Fund Solutions

Net Zero Leaders Thrive on Climate Risk – Robeco

The asset manager’s analysis of ‘polluting-minus-clean’ portfolio tracks annualised average returns of climate leaders and laggards.  

Companies leading the way in the net zero transition deliver higher average returns during periods of anomalous high temperatures and climate policy uncertainty compared to laggards, according to asset manager Robeco.  

Through an experimental long-short ‘polluting-minus-clean’ (PMC) portfolio, Robeco took long positions in stocks identified by the firm’s proprietary SDG framework as contributing negatively to one or more climate-related United Nations Sustainable Development Goals (SDGs). It also took short positions in stocks that contribute positively to those same goals: SDG 7 (affordable and clean energy), SDG 11 (sustainable cities and communities) and SDG 13 (climate action). 

The firm then tracked the difference in returns generated by the portfolio’s polluting and clean companies between January 2006 and August 2021, using its climate policy uncertainty (CPU) and temperature anomaly indices – the former constructed by “focusing on the textual similarities of authoritative texts on climate change”. 

In periods of rising, stable and subsiding climate concerns and policy uncertainty, the PMC portfolio generated average returns of -4%, 1.3% and 1.4%, respectively. Climate policy uncertainty peaked in both December 2009 during COP15 in Copenhagen – generally recognised as a low point in climate diplomacy – and in November 2015, the month before the adoption of the Paris Agreement. In both instances, PMC saw a downturn in performance. 

These outcomes are “in line with our expectations and allows us to conclude that climate laggards tend to be more negatively affected during periods of increased climate policy uncertainty compared to climate leaders”, wrote Joop Huij, Robeco’s Head of Indices.  

The PMC portfolio also delivered an average annualised return of -4.8% during months when average temperatures were “anomalously high”, but delivered a “significantly higher” annualised average return of 4.4% during months with anomalously low temperatures.  

This follows previous research undertaken by the asset manager, which mapped out how a carbon footprint metric could be more broadly used to determine portfolio- or entity-level decarbonisation pathways. 

Asset managers have increasingly been launching sustainable funds targeting the SDGs, in response to growing demand from asset owners to make a real-world positive impact through their investments. 

Research has previously shown that asset owners still experience difficulty finding consistent ways of measuring the contribution of their investments to the SDGs.   

To fulfil the global sustainability development targets by 2030, between US$5-US$7 trillion of investment is needed a year, according to the World Bank.  

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