THEAM Quant Europe Climate Carbon Offset Plan has enhanced its investment process with an additional focus on the outlook for companies’ profitability, prospects and valuation.
The fund, created in partnership with BNP Paribas Global Markets and managed by BNP Paribas Asset Management (BNPP AM), aims to generate returns from exposure to listed companies with robust Environmental, Social and Governance (ESG) standards focusing on those with the strongest energy transition scores.
The enhanced methodology, which coincides with the fund’s two-year anniversary, is based on a more selective approach to three aspects of companies’ financial outlook:
• Profitability – assessing a company’s resources required to run its operations and assessing return on invested capital to determine if it is sufficiently meeting profit expectations.
• Prospects – analysis of a company’s momentum, return, volatility and balance of upward and downward earnings revisions.
• Valuation – earnings yield and growth creating ‘value for money’
Each company receives a score of 1-10 (10 being the highest) based on its decile ranking according to these financial metrics. The top two thirds of companies in each sector then become eligible.
This financial selectivity complements the existing strong extra-financial objectives of the systematic investment strategy, designed to capture the performance of European liquid equities with high ESG standards and robust energy transition strategies. The stock portfolio is also structured such that its carbon footprint is reduced by at least 50 per cent compared to the broad European equity universe, while keeping a similar risk/return profile.
The fund then aims to offset the remaining carbon footprint (Scope 1 and Scope 2 emissions) generated by this portfolio through the use of Verified Emission Reductions certificates (VERs), also known as carbon credits, linked to the Kasigau REDD+ Project of Wildlife Works. This offsetting of carbon footprint can be considered as partial. (See Notes to Editors).
Vincent Berard, Head of THEAM Quant solutions for the BNP Paribas Global Markets Quantitative Investment Strategy team, says: “We are very pleased to have seen a strong interest in the Europe Climate Carbon Offset Plan over the last two years, having recently strengthened its investment approach, with an added focus on companies’ financial outlook. It is delivering on its financial and extra-financial objectives, and at the same time is contributing towards a positive societal environmental, social and educational impact in Kenya.”
Francois Carré, Carbon Portfolio Manager for BNP Paribas, and a member of the Taskforce on Scaling Voluntary Carbon Markets, says: “It is clear that the voluntary carbon market is critical to achieving net-zero carbon emissions by 2050, and the Taskforce on Scaling the Voluntary Carbon Markets is helping the market reach its full potential. Our investment approach is very much in the spirit of the Taskforce’s latest recommendations i.e. Reduce, Report, then Offset. Our investors are offered the opportunity to support projects which protect vital natural ecosystems, support local communities, and help prevent catastrophic climate change.”