How should asset owners address climate change risks and opportunities in their equity portfolios? Guided by our scientific research approach, we have pioneered a forward-looking solution that offers institutional investors a broadly diversified portfolio that actively focuses on emissions reduction and opportunities.
Uncovering climate-related investment opportunities
Investors have diverse motives for integrating climate change into their portfolios, including aligning with their beliefs and objectives, complying with regulations, mitigating risk, and pursuing alpha opportunities. Quoniam’s approach aids investors in achieving their climate change related goals by focusing on uncovering investment opportunities while investing in companies that actively reduce real-world emissions.
Companies poised to decrease emissions or transition to sustainable business models offer a compelling investment prospect. Such companies invest in increased efficiency and new products and services and may better be able to benefit from sustainability megatrends.
Key factors driving positive share price growth
Enhanced cost management
Companies that are well-prepared for climate change are better equipped to navigate unforeseen regulatory changes, thereby minimising transition losses and reducing future carbon tax obligations.
Revenue growth
Businesses that invest in green technology and innovation stand to benefit as policies shift towards sustainability, opening up growth opportunities.
Increasing investment flows
Mutual funds often base their investments on past or current emission levels, disregarding the potential for future reductions. As companies adopt greener practices, they can anticipate a surge in investment flows.
Quoniam’s Climate Research
Identifying tomorrow’s green(er) stocks today
Our approach focuses on forward-looking metrics including climate targets, green revenues and quality measures. These metrics serve as valuable tools for identifying tomorrow’s greener stocks today and constructing portfolios that prioritise investments in companies likely to benefit from re-pricing.
Based on our findings, companies with companies with ambitious greenhouse gas reduction targets are more inclined to reduce their emissions in the future.
Solely concentrating on historical CO2 emissions provides an incomplete perspective. Forward-looking endeavours, such as advancing climate-related technologies, pursuing climate targets, and adapting business models, have the potential to generate return opportunities and reduce future emissions.
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The route most travelledBackward-looking data
Exclusion lists, portfolio carbon footprint reduction, and backward-looking data-based index construction offer quick and straightforward implementation. While extensive exclusions significantly limit the investment universe and thus reduce return opportunities, the uneven distribution of carbon data can lead to unintended sector and style exposures.
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The path of the futureForward-looking data
Alternatively, forward-looking (or ex-ante) metrics may be able to identify risks not captured in current climate data, or provide information on mispricing, such as the potential future development of CO2 emissions for a company with an ambitious target and a track record of meeting past targets.
Prioritising the reduction of real-world carbon emissions
Asset owners are increasingly committed to reducing real-world reductions. Initiatives like the Institutional Investors Group on Climate Change (IIGCC) and Net Zero Asset Manager (NZAM) prove this. By using forward-looking climate metrics to select stocks, Quoniam Equities Climate Transformation strives to identify opportunities while positioning the portfolio on a trajectory in line with the goals of the Paris Climate Agreement.
The Quoniam solution
Quoniam Equities Climate Transformation
Leveraging cloud-based data analysis, Quoniam simplifies the intricate process of capturing forward-looking transformation data. Our Research team generates unique climate transformation signals for over 10,000 companies, seamlessly integrating them into existing investment models.
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The Quoniam Transformation Signal encompasses crucial information, such as science-based targets, environmental patents, and climate solution revenues. This comprehensive approach enables us to identify companies well-positioned to tackle climate change challenges and committed to long-term emissions reduction.
Combining this signal with return forecasts and risk metrics, we create an attractive and diversified equity investment strategy that aims to unlock the full potential of the markets over the long run. Notably, our portfolio targets a higher percentage of expected carbon emission reductions compared to conventional climate indices. Quoniam Equities Climate Transformation actively exploits the opportunities of sustainable transformation with a portfolio that aims for a target path of less than 2°C global warming.
Conclusion
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When investing with climate-friendly criteria in mind, it is important to keep an eye on the future. Looking only at the past gives an incomplete picture.
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Quoniam Equities Climate Transformation uses future-oriented key figures, focuses on companies with high transformation potential and identifies climate opportunities and risks.
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Our systematic, data-driven investment process can evaluate and target the wealth of complex information. The analysis of companies on the basis of financial ratios ensures an economically solid portfolio.
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Contact
Interested? Get in touch with me.
We would be happy to talk to you about your investment goals and their implementation. Contact me and we will analyse, without obligation, which strategy is the most suitable for you.
Jorre Willemse, CAIA
Head of Client Relations International
T +44 (0) 203 2162 427
jorre.willemse@quoniam.com
