Update on... Echiquier Climate & Biodiversity Impact Europe | October 2024
Adrien Bommelaer, Paul Merle and Luc Olivier, CFA, Fund Managers of Echiquier Climate & Biodiversity Impact Europe, La Financière de l’Échiquier (LFDE)
Since 2020, Echiquier Climate & Biodiversity Impact Europe has stood out for its unique approach aimed at engaging all sectors of the economy in achieving carbon neutrality and preserving biodiversity. The fund is made up of companies selected for their good financial prospects, the quality of their ESG profile and their maturity on climate and biodiversity preservation or restoration challenges. Since the beginning of the year, your fund has delivered a positive performance in a favourable market environment. Central banks on both sides of the Atlantic have adopted more accommodative monetary policies, supported by falling inflation, while the central economic scenario remains one of a soft landing. The fund also continues to meet its two long-term environmental impact objectives. The first is to ensure that the average temperature increase of the companies in the portfolio is in line with the Paris Agreement target. At the end of August, the fund’s average temperature increase was 2.0°C, compared with 2.6°C for its benchmark. The target of a carbon footprint below the benchmark was also met: at the end of August, it was almost half that of the benchmark.[1]
PORTFOLIO ACTIVITY
Economic outlook
To guard against a moderate slowdown in the global economy, we are maintaining high exposure to companies with visible and recurring revenues, such as SAP and Compass, as well as resilient sectors such as healthcare with Novo Nordisk and insurance with Allianz. We also favour companies that are able to generate cash in a market environment characterised by falling interest rates and inflation that, although declining, will remain higher than before the Covid crisis.
Fundamentals
Although we are not currently investing in pure players in the renewable energy sector, we have increased our exposure to grid operators such as E.ON and Iberdrola, and cable manufacturers such as Nexans. These players are driven by the electrification of the economy, which requires the expansion and modernisation of electricity networks. We have also returned to the flavours and ingredients sector with Givaudan and DSM, companies with solid fundamentals that make a positive contribution to biodiversity. The fund thus offers a balanced profile in terms of style, with almost 41% exposure to growth stocks, 25% to cyclical stocks and 34% to value stocks.[2] We will remain cautious on small and mid-caps unless interest rates fall sharply and as long as the economy remains fragile. We will remain agile if necessary.
INVESTMENT STRATEGY
The fund’s investment strategy remains unchanged. We invest in companies that provide solutions to climate and biodiversity challenges, such as Schneider Electric in energy efficiency or Veolia in waste treatment and recycling. But we believe that investing in solutions alone is not enough to meet the environmental challenge. We continue to support pioneers in sectors such as healthcare, finance and luxury goods. By setting ambitious targets for reducing their environmental impact, these companies can drive massive change within their ecosystems. One example is Munich Re, the world’s leading reinsurer, which has made a strong commitment on climate. We also work with companies in sectors that still have a significant carbon or biodiversity footprint, but which have embarked on a profound transition. This is the case of Epiroc, a Swedish specialist in the supply of equipment and services for the mining industry. At a time when the development of renewable energies and electric vehicles requires a growing number of heavy metals, Epiroc is promoting the transition of a highly controversial sector by developing autonomous, electric equipment. Its products help to improve safety and reduce the industry’s CO2 emissions. The group has a high-quality financial profile, with strong cash generation and high margins. The purpose of this threefold approach – Solutions, Pioneers, Transition – is to move all sectors of the economy towards carbon neutrality and biodiversity preservation, while generating long-term financial performance.
The stocks referred to are given by way of example. Neither their presence in the portfolio nor their performance are guaranteed. The opinions expressed in this document are the authors’ own. LFDE shall not be held liable for these opinions in any way. The fund is primarily exposed to the risk of capital loss, equity risk, small and mid-cap investment risk, currency risk and discretionary management risk. Investors should note that their investment in an impact strategy does not generate a direct impact on the environment or the company, but that the strategy seeks to invest in companies that meet the specific criteria set out in the management strategy.
For more information on the characteristics, risks, and costs of these funds, and before making any investment, we invite you to read the regulatory documents available on our website at www.lfde.com.
You can find the monthly investment reviews for all our funds here: www.lfde.com
[1] Carbon4Finance data
[2] 30/09/2024