Update on... Echiquier Climate & Biodiversity Impact Europe - November 2023

Created in 2020, Echiquier Climate & Biodiversity Impact Europe has a twofold objective of generating financial performance and having a positive impact on climate and biodiversity. The fund is made up of companies selected for their financial outlook, the quality of their ESG profile and their maturity on climate and biodiversity preservation or restoration challenges. It continues to meet its two long-term environmental impact objectives: an average portfolio temperature aligned with the Paris Agreement, and a carbon footprint below that of its benchmark. At the end of September, the fund’s average temperature was 1,8°C^[1] and its carbon footprint was almost half that of its benchmark.^[2] However, financial performance has been penalised by unfavourable positioning since the start of the year. So-called “green” companies, such as renewable energy producers, have suffered from rising interest rates and the decline in public funding for Europe’s energy transition. These stocks’ sharp falls explain 75% of the underperformance. At the same time, the energy sector, mining companies and polluting materials companies, which by their very nature are not included in the fund, outperformed.

Operations

Economic outlook

Against the backdrop of high inflation and interest rates, we have favoured defensive stocks benefiting from strong pricing power: we have strengthened our positions on stocks that are most resilient to the economic climate, such as Novo Nordisk in healthcare and L’Oréal in consumer staples, and invested in Compass, the leader in contract foodservice. At the same time, we have reduced our exposure to small and midcaps, which are likely to continue to suffer from the drying up of liquidity in the markets. Finally, we reduced our exposure to green stocks with high valuations, selling Alfen and Tomra in particular, while strengthening positions on those with less demanding valuations, such as Kemira and Iberdrola.

Fundamentals

We continue to support pioneering companies in all sectors, including healthcare (Novo Nordisk), finance (Allianz) and luxury goods (Hermès). By setting ambitious targets for reducing their environmental impact, these companies can drive massive change within their ecosystems. One example is L’Oréal, which has set ambitious targets for reducing CO₂ emissions, including those of its suppliers. Highly dependent on biodiversity, L’Oréal has initiated the restoration of 1 million hectares of land and is aiming for biobased ingredients to account for 100% of its inputs by 2030 (94% today).

Investment strategy

The fund’s investment strategy remains unchanged. The fund invests in companies that create solutions to climate and biodiversity challenges, like renewable energy producer EDPR and water treatment company Kemira. We believe that investing in solutions alone is not enough to meet the environmental challenge. We also work with companies in sectors that have a significant carbon or biodiversity footprint but have embarked on a profound transition. Neste, one of the world’s largest established diesel refiners, is a prime example. The Finnish group has become the world leader in renewable diesel, a fuel made from renewable or recycled raw materials such as cooking oil, reducing CO₂ emissions by up to 90% compared with conventional diesel. This change of model will have a positive impact in the long term.

Adrien Bommelaer, Fund Manager, Paul Merle, Fund Manager, and Luc Olivier, CFA, Fund Manager

Disclaimers: Past performance is not an indication of future performance. The Fund is currently exposed to the risk of capital loss, equity risk, small and mid-cap investment risk, currency risk and discretionary management risk. 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 decision to invest in this fund should not be based exclusively on its non-financial approach and should take all of the fund’s other features, as described in its prospectus, into account. Investors should note that their investment in the fund does not generate a direct impact on the environment or the company, but that the fund seeks to select and 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.

[1] In other words, in line with the Paris Agreement objective of keeping the increase in temperature well below 2°C by 2100 compared with the pre-industrial era.