perspectives Special issue Climate change NATIXIS ASSET MANAGEMENT's commitment A closer look
The economic and financial issues
Expertise
The Climate Change Scientific Committee
essentials Investment opportunities
RESPONSiBLE investment IMPACT FUNDS CLIMATE CHANGE
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Climate Change and investment strategie A closer look
The economic and financial issues 4 5 6 7
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What are the economic consequences of climate change? What financial issues are associated with climate change? What role may be played by fund managers? How will investment in equities evolve? Perspectives is a Natixis Asset Management's publication - Natixis Asset Management - Communications Department - Business Development - communication-nam@am.natixis.fr – December 2009
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Expertise
The Climate Change Scientific Committee
10 Essentials
Investment opportunities
14 Responsible Investment Impact Funds Climate Change
16 Focus
They have chosen responsible management
Publishing Director: F. Lenoir Special Editorial Committee: C. Basselier, M. Gravier, C. Joly, S. Senellart, Ph. Waechter, P. Zaouati Coordination - Writing: N. Clémot Head of design: F. Dupertuys Contributors: A. Boisaubert, P. Galopin, J. Rivalière, M-L Rouy, N. Tihdaini
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Editorial Climate Change Natixis Asset Management remains committed to responsible investment Formerly studied and discussed only by scientists, the issue of climate change and its impact on the planet is now explored by all political and economic actors. As a leading asset management company and a pioneer in responsible investment in France with 25 years experience, Natixis Asset Management firmly believes that understanding the financial consequences of climate change is essential to meeting its commitments to its clients over the long term. This focus is fully in keeping with our ambition to combine responsibility with a performance oriented strategy. How does climate change affect economic growth and the financial sector? How can these challenges be addressed in the context of a long-term investment strategy? These are the kinds of questions that need pertinent and thoughtfully considered answers. The subject of climate change and its consequences is vast and complex. In order to enlighten the our teams on the challenges of climate change, its impacts and the solutions proposed, we have been working with Carlos Joly, an expert widely recognized for his efforts to promote responsible investment. We launched the Climate Change Scientific Committee, bringing together highly regarded experts within the scientific community: seven experts from various scientific fields (climatologists, geologists, economists, etc.). Today, our strong convictions have led us to create Impact Funds Climate Change, a fund focused in the area of climate change, drawing upon Natixis Asset Management’s expertise in equity investment.
Pascal Voisin, CEO, Natixis Asset Management
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A closer look
Climate Change and investment strategy
What are the economic consequences of climate change? The issue of climate change raises concerns about the potential consequences, while prompting careful consideration of current practices and possible adaptations in behavior. There is an urgent need today to set new standards in order to triumph over the more pessimistic assumptions as to the future of the planet.
n Fundamental aspects The concept of climate change provides a new point of reference for climate phenomena around the world. Today’s climate conditions will no longer hold sway 50, 100 or 200 years from now. A benchmark assumption limits the planet’s average temperature rise to 2°C each year, compared to the pre-industrial period. Currently, this temperature gap is 0.8°C and grows by about 0.2°C each decade. Crossing the threshold of 2°C will have serious and irreversible repercussions for the planet as a whole. Global warming, due to the accumulation of greenhouse gases (GHG) in the atmosphere, is the result of man’s actions. Although such emissions are generated in greatest intensity in certain local areas, the impact of carbon dioxide production is global. In addition, this accumulation will become more pronounced over time and will affect populations in 10, 20, 50, 100 years or more. This dual dimension, both global and long-lasting, calls for resolute political decisions.
n Economic challenges
Philippe Waechter Chief Economist of Natixis Asset Management
“If nothing is done, these profound changes will have dramatic consequences for global economic growth.”
GHG accumulation has far-reaching consequences for climate conditions (rise in temperature, melting of glaciers, flooding, etc.). If nothing is done, these profound changes will have dramatic consequences for global economic growth. Some types of production will be directly affected, such as agriculture, fishing, energy and even tourism. More generally, all industry sectors will undergo changes in their conditions for production. For instance, the construction industry will need to develop solutions to ensure comfort for users while lowering energy consumption. The insurance sector will also be affected by the rise in catastrophic climate-related events. The impact of global warming will not be the same in all world regions, thus entailing significant migratory movements and these will also increase due to rises in temperature.
Some consequences will then become more adverse, such as biodiversity, affected by temperature but also by the acidification of seawater. Once these factors are incorporated within global economic growth models, a long-lasting and sizable decline in worldwide gross domestic production may be foreseen.
n Incentives designed to meet objectives
According to the Stern report*, extreme climate change can be avoided. By taking strong and early action, the rise in temperature could be kept below 2°C, thus reducing GHG emissions by at least 50 percent and perhaps by as much as 85 percent from 2000 levels. The Stern report estimates a cost between 1 and 2 percent of global gross domestic product per year if we act immediately, suggesting that any delay in taking such action would greatly increase the necessary outlay. This clearly represents a change in the reference model. Reductions in GHG emissions would be achieved through the application of bold strategies which, by targeting energy efficiency improvements, would foster the development of business opportunities from new technologies. Climate change mitigation policies are an integral part of economic stimulus plans unveiled around the world, from the United States to China, but also in France. Various incentives will be used to encourage both businesses and consumers to adopt more eco-efficient practices. In France, the taxe carbone aims to reduce energy consumption and prompt users to shift their energy sources away from those that emit carbon dioxide. The carbon market needs clear operating rules: a cap on GHG emissions, emission rights trading, and a single worldwide price per metric ton of carbon dioxide equivalent. Such rules will inflect behavior and bring about lasting reductions in GHG emissions. We will all need to embrace this challenge.
* The Stern Review on the Economics of Climate Change is a report dealing with the impact of global warming on the world economy, commissioned by the British government and produced by a team of experts under the leadership of economist Nicholas Stern in 2006.
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What financial issues are associated with climate change? Climate change and its impacts involve financial and economic as well as environmental repercussions. Investors must therefore begin considering today the consequences of climate change in the context of their long-term investment strategies, but also in relation to short- or medium-term asset allocation.
n A major challenge Experts estimate that atmospheric CO2(e)* concentrations must be limited to 500 ppm** in order to ensure that global average temperatures do not increase more than 2°C. But this threshold may be crossed as early as 2040 if GHG emissions are not reduced by at least 50 percent below 2000 levels. The shape of the challenge is thus clear: not only must governments set goals for GHG emission reduction but they must also decide upon the necessary measures to achieve these goals. In addition, agreements must be reached in relation to emissions caps, with commitments by developing countries potentially to be conditioned on the achievement of benchmarks by industrialized countries.
n Specific solutions under consideration
One solution might involve requiring industrialized countries to immediately reduce their emissions by 5% per year, while developing countries would not be required to begin meeting this goal until 2025. This would allow them to continue their industrialization. There is also the question of the terms and conditions for the trading of “pollution rights”. This involves setting a price per metric ton of CO2 equivalent (probably about $30) and organizing the necessary transfers of capital and technologies to developing countries.
n Adjustments in investment
strategy
Even though the Copenhagen summit did not result in immediate solutions, investors would be well advised to act now by taking
into account the impact of climate change in their current investment strategies. Today, increasing exposure to companies making efforts to reduce their CO2 emissions or investing in alternative energy sources is not enough. In order to invest successfully, a global and long-term approach must be favored that combines two dimensions: • the geographical dimension, allowing for differences in behavior between industrialized and developing countries. Europeans generally allocate a very small portion of their portfolios to developing countries, although these countries already generate 30% of worldwide gross national product and will soon reap huge transfers of resources with, for example, the sale of pollution rights; • the multi-sectoral dimension including all industries that stand to benefit from the consequences of this major change. Alternative forms of energy and solutions to improve energy efficiency for production, transportation, “green” buildings, and distribution management will all be among the immediate beneficiaries of the immense sums devoted to GHG emission reduction. But industries compelled to adapt to the consequences of natural catastrophes will also be likely recipients. For example, construction companies will certainly benefit (reinforcement of jetties and bridges, widening of canals, etc.) as will the insurance industry (coverage against extreme weather events, development of warning systems, awareness campaigns, etc.). Finally, governments will be encouraging measures contributing to the sustainable management of natural resources (forests, soil, water, etc.), which will involve, in particular, companies active in water service management. Worldwide in scope, affecting all industries, and for many years to come, the issue of climate change meets all the criteria to be considered as an investment theme in its own right.
Carlos Joly President of the Climate Change Scientific Committee, Natixis Asset Management
“One solution might involve requiring industrialized countries to immediately reduce their emissions by 5% per year.”
It must therefore be included in decisionmaking processes for portfolio asset allocation as well as in the selection of securities, since this approach is a source of potential return for investments in the medium and long term.
* C02(e) = emissions of C02 or equivalent. ** ppm (parts per million): number of CO2 molecules per million molecules of outside air.
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A closer look
Climate Change and investment strategy
What role may be played by fund managers? We are all familiar with the findings: our planet’s climate is changing at a pace that goes beyond our predictions of just a few years ago and this global warming will not only significantly affect the eco-system in which we live, but without question our way of life itself, our economic model, and our rate of growth, or at the very least our growth trajectory.
At a moment in history when people around the world are becoming increasingly aware that the time is ripe for answers and actions and no longer merely observation, it is completely understandable that as asset management experts we must ask ourselves what we can concretely do to facilitate the search for solutions, to move funds into research, into strategic industry sectors, to support the most worthy and innovative companies over the long term. At the same time, confronted with a set of issues that largely exceed the confines of the financial universe, we might legitimately ponder whether asset management is in fact
very removed from the subject at hand and perhaps poorly equipped to contribute to climate change solutions. Is it not too early for the impact of climate change to be felt in financial markets, which as we know often deal in much shorter horizons? As asset managers, we are convinced that we have a key role to play, a duty to anticipate and to act responsibly. We have every intention of fulfilling this role above all by respecting the firm beliefs of investors, and sometimes by remaining a step ahead and offering guidance. How may this new role be characterized? In order to be effective, comprehensive and viable over the long term, it seems to us that this approach must be based upon three simple ideas, which we can summarize in three watchwords: responsibility, humility and expertise.
n Responsibility First and foremost, our new role means that we must act responsibly. The portfolios we manage, the investment funds that we build to focus on sustainable development must be tools in the service of the search for solutions to global warming. Under no circumstances may we cynically feed upon the imbalances occasioned by climate change, or worse still, intensify them. We need to build a respectful and sustainable approach, in keeping with the larger concept of responsible investment.
Philippe zaouati Head of Business Development, Natixis Asset Management
“We must approach climate change questions with great humility.�
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n Humility Next, we must approach climate change questions with great humility. The phenomena at work are too vast, too complex and knowledge of them is evolving too rapidly for us to attempt to address them without the assistance of recognized experts in the field. Similarly, regulatory responses and government initiatives, both on the domestic stage and in the global arena, are powerful catalysts that it is essential to understand. But they bring into play shifting geopolitical balances, which are often difficult to grasp.
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It is for this reason that we have decided to form our own Climate Change Scientific Committee to guide us in the choice of our investment themes, to shed light on the latest scientific findings, to help us understand geopolitical forces at work, and finally to identify, together with our managers, the most relevant and promising solutions. This Scientific Committee consists of climatologists and economists, experts from academic area, NGOs and companies in France and beyond. We have high hopes for the interesting exchanges of ideas between these experts and our portfolios managers.
n Expertise We are also convinced that our asset management expertise will help us to effectively read these phenomena, as will our in-depth knowledge of companies and industry sectors and our proven methodologies in the area of both financial and extra-financial analysis. We have entered the active phase of this challenge and it is now up to the business world and its companies to provide solutions. We feel we are well placed to determine which of these will not only be the best from a technical standpoint, but also the most economically feasible. In fact, it is the combination of these two aspects that will guarantee the long-term success of these solutions. From this moment forward, it is our expertise as responsible asset management experts, enhanced by the new perspectives afforded by the contributions of the experts constituting our Climate Change Scientific Committee, that we wish to offer to our investor clients.
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How will investment in equities evolve? Climate change now takes center stage in both the political and economic realms. Its consequences will increase in severity over the coming years and will no longer escape the attention of the stock markets.
n Between risk and
opportunity, the conditions for economic change
There are two opposing forces for the stock markets: from the long-term perspective, climate change destroys value and adversely affects risky assets, while in the short to medium term, economic and political powers as well as public opinion are taking steps to contain climate change phenomena. Governments have their role to play in influencing behavior. They fight the causes of global warming through regulation and encourage the search for solutions, in particular through stimulus plans. Whether or not we believe that the battle against global warming can be won, it is well under way. Its impetus creates the conditions for a change that may be utilized in the context of an active management approach.
n On the lookout for climate change inefficiencies
In this context, investing in the shares of companies developing solutions for climate change seems not only to be a positive approach, but an economically rational one as well. This instinctive appreciation is confirmed by the analysis of valuations: apart from several obvious sectors and participants (wind power, renewable energy sources, etc.), the market is not yet reacting positively to companies addressing the issue of climate change through their business activities. Nevertheless, these companies enjoy a competitive advantage that should only increase over the long term. Apart from the economic aspect, this market inefficiency has a deeper cause: climate change is complex and non-linear, which means that arriving at an understanding of its consequences is difficult to achieve for most market participants. Consequently, in order to better grasp the significance of this change, outside assistance must be sought from experts able to fully comprehend this issue in its scientific, technological and regulatory aspects. This type of assistance is a key for an active and forward-looking investment approach, able to identify and take advantage of inefficiencies in all affected sectors and regions.
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n A new frame of reference The three main strategies in response to climate change are therefore divided into themes corresponding to specific industry sectors and stocks. • The first strategy is tied to the fight against greenhouse gas emissions: favoring cleaner energy sources and improving energy efficiency. By way of example, FPL Group is a US provider of electricity-related services, 40% of whose production generates little or no emissions. What’s more, the company is vertically integrated and seeks to limit peaks in consumption, with innovations both in terms of technology and in its relations with its customers. Efficiency in the cycle for the generation and distribution of electricity is also an area of major importance, to which a number of companies, such as ABB, are devoting considerable efforts. It is estimated that a 5% improvement in the efficiency of the energy sector in the United States would have a similar impact, in terms of emissions, to the disappearance of several billion automobiles. • The second strategy deals with the consequences of global warming, adapting to a warmer climate. One example is the need to build more resilient infrastructures, which is a key element of stimulus plans. Building materials may provide essential solutions to these issues provided the practices involved are sustainable, such as those employed by the Korean steelmaker Posco. • The third strategy relates to solutions for the sustainable management of natural resources: water, pollution control (packaging and waste), but also forests and agricultural lands. In this area, the Norwegian fertilizer supplier Yara is providing a response to the food production challenges of desertification by seeking a more controlled effect on the environment compared to other methods for increasing agricultural yields. Today, solutions to climate change are being explored across the planet. This worldwide movement is creating the conditions for an investment theme combining the potential for long-term returns with responsible investment. Climate change therefore offers major investment opportunities that may be included within long-term investment plans.
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Maurice Gravier Head of Products and Innovation within the Equities management Department, Natixis Asset Management
“Today, solutions to climate change are being explored across the planet.”
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Expertise
Climate Change and investment strategy
The Climate Change Scientific Committee: Recognized experts
So as to better understand the challenges of climate change and proposed solutions, Natixis Asset Management has created its own Climate Change Scientific Committee, bringing together recognized experts. Headed by Carlos Joly, co-chair of the Expert Group that drafted the United Nations’ Principles for Responsible Investment, this Climate Change Committee meets twice a year. Natixis Asset Management’s Climate Change Scientific Committee has three main objectives:
1. Enlighten the members of Natixis
Asset Management's Executive Committee and portfolio managers on climate change and its consequences
Its members summarize research that has taken place on climate change throughout the world and assist Natixis Asset Management's teams in analyzing the consequences of climate change for the various business sectors, countries and regions. They identify technological developments that may contribute to reducing greenhouse gas emissions and help in adapting to the inevitable consequences of climate change.
2. To give opinions on the
appropriateness of the securities in which the portfolio is invested
Its members assess the appropriateness of investment choices in relation to the previously-mentioned subjects. They warn Natixis Asset Management's Executive Committee and portfolio managers of any securities that diverge from the investment philosophy. Nevertheless, the investment decisions remain the sole responsibility of the management team.
3. To provide information The members write "position papers" on controversial subjects (nuclear power, bio-fuels, etc.,) and contribute to reporting research work by speaking at meetings of the Scientific Committee or at specific events.
The 1st Climate Change Committee The first meeting of the Climate Change Scientific Committee took place last 24 November, and gathered the committee's seven experts under the chairmanship of Carlos Joly(1) during a whole day where the emphasis was placed on discussion. Carlos Joly, President of the Committee By way of introduction, Pascal Voisin, Chief Executive Officer of Natixis Asset Management, thanked the members of the Scientific Committee for having agreed to join Natixis Asset Management in this initiative, together with the clients and first investors in the fund for their support. Four experts internal to Natixis Asset Management took part in the discussions: Suzanne Senellart and Clotilde Basselier, portfolio managers of the "Impact Funds Climate Change" fund, Maurice Gravier, Products and Innovation Director within Equity Management, Philippe Zaouati, Head of Business Development and Dominique Sabassier, Deputy CEO and Chief Investment Officer. The members of the Scientific Committee, who were heavily involved in the discussions, took a particularly pragmatic attitude, reaffirming their intention to act as effective providers of information to Natixis Asset Management's teams concerning their respective areas of expertise: waste, natural disasters, control of energy, housing and construction, forestry and agroforestry, etc.
Clotilde Basselier et Suzanne Senellart, portfolio managers of Impact Funds Climate Change
etails of the discussions D held at the first meeting of the Scientific Committee will be released in the first issue of its Newsletter, which will be accessible online in the Publications section of Natixis Asset Management’s Climate Change Web site www.am.natixis.com/ climatechange/eng (1) Carlos Joly, Chairman of the Climate Change Scientific Committee, is a specialist in Socially Responsible Investment. Co-founder of the UNEP-FI, he co-chaired the working group that wrote the United Nations' Principles for Responsible Investment.(PRI) de l’ONU.
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Complementary areas of expertise Chairman of the Climate Change Scientific Committee Carlos Joly, Chairman of the Climate Change Scientific Committee. Co-founder and Chairman of UNEP-FI. He co-chaired the Experts Group which drew up the UN PRI ( Principles for Responsible Investment). He was the founder and CEO of MiljøInvest AS, which developed a range of SRI funds and Senior Vice-President of Storebrand, where he launched the Storebrand Environment Fund.
Energy efficiency Pierre Radanne, is Chairman of the 4D association (4D: Dossiers et Débats pour le Développement Durable) and a founder of the company “Futur Facteur 4”, which combines activities of consulting, research, training and communication on energy management, combating climate change and sustainable development. He has served as Chairman of the ADEME (the French Environment and Energy Management Agency) from 1998 to 2003.
Adaptation to climate change Richard Klein, researcher at the Stockholm Environment Institute, where he co-ordinates research on climate policies across seven research centers. He has specialized for over 15 years in the methodological aspects of climate risk, vulnerability assessment and climate adaptation processes in society. He is now concentrating on the integration of climate issues in development policy.
Waste, natural disasters Yves Le Bars is currently Chairman of GRET (Groupe de Recherche et d’Echanges Technologiques, the most important secular NGO for international solidarity) and is completing a term of office as Vice-Chairman of the French Association for the Prevention of Natural Disasters. His areas of expertise cover the relationships between research, innovation and society, and in particular the issues associated with sustainable development.
Certification, shipping Miklos Konkoly-Thege, currently member of the boards of director of several shipping companies and of the certification company Moody International. He is a specialist in the shipping industry and certification, both on a sector level and with regard to financial and risk control aspects.
Forestry and agroforestry Anne Gouyon, founding partner of Becitizen and expert in forestry and agroforestry. She was a founder and director of Idé-Force, a consulting firm specializing in assessing the socioeconomic and environmental impact of rural development and plantation culture projects. The firm’s clients include various international institutions NGOs and private companies.
Socio-economic impact of climate change Green building Blaise Desbordes, is Director of Sustainable Development in the “Finance, Strategy and Sustainable Development Department” of Caisse des Dépôts et Consignations. Specialized in public and corporate sustainable development policies, he takes part in several market working groups, particularly within the UNEP-FI.
Stéphane Hallegatte, researcher in environmental economics and climate science at the Ecole Nationale de la Météorologie, Météo-France and the CIRED (International Centre for Research on the Environment and Development) He also participated in the IPCC (Intergovernmental Panel on Climate Change, in 2007.
* UNEP-FI, United Nations Environment Programme-Finance Initiative.
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Essentials
Climate Change and investment strategy
360-degree approach
From investment theme analysis to investment opportunities Climate change is a global issue and therefore demands a global response. Natixis Asset Management’s approach to this problem is built on three main pillars: > Reducing greenhouse gas emissions > Adapting to the consequences of climate change > Better management of natural resources These three macro-themes are themselves broken down into 10 sub-themes, so as to address the issue of global warming with the greatest possible accuracy.
Reducing greenhouse gas emissions n Energy efficiency of transport systems CHALLENGE Developing the least polluting public transport systems and encouraging innovative and sustainable solutions for individual transportation
INVESTMENT OPPORTUNITIES The fight against CO2 emissions in the transport sector, supported by increasingly stringent regulations and ambitious stimulus plans, has given rise to numerous investment opportunities.
Rail transport This sector benefits from a bright long-term outlook: rising urbanization of developing countries and worldwide fight against global warming • rolling stock manufacturers, railway infrastructure builders and steel producers • companies producing rail signaling equipment • suppliers of systems and services for the rail industry • rail transport operators.
Automobile transport Sources of energy efficiency improvements in the automobile sector are many, deriving from existing technologies (combustion engines) or new technologies (electric engines): • automobile manufacturers, leaders in the production of hybrid or electric vehicles • battery manufacturers (lithium-ion technology) • auto parts manufacturers • tire makers (“green tires”) • raw material suppliers and producers of lower-weight materials.
n Energy efficiency of buildings CHALLENGE Reducing the energy consumption of buildings, by refurbishing aging facilities in developing countries. Assisting in the urbanization of developing countries with eco-efficient constructions.
INVESTMENT OPPORTUNITIES In the industrialized countries, lowering the energy consumption of existing buildings is the surest way to cut greenhouse gas emissions. In the developing countries, currently experiencing a phase of accelerated urbanization, the key is to adopt eco-efficient building solutions at the outset. This is the case in China, for example, where nearly 2 billion square meters of building space will be added each year until 2020*.
According to the World Business Council for Sustainable Development (WBCSD), the world market for “green” buildings amounts to $950– 1,000 billion.** Two main catalysts will drive growth in sectors associated with eco-efficient construction: regulatory changes and the stimulus plans implemented by governments in response to the financial crisis. This area has a potential impact on many industries: • insulation solutions • clean technologies for construction materials • use of alternative forms of energy. * Source: “Le marché du BTP en Chine,” published by Ubifrance in 2008. ** Source: “Energy Efficiency in Buildings,” report issued by the World Business Council for Sustainable Development (WBCSD), April 2007.
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n Modernization of electrical installations CHALLENGE Improving energy savings by power plants and electric transmission grids to optimize energy production and distribution, thus reducing greenhouse gas emissions.
INVESTMENT OPPORTUNITIES Modernization of electrical installations involves the entire energy value chain: from production to distribution and including transmission and low- or high-voltage equipment provided to users.
Companies offering innovative energy production infrastructures: • combined-cycle turbines • hydraulic turbines meeting the new efficiency standards • CO2 capture and storage technologies, etc. Manufacturers of modern power plant equipment allowing for increased production capacity, efficiency and security. Companies offering eco-efficient energy transmission infrastructures: • very high, high and medium voltage electricity transmission lines incorporating the development of clean energies • innovative technologies allowing for reductions in energy loss during transmission • innovative technologies for managing consumption at peaks in production. Electrical equipment manufacturers: • low-voltage equipment for buildings: programmable room thermostats, energy management systems, automatic switches, time-delay lighting, light level threshold controls, home automation, etc. • medium or high voltage for large-scale energy distribution in cities or for industrial customers: high-voltage cables, electricity transmission and distribution grids, etc.
n Alternative forms of energy CHALLENGE Favoring the least polluting fossil fuels and developing alternative forms of energy to reduce greenhouse gas emissions.
INVESTMENT OPPORTUNITIES The shift to less polluting energy sources, such as natural gas or alternative forms of energy, gives access to a broad spectrum of investment opportunities.
Business activities related to the development of natural gas: public utilities distributing electricity and gas, natural gas suppliers, shippers specializing in the maritime transport of liquefied natural gas. Companies producing alternative energies or offering innovative technologies in this area: • nuclear energy (sustainable production of nuclear energy, extraction of uranium ore, etc.) • wind power • solar energy (photovoltaics, thermal collectors, etc.) • water energy (waves, kinetic energy, tidal energy, ocean thermal energy conversion, etc.) • geoexchange (heat exchange between the ground and buildings) • biomass (biogas, wood, new generation biofuels, etc.).
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Climate Change and investment strategy
Adapting to the consequences of climate change n Changes in consumer behavior CHALLENGE Favoring industries meeting the new needs of consumer-citizens as a result of climate change. Encouraging populations to incorporate the concept of sustainability in their consumer habits and way of life.
INVESTMENT OPPORTUNITIES Responsible consumption is progressively gaining ground as an essential aspect of consumer behavior. The outlook is bright in this area: solutions that ensure greater respect for people and the planet enjoy growth rates significantly higher than that of their reference market.
Various types of businesses are emerging that allow consumers to reduce their environmental impact: • Suppliers of products and services facilitating communication without the need for transportation or the printing of documents • Online platforms for purchasing products and services • Manufacturers of mass-market products tailored to the new needs of consumer-citizens: health, beauty and household products, organic foods and food products, etc. • Ecological transport • Tour operators and travel agencies specializing in sustainable tourism.
n Impact of climate change on the insurance industry and risk management CHALLENGE Adapting coverage for natural disasters resulting from climate change. Developing risk prevention and offering new products.
INVESTMENT OPPORTUNITIES With the rising frequency and growing severity of natural catastrophes, insurers and reinsurers will be major players in the management of losses related to climate change.
Reinsurers benefit from new opportunities: • growing demand for coverage against natural catastrophes, especially in the industrialized countries, given the heightened concentration of wealth in selected regions • growth in coverage needs for developing countries, traditionally underinsured, where reinsurers will be invited to participate in public-private partnerships. Reinsurers have two approaches to contend with the rising cost of natural catastrophes: rate increases and preventive actions. New products, connected with the emergence of new risks, will also come on the scene: : • weather derivatives: offered to farmers as protection against crop losses (torrential rain storms, hail storms) • specific products, such as covers tailored to the new business activities associated with climate change. For example, a wind farm in India where the insurer may go so far as to indemnify its client against the loss of CO2 certificates due to technical problems.
n Adaptation of infrastructures CHALLENGE Reinforcing existing infrastructures in industrialized countries and adapting new constructions in developing countries to the consequences of climate change.
INVESTMENT OPPORTUNITIES The financial crisis presents a unique opportunity for the infrastructure industry, a major beneficiary of the stimulus plans adopted by several leading nations. Investment opportunities may be found across the entire value chain of the construction and infrastructure industry. Mining companies producing raw materials Steel makers Steel waste recycling companies Manufacturers of construction materials Building, public works and civil engineering companies Companies specializing in certification and compliance with standards. Our analysis also includes the geographical dimension, taking into account the structural growth of infrastructures in developing countries (particularly rail networks and eco-efficient buildings). .
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Better management of natural resources n Pollution control CHALLENGE Limiting, reusing and recycling waste to control pollution. INVESTMENT OPPORTUNITIES In 2008, the worldwide market for waste processing amounted to €300 billion.
Investment opportunities arise at various stages of the waste management life cycle and not only in relation to processing. The main industry participants are active across the entire value chain: collection, sorting, processing, recycling and incineration.
Collection: companies active in selective waste collection Sorting: companies manufacturing equipment used to sort waste while raising awareness among users and simplifying collection processes Processing : • companies specializing in eco-efficient waste management • compost companies converting waste into fertilizer for crops • innovative processing plants transforming waste into electricity Recycling: • specialized recycling processes that regenerate obsolete products and equipment back into raw materials as well as reuse, the re-employment of products or materials in their original form or in new applications • companies active in the recycling of complex products (waste covered by the European WEEE* Directive, petrochemicals) • eco-design in the waste value chain • companies producing new generation packaging.
n Water management CHALLENGE Rethinking our production and ways of using water in consideration of climate change.
INVESTMENT OPPORTUNITIES Water management is a universal affair, involving both public actors and private individuals, households and companies. For this reason, this area presents numerous investment opportunities.
Water treatment and distribution: • wastewater disinfection, filtration and purification • production of soft water through purification and desalinization • industrial sub-contracting: producers of water-control equipment such as sluice gates, pumps and membranes Technologies reducing soft water consumption: • household consumption: water savers, solar water heaters • infrastructure alteration and refurbishment. The World Water Council (WWC) has estimated these investments at $180 billion annually over the next 25 years, up from $75 billion currently being invested • agriculture: new irrigation systems, water sanitation.
n Soil management CHALLENGE
INVESTMENT OPPORTUNITIES
Adopting agricultural best practices able to meet growing food needs, while preserving the environment and the world’s forests.
Sustainable soil management must satisfy two key objectives: maximizing agricultural yields (amidst steadily diminishing cultivable land resources and a continued rise in the demand for food) while protecting the environment. This area presents many investment opportunities, mostly situated upstream of the food production value chain: from the production of foodstuffs to their delivery to the final consumer.
Producers of mineral fertilizers: • production of raw materials—nitrogen, potassium or phosphate—and of mineral fertilizers • development of new NPK ratings best suited to each type of crop • training programs administered to farmers to encourage a more controlled use of fertilizers Manufacturers of agricultural equipment: tractors, containers, innovative irrigation systems Food refrigeration, storage and transportation companies seeking to limit food loss between the producer and the consumer Companies holding forest assets: these assets might undergo significant revaluation in the event that forests are recognized as carbon credits in post-Kyoto legislation. Forest asset owners employing responsible practices will be favored (felling, new plantings, preservation of older trees). These players may belong to the pulp and paper sector or be active in wood-related industries. * WEEE: Waste Electrical and Electronic Equipment
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Responsible investing
Climate Change and investment strategy
Impact Funds Climate Change Reconciling climate change with a performance oriented strategy Active management combined with a scientific approach A worldwide, multi-theme and multi-sectoral investment universe
3 questions for... Why a fund focusing on climate change? The threats posed by global warming are real and perceptible, the entire world economy is already beginning to feel the impact. Accordingly, our premise is that, over the long term, companies whose businesses contribute to mitigating the effects of climate change Clotilde Basselier and Suzanne Senellart, co-portfolio or provide means of adapting to these developments will obtain a managers of Impact Funds Climate Change competitive advantage in the years to come over companies not having fully recognized the potential consequences of global warming. This situation is a source of opportunities and creates value. We therefore decided that it merited consideration in the context of a specific investment strategy. Furthermore, the decision to launch a fund integrating the concept of sustainable development also serves to reaffirm Natixis Asset Management’s long-standing commitment to responsible investment, thus expanding its range of offerings in this area. Impact Funds Climate Change therefore provides a solution for investors who wish to combine long-term returns with a responsible investment approach.
What is the fund management’s approach? Our philosophy is based above all on our aim to address climate change in a comprehensive fashion. It is not a single-theme focus, but is conceived as 360-degree management. This means that we broaden our investment universe to encompass all industries related to the issue of climate change, and not only those usually targeted in this area (renewable energies, water treatment, waste management and recycling, etc.). This also allows us to concentrate on this area without any geographic constraints and, in particular, to capture the potential of emerging market companies. Our approach therefore seeks at all times to be wide-ranging. The investment universe is defined and structured through ten sub-themes grouped under three macro-themes: reducing greenhouse gas emissions, adapting to the inevitable consequences of climate change and better management of natural resources. There is no predefined allocation, with the breakdown between the three macro-themes resulting primarily from our stock-picking.
How do you go about refining your selection of stocks? We narrow down our stock selection by using various filters (quantitative, qualitative and financial) that we apply to a universe of about 350 stocks. We are therefore able to identify the best profiles in relation to climate change and from a financial standpoint. We then pass this group of preselected stocks through a “worst offender” exclusion filter, thus eliminating companies whose social and ecological practices run counter to our fundamental precepts in the area of responsible investment. The final portfolio consists of stocks reflecting our strongest convictions and is actively managed.
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“Our philosophy is based above all on our aim to address climate change in a comprehensive fashion.”
FUND features I/A share
I/A share
Management company
H-I/A share
Delegated financial manager
R/A share
H-R/A share
Natixis Asset Management Sub-fund of the IMPACT FUNDS, an investment company with variable share capital organized under the laws of the Grand-Duchy of Luxembourg and authorized by the financial regulator (the CSSF) as a UCITS
Legal form UCITS compliant
Yes
Date of CSSF approval
29 September 2009
Inception date
5 October 2009
Accounting currency ISIN / Allocation income
R/A share
Natixis Global Associates
EUR
USD
EUR
EUR
USD
EUR
LU0448199371 / Capitalisation
LU0448199025 / Capitalisation
LU0448199454 / Capitalisation
LU0448199611 / Capitalisation
LU0448199538 / Capitalisation
LU0448199702 / Capitalisation
1.25 %
1.25 %
1.25 %
2%
2%
2%
TER* Maximum subscription fee
4%
Maximum redemption fee
None
Performance fee including taxes
None
Minimum initial / Subsequent subscription
€ 50,000 / 1 share
$ 50,000 / 1 share
€ 50,000 / 1 share
None
None
None
Initial Net Asset Value
€ 10,000
$ 10,000
€ 10,000
€ 100
$ 100
€ 100
Net asset value calculation Cut-off time
Every working day in Luxembourg and France D 12.00 noon (Luxembourg time)
* Total Expense Ratio.
The main risks The main risks associated with Impact Funds - Climate Change lie in the risk of capital loss (there is no guarantee that the invested capital will be returned to the investor in full, and the net asset value could significantly diverge - increasingly or decreasingly - compared to the subscription value) and in the risk implied by its exposure to the equity market. The fund also involves risks regarding its exposure to emerging markets, an exchange rate risk, a portfolio risk concentration and a risk due to its potential investment in small and mid capitalization companies. The extensive approach applied on a sector and geographic level will nevertheless ensure that the investments are well diversified. Besides, the portfolio is submitted to the independent review of middle office and risk control teams.
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Focus
Climate Change and investment strategy
They haven chosen responsible investment French key players explain their motivation for investing in Impact Funds Climate Change…
Bruno Goré, CEO “As insurers, the effects of climate change concern us directly. GCE Assurances is working with reinsurers to develop models of climate and ecological phenomena that will allow us to achieve the most accurate understanding possible, so that they may be included in our multi-risk homeowner’s insurance policies. We appreciate the opportunity for diversification provided by Impact Funds Climate Change*, namely a multi-sectoral and worldwide investment universe facilitating a wide-ranging approach to the challenges of climate change. We also concur with the observation that the markets have not fully anticipated and assimilated this phenomenon. Lastly, we welcome Natixis Asset Management’s establishment of a Scientific Committee, in order to provide the necessary expert guidance in this complex area.”
François Werner, CEO “Le Fonds de Garantie provides a portion of its funding through investment in financial assets. Impact Funds Climate Change* quickly attracted our interest for several reasons. First of all, the market for renewable energies and new environmental technologies is an emerging market destined to be the focus of considerable investment in the years to come. In addition, the diversification of assets offered by this fund translates into a broader and less volatile investment approach compared to other financial products. Finally, due to our activities in the indemnification of victims, we are sensitive to the issues faced by humankind and its future. For us, it is therefore of primordial importance that our financial activity is in keeping with a sustainable development approach.”
Nicolas Demont, CEO and Charles Bouffier, Deputy CEO “Impact Funds Climate Change* is entirely consistent with Egamo’s vision, that of asset management based on mutualistic values. Indeed, we find that the approach proposed by the fund connects admirably with our own desire to merge human and financial values within a long-term perspective. The selection of companies with strong growth potential in a worldwide and multi-theme universe is also in keeping with our objective of building efficient portfolios for our clients. Finally, Natixis Asset Management’s decision to surround itself with experts so as to shed light on the consequences of climate change seemed pertinent to us, exactly the approach necessitated by this complex issue.”
* Impact Funds Climate Change is a sub-fund of Natixis International Funds (Lux) I which is organized as an investment company with variable capital under the laws of the Grand-Duchy of Luxembourg and is authorized by the financial regulator (the CSSF) as a UCITS.
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Why did you choose to be one of the initial investors in Impact Funds Climate Change? Patrick Viallanex, Vice Chairman of the Executive Board, AGICAM: "Because investing in this fund is directly in line with the overall strategy of our company. It is therefore as much a strategic investment choice as it is the manifestation, from a practical viewpoint, of AGICAM’s status as a responsible corporate citizen in the field of financial management.
Philippe Dutertre, Chairman of the Executive Board, AGICAM: Our investment in Impact Funds Climate Change* developed by Natixis Asset Management was motivated by three main convictions that may be summarized as follows: The authenticity of the approach employed by Natixis Asset Management and the involvement of its executive management team, reflected in particular by the publication of the book Investir Responsable by Philippe Zaouati, Head of Business Development at Natixis Asset Management, a work we greatly enjoyed reading, as it confirms our own strong convictions. The need to act now by radically altering our behavior and habits so as to avoid the catastrophes related to climate change. As Jacques Chirac poignantly declared at the Third World Summit on Sustainable Development in September 2002: ‘Our house is burning down and our attention is focused elsewhere.’ In the face of this emergency, we need to transform ‘Yes we can!’ into ‘Yes we must!’
Philippe Dutertre, Chairman of the
The resoluteness and seriousness of the proposal made by Natixis Asset Management Executive Board, AGICAM with Impact Funds Climate Change, as evidenced by the mobilization of resources, both internal (Natixis Asset Management’s own teams with whom we had the opportunity to discuss the related issues at length) and external (with the firm’s Climate Change Scientific Committee). The stature and achievements of this committee’s members were a particularly strong selling point in our decision.
The investment approach employed for Impact Funds Climate Change is deliberately allencompassing. What about its investment universe attracted you in particular? Patrick Viallanex: Everything about it, actually! For example, we have long been interested in the question of the environment but we had not previously prioritized this area in our actions. We had only focused about 10% of our investments on environment-related sectors, which represents a relatively low proportion. Nevertheless, over the years our expertise has developed and as a result of our analyses and discussions we have realized that the environment has become an essential driver. The issue of climate change embraced by Impact Funds Climate Change, and in particular the three macro-themes selected to effectively cover its investment universe, mainly involves us indirectly, but has deep repercussions for many professions that constitute the foundation of our business. This prompted us to devote particular attention to this fund. Patrick Viallanex, Vice Chairman of the Executive Board, AGICAM
Philippe Dutertre : Investing in this fund allows us to be consistent with our goal of
responsible investment. Our management is open to the talents we recruit directly, but of course it is just as open to the talents of others, whether they are French or foreign experts. We invest in a number of open funds, in particular equity funds, and exchanging with other management companies is a source of alpha that we can characterize as cultural and informational. For us, value is created through dialogue, and this is exemplified by the relationship we have built with Natixis Asset Management. Finally, we can sum up our approach in a single phrase: ‘Have you seen the Little Mermaid in Copenhagen? I think we are all pursuing the same goal—to make her smile!’
* Impact Funds Climate Change is a sub-fund of Natixis International Funds (Lux) I which is organized as an investment company with variable capital under the laws of the GrandDuchy of Luxembourg and is authorized by the financial regulator (the CSSF) as a UCITS.
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Legal information The funds mentioned in this material are not registered or authorized in all jurisdictions and may not be available to all investors in a jurisdiction. Natixis International Funds (Lux) I is organized as an investment company with variable capital under the laws of the Grand-Duchy of Luxembourg and is authorized by the financial regulator (the CSSF) as a UCITS. Natixis Global Associates S.A. is the management company of the Fund. The provision of this material does not constitute an offer of services, nor an offer or recommendation to purchase or sell shares in any financial instrument. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. In the case of a fund, these can be found in the fund’s prospectus or offering memorandum, which should be read carefully before investing. If you would like further information about any of the funds, including charges, expenses and risk considerations, contact the sender of this document or your financial advisor for a free prospectus, simplified prospectus, copy of the Articles of Incorporation, the semi and annual reports, and/ or other materials and translations that are relevant to your jurisdiction. Any reference to a ranking, a rating or an award provides no guarantee for future performance results and is not constant over time. Performance data shown represents past performance and is not a guarantee of future results. More recent performance may be lower or higher. Principal value and returns fluctuate over time (including as a result of currency fluctuations) so that shares, when redeemed, will be worth more or less than their original cost. Performance shown is net of all fund expenses, but does not include the effect of sales charges or correspondent bank charges, and assumes reinvestment of distributions. If such charges were included, returns would have been lower. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the author(s) referenced as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material.
Associates UK Limited, the fund, services or opinions referred to in this material are only available to the Intended Recipients and this material must not be relied nor acted upon by any other persons. Registered Address: Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA.
In certain cases, this material is provided by one of the Natixis Global Associates entities listed below , each of which is a subsidiary of Natixis Global Asset Management, the holding company of a diverse line-up of specialised investment management and distribution entities worldwide, each of which conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions. Although Natixis Global Associates believes that the information provided in this material to be reliable, it does not guarantee the accuracy, adequacy, or completeness of such information.
• In Italy: This material is provided to the investment service provider or other Professional Client or Qualified Investor who has requested it by Natixis Global Associates Italia SGR, S.p.A., an investment management company (“Societa’ di Gestione del Risparmio”) registered and regulated by the Bank of Italy (registration no. 119, code no. 15143.1). Registered office: Via San Clemente, 1 - 20122, Milan, Italy.
• In the UK: This material is provided by Natixis Global Associates UK Limited which is authorised and regulated by the UK Financial Services Authority (register no. 190258). This material is intended to be communicated to and/or directed at persons (1) in the United Kingdom, and should not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell securities in any other jurisdiction than the United Kingdom; and (2) who are authorised under the Financial Services and Markets Act 2000; or are high net worth businesses with called up share capital or net assets of at least £5 million or in the case of a trust assets of at least £10 million; or any other person to whom the material may otherwise lawfully be distributed in accordance with the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or the (Promotion of Collective Investment Schemes) (Exemption) Order 2001 (the "Intended Recipients"). To the extent that this material is issued by Natixis Global
• In the E.U. (outside of Germany, Austria, Italy and the UK): This material is provided to the investment service provider or other Professional Client or Qualified Investor who has requested it by Natixis Global Associates S.A. or its branch office in France, Natixis Global Associates International. Natixis Global Associates S.A. is a Luxembourg management company that is authorized by the Commission de Surveillance du Secteur Financier and is incorporated under Luxembourg laws and registered under n. B 115843. Registered office of Natixis Global Associates S.A.: 2-8 Avenue Charles de Gaulle, L-1653 Luxembourg, Grand Duchy of Luxembourg. Registered office of Natixis Global Associates International (n.509 471 173 RCS Paris): 21 quai d'Austerlitz, 75013 Paris. • In Germany and Austria: This material is intended to be communicated to and/or directed at persons in Germany and Austria by Natixis Global Associates Germany GmbH, a tied agent of Natixis Global Associates UK Limited. In the case the fund(s) referenced within this material is/ are not registered in Germany or Austria, this material is intended to be communicated to and/or directed at persons who are (a) lawfully authorized to receive this material under the provisions of § 2 (11) paragraph of the German Investment Act or (b) Qualified Investors as defined in Article 1 (1) 5a of the Austrian Capital Market Act (“Intended Recipients”). To the extent that this material is issued by Natixis Global Associates Germany GmbH, the fund, services or opinions referred to in this material are only available to the Intended Recipients and this material must not be relied or acted upon by any other person. Registered office of Natixis Global Associates Germany GmbH (Frankfurt am Main HRB 45540): Im Trutz Frankfurt 55, Westend Carrée, 7. Floor, Frankfurt am Main 60322, Germany.
• In Switzerland: This material is provided to Qualified Investors by Natixis Global Associates Switzerland Sàrl. Registered office: place de la Fusterie 12, 1204 Genève. • In the DIFC: This material is provided in and from the DIFC financial district by Natixis Global Associates Middle East, a branch of Natixis Global Associates UK Limited, which is regulated by the DFSA. Related financial products or services are only available to persons who have sufficient financial experience and understanding to participate in financial markets within the DIFC, and qualify as Professional Clients as defined by the DFSA. Registered office: PO Box. 118257, 5th Floor, Building 8, Gate Village, DIFC, Dubai, United Arab Emirates. This material has been prepared by Natixis Asset Management, a subsidiary of Natixis Global Asset Management. Natixis Asset Management is a French asset manager authorized by the Autorité des Marchés Financiers (Code 1200009, Agreement No. GP90009) and licensed to provide investment management services in the EU.
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(352) 47 67 70 78
ACT NOW. Impact Funds Climate Change
TURNING CLIMATE CHANGE CHALLENGES INTO INVESTMENT OPPORTUNITIES Firmly at the forefront of responsible investment, Natixis Asset Management is launching an equity fund focusing on the issue of climate change: Impact Funds Climate Change Climate Change Scientific Committee, bringing together distinguished • Aexperts from various fields, ranging from climatology and geology to economics, whose aim is to provide insight on the consequences of climate change to our investment management teams
360-degree approach to global warming through a worldwide and • Amulti-theme investment universe ctive management of a portfolio of companies contributing to the fight • Aagainst climate change or exploring ways to adapt to its consequences, so as to combine responsibility with the pursuit of performance*
Expert of Natixis Global Asset Management www.am.natixis.com/climatechange/eng
* Non-contractual commitment. Impact Funds-Climate Change is a sub-fund of the Luxembourg SICAV Impact Funds authorised by the AMF for sale in France. It does not guarantee capital or performance. Potential subscribers must be in possession of a copy of the fund’s simplified prospectus before making any subscription. This is available from Natixis Asset Management or at www.am.natixis.com/climatechange/eng Natixis Asset Management - Regulated by AMF under n° GP 90-009 - RCS Number 329 450 738 Paris - France 21, quai d’Austerlitz - 75634 Paris Cedex 13 -Tel : +33 1 78 40 80 00 - www.am.natixis.com