Putting the power in index investors’ hands
Since the advent of the 2015 Paris Agreement when the world came together to agree to limit global temperature increase this century to 2°C above preindustrial levels, investors have wrangled with how to invest for positive climate impact.
For many investors, active approaches to climate investing were neither affordable nor appropriate and the first generation of low carbon indices were insufficient. With the introduction of new climate index labels in the EU regulation, investors will soon have a new way to make a difference.
In a move that underlines the important role of finance, and index management in particular, in transitioning to a low carbon economy, the EU assembled a panel of experts from the investment industry, academia and sustainability practitioners to develop the index labelling. In doing so provide investors with clear and transparent guidelines in sustainable investing.
A dual approach
The EU labelling uses a dual approach to offer investors flexibility and encourage widespread adoption; Climate Transition Benchmarks (CTB) targeting 30% reduction in carbon intensity compared to the parent index, and the Paris-Aligned Benchmarks (PAB) taking a stronger approach with a 50% carbon intensity reduction and additional activity exclusions.
By maintaining high levels of diversification and limited tracking error to the parent index, the new climate change indices can replace traditional geographical exposure in portfolios while delivering significant levels of impact.
Comprehensive index methodologies
The Amundi ETF climate solutions use the MSCI World Climate Change[1] and the iStoxx Ambition Climat PAB indices, both follow comprehensive positive and negative screening, reweighting and scoring methodologies to deliver on their carbon reduction objectives.
Additionally, they use historical data on emissions scope 1 (direct), scope 2 (purchased electricity) and scope 3 (all other indirect emissions) of greenhouse gas (GHG) emissions to explicitly allocate to the most climate positive companies. This backwards-looking analysis is combined with forward-looking approaches considering company strategy and transition risks associated with carbon emissions.
Comparing climate change investing to traditional low carbon investing
Low carbon style investing is not entirely new. For example, Amundi co-developed the MSCI Low Carbon Leaders index series with FRR and AP4 in 2014.
However, the new generation of climate change indices, reinforced by the regulatory framework of the CTB and PAB labels[2], provides a more comprehensive approach to investing for positive impact. These new indices deliver an enhancement to older indices by:
Considering commitments from companies to reduce their GHG emissions
Taking into account all GHG emissions scope 1 (direct), scope 2 (purchased electricity) and scope 3 (all other indirect emissions) where historically low carbon indices only considered scopes 1 and 2.
Using one of the new future CTB or PAB labelled climate change indices gives investors comfort in knowing that the measurement of the carbon intensity is interpreted through the full value chain and that the management of the index takes a more proactive and future-focused approach.
Tracking climate change indices with Amundi ETFs
Investors now have the opportunity to incorporate climate-positive “off-the-shelf” index products into their portfolios. The Amundi ETF climate strategies, as part of a broader Responsible investing suite, offer a number of compelling advantages:
Transparent and standardised product
Simple to incorporate as a building block within existing portfolio
Cost-effective
Significant carbon reduction
Amundi Climate Change ETF Range
ISIN
OCF[4]
World Equities
AMUNDI INDEX MSCI GLOBAL CLIMATE CHANGE UCITS ETF DR - EUR (C)
LU1602144229
0.25%
AMUNDI INDEX MSCI GLOBAL CLIMATE CHANGE UCITS ETF DR - USD (C)
LU1602144492
0.25%
Eurozone Equities
AMUNDI EURO ISTOXX CLIMATE PARIS ALIGNED PAB UCITS ETF DR (C)
LU2182388582
0.18%
Europe Equities
AMUNDI INDEX MSCI EUROPE CLIMATE CHANGE UCITS ETF DR (C)
LU2130768844
0.18%
AMUNDI MSCI EUROPE CLIMATE PARIS ALIGNED PAB UCITS ETF DR (C)
LU2182388319
0.18%
Visit amundietf.com or email info@amundietf.com to find out more.
[1] These indices are is not currently labelled CTB, however Amundi is hopeful that this index will meet CTB guidelines subject to a full review by MSCI in H2 2020.
[2] Awaiting release of the final legislation.
[3] We consider the ETFs to be a cost-effective way to deliver climate change exposure compared to active strategies. Amundi seeks to be competitively priced across their entire ETF range.
[4] Ongoing charges – annual, all taxes included. The ongoing charges represent the charges charged to the fund over a year. Until the fund has finalized its first financial accounts, the ongoing charges are estimated. Transaction cost and commissions may occur when trading ETFs.
Disclaimer
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Investors are subject to the risk of loss of capital. Promotional & non-contractual Information which should not in any way be regarded as investment advice, an investment recommendation, a solicitation of an investment offer, or a purchase of any financial securities. The accuracy, completeness and relevance of the information, forecasts and analyses provided are not guaranteed.
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