Best Initiative for ESG investment process – Investec (Integrating ‘carbon avoided’ into the investment process)

Channels: ESG

Companies: Investec Asset Management

Investec Asset Management (IAM) has developed a process which can be applied to dedicated ESG funds or broader mandates to actively reduce carbon emissions while also including companies that benefit from structural growth areas of a decarbonising economy.

"We believe this initiative successfully combines the critical need to reduce emissions and stop runaway global warming, with the need to protect and grow client capital over the long term. Recent research suggests a correlation between ESG data (including carbon emissions) and stock price performance: the strategy aims to do well while doing good," says the firm, which manages about $134 billion on behalf of third-party clients.

IAM's screening methodology uses Bloomberg industry classifications (BICS) to highlight those companies that earn at least 50% of their revenues in areas that are impacted by the transition to a decarbonised energy system. The firm then works with carbon data provider Engaged Tracking, to calculate whether the products and services of these companies are more carbon efficient than those of their peers.

The first step in IAM's investment process is to identify those companies that are driving this "unprecedented shift in energy systems and transport". It then screens for companies where revenues can be directly associated with the concept of 'carbon avoided'.

IAM then uses the reported data for the company in question and compares it with an estimate for peers in the same BICS category.

IAM monitors the data and "the narrative behind the data." For example, as the percentage of energy-efficient devices in the overall mix increases, the baseline improves so the amount of carbon avoided decreases even as the number of products sold increases.
One judge praised the "clear, well thought-through and transparent methodology."