Update on Echiquier Climate & Biodiversity Impact Europe
Since its creation in 2020, Echiquier Climate & Biodiversity Impact Europe1 has pursued a long-term, twofold objective of generating financial performance and having a positive impact on climate and biodiversity. To serve these ends, it selects stocks for their financial outlook, the quality of their ESG profile and their maturity on issues of climate and biodiversity protection/restoration.
TRANSACTIONS
Economic outlook
While the fund did achieve its long-term goals, i.e., the companies in the portfolio maintained an average temperature aligned to 1.6° and a smaller carbon footprint than its benchmark2, its financial performance has weakened since early 2022.
Indeed, green stocks like renewable energy, tech companies furthering the energy transition, and naturally-sourced ingredients suffered from rising interest rates. Meanwhile, oil and mining companies, as well as those that make pollutants – excluded from the fund – outperformed in the wake of the widespread surge in commodity prices starting in early 2022.
And so, amid inflation and fears of a recession fuelled by restrictive central bank policies and the impact of the war in Ukraine, we opted for defensive quality growth stocks with higher pricing power. We built up the most economically resilient stocks (AstraZeneca3, L’Oréal) and invested in medical imaging leader Siemens Healthineers. At the same time, Europe’s need for energy independence paired with rising electricity prices prompted us to increase renewable energy producers. On the flip side, we reduced our most cyclical exposures – Schneider Electric, Alfa Laval, Steico – and divested Sto, the German building insulation frontrunner now facing a slowing housing market and the explosion of gas-sensitive costs.
Fundamentals
The investment strategy remains unchanged. The fund invests in companies that create solutions to climate and biodiversity challenges, like renewable energy producer EDPR and water purifier Kemira. Since investing in solutions is not enough to meet the environmental challenge, we are supporting pioneering companies in every fibre of the economic fabric – including healthcare, finance and luxury goods. By setting ambitious targets to reduce their environmental impact, these pioneers can drive massive change within their ecosystem. This describes DSM, a Dutch producer of food ingredients and supplements, which has set itself ambitious CO2 reduction targets including all of its suppliers and those working to preserve biodiversity by reducing their land footprint. Last but not least, we support companies in sectors that still have a large carbon or biodiversity footprint but have embarked on a profound transition. Neste, a Finnish company that was once among the world’s largest diesel refiners, has become a global leader in renewable diesel. Renewable diesel is made from renewable or recyclable raw materials: it cuts CO2 emissions by up to 90% compared to conventional diesel.
The purpose of this threefold approach – Solution, Pioneer, Transition – is to bring every economic operator on board to amplify their positive impact on the climate and biodiversity, while generating long-term financial performance.