LGS Super’s high carbon negative screen has resulted in a 16 basis point positive impact on the fund for the year, while only taking 8 basis points of tracking error.
The screen was put in place a year ago to reduce the $8.9 billion fund’s exposure to companies whose carbon operations exceeded 33 per cent, because the fund evaluated them as at risk of structural decline.
“Getting out of those higher carbon sectors via the screen has been a very beneficial move in terms of decent returns and minimal additional risk. It’s a demonstration of the innovation that could come increasingly in this area,” said Bill Hartnett, head of sustainability at LGS Super.
“When you are looking at pure play companies [those who focus on a particular product or activity], they don’t really have a lot of strategic flexibility to move in this area. We saw them as being the most vulnerable and most sensitive to risks emanating from climate change.”
Hartnett added it had been a very interesting exercise in the international equities portfolio, resulting in a strong performance, well above benchmark, with a 20 per cent lower carbon exposure.
He predicted there would be increasing disruption from regulation around carbon issues, citing, as an example, the probable outcomes of the climate conference currently happening month in Paris.
“There’s a lot of attention from civil society and ordinary people these days, it doesn’t mean they [companies with a carbon focus] will have to go, but they will have to demonstrate a better class ability to keep on getting their carbon target.”
While LGS Super has been reducing its exposure to carbon, it still has a lot in its portfolio as “that’s today’s economy”.
“We are not trying to get out of everything, we are trying to work on a transition.”
Popular across Investment Magazine