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5. Framework Conditions for Effective Capital Allocation
Only 2% of the fund had an ESG Impact in the D range (D+, D, D-) and over 60% are in the A or B ranges (Figure 16). The fund’s focus specifically lied on reducing carbon emissions. The climate impact portfolio assessment showed, however, that this claim was clearly not met: The fund’s carbon intensity was 1’208 tCO2/mUSD in revenue, which was about 150 tCO2/mUSD higher than the average conventional fund or conventional benchmark investigated, and about 400 tCO2/mUSD higher than the average sustainability fund in this study. Furthermore, 27% of the fund assets were invested in critical activities, about half of which (14%) in fossil fuels (Figure 16), although most of this comprised natural gas (10%). The fund had a share of 8% of its assets invested in the transportation sector, specifically road transportation, which was about 2.5 times higher than the average share of the conventional funds.
Figure 16: Categorisation of the fund holdings
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Left: This pie chart shows the weighted percentage of companies in the fund with an ESG Impact score relating to the ranges A (A+, A, A-), B (B+, B, B-), C (C+, C, C-) and D (D+, D, D-). Right: The fund had a weighted percentage revenue derived from critical activities of 27%. This pie chart displays how these 27% were split into the seven categories of critical activities.
Source: Inrate ESG Impact data as of October 2020, Bloomberg data as of 31.12.2019.
At first, the following chapter provides an overview of necessary prerequisites for effective capital allocation. In the second sub-chapter, current regulatory processes and changes relevant to the EU – and therefore also for Luxembourg as a member of the EU – and Switzerland are described and discussed as to whether they might serve to establish these prerequisites.
