La décarbonisation des portefeuilles d'investissement

Investors Tackling Climate Change

 June 2015 Frederic Samama Deputy Global Head of Institutional & Sovereign Clients

Risk Management Approach

2

Executive Summary Asset owners have recognized climate change as a risk but have done little so

far.

Things are now rapidly changing for three main reasons.

Straightforward message:– Markets do not price coming taxations on polluting companies (leading to a non rewarded risk);– Investors’ fiduciary responsibility to identify and reduce these risks.

Simple and transparent products:– Reduce climate change related risks without impacting market exposure over the short term; – MSCI Low Carbon Indexes (developed jointly with AP4, FRR and Amundi);– Can be extended to the FI world.

Sharing of best practices:– Portfolio Decarbonization Coalition ($100bn commitment);– Hedging Climate Change paper (AP4/Columbia University/Amundi);– Events: Columbia Workshop, Bellagio Seminar, webinars, etc.

Amundi, N1 European asset manager, plays a pivotal role in this field.

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Climate Change Hedging

   

4

Climate Change : Global Risk for Investors

Source: WEF 2014, Global Risks Report 9th Edition

(1). Sources: Ceres, October 2013

(2). Sources: Bank of England, prudential authority, statement in Feb 2015

(3). Sources: UNEP; Financial institutions taking action on Climate change

Climate risk among top 5 global risks as:– Impactful as fiscal crisis– Likely as unemployment, data

fraud or cyber attacks

Concern among regulators as well:– Bank of England warns of huge

financial risk from fossil fuel 2

– IMF, G20,…

The Global Risks Landscape 2014

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Carbon Risk: A Shifting Debate

(1) See article from Martin Wolf published in FT 17/06/2014

(2) See article from Henry Paulson published in New York Times 21/06/2014

(3) Hearings at the Bank of England

“If that happened, fossil fuel reserves would indeed be stranded. Investor beware: the risk of that cannot be zero.” 1

Martin Wolf (17th June 2014)

“We’re staring down a climate bubble that poses enormous risks to both our environment and economy.” 2

Henry Paulson (21st June 2014)

AP4 (Fjärde AP-fonden) has developed a strategy where it underweights high carbon assets. “It’s an intelligent way of motivating behavior than directly divesting out of oil,” “Divesting out of oil is a bit like a blunderbuss, it doesn’t give any incentives for companies.“With the AP4 way you get incentives from companies in industry to perform better. AP4 has found that performance has improved in straight vanilla finance.’ 3

Lord Stern (26th February 2015)

Shift from a risk to society to a risk to investors

Not rewarded risks:– Fiduciary responsibility

to identify them – And to reduce them– If long-term investment

horizon

Among different approaches, AP4 methodology is promoted.

Two Major Risks to Investors

Polluting And Stranded Assets

Fossil fuels companies: mainly valued on their reserves

Reserves exceed the budget of the planet:

– Reserves : 2,795 GtCO2 2

– Budget : 1,437 GtCO2 3

No taxation:– No cost for negative

externalities: impact on the planet, assets, bodies…

– But a form of taxation will be implemented in long term

Direct subsidies:– Fossil fuel : $480bn 1

– Eliminating these subsidies would result in 4.1% reduction in energy demand in 2020 4.

6(1). “Energy Subsidy Reform: Lessons and Implications”, IMF (2013)

(2). Carbon budget 2000-2050 for a 50% probability to stay under 2°C increase over pre-industrial level scenario. Source “Greenhouse-gas emission targets for limiting global warming to 2 °C”, Meinshausen et al, 2009

(3). For a 50% probability to stay under a 2° increase scenario. Quantity of CO2 trapped in the world’s top 200 fossil fuel reserves, excluding unconventional sources. Source: Carbon Tracker Initiative

(4). McKinsey (2010): Energy Efficiency: a compelling global resource

Climate Change: Need for Solutions

A major threat AndComplex situation

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Call for Innovation

Lack of Action

Long-term issue (that does not match with investment horizons);

Complexity (technologies and incentives);

Lack of scalable solutions

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Methodology: Carbon Reduction Constraints

Provider’s Selection

Then Climate RiskReduction

Carbon footprint:

X% reduction of companies with the highest carbon footprint (Emission intensity)1

Stranded assets

Z% reduction of carbon reserves (Reserves intensity)2

Index Provider (MSCI)*Carbon Data Provider (MSCI)*

Then TE Reduction

Optimization of the weights Regular rebalancing

Simple, Transparent and Rules Based Approach

1 Carbon footprint divided by sales2 Reserves divided by market cap

Decarbonization: Free Option on Carbon Repricing

NB: Random simulations with annual volatility at 20%, annual expected return 7% and a 0,5% TE.

1 2

Benchmark Low Carbon Low TE Benchmark Low Carbon Low TE

If no repricing: same performance

If repricing: Outperformance

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Free Option – Either no climate change impact : same performance– Or a climate change impact : outperformance

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MSCI Europe Low Carbon Leaders

Source: MSCI

* Gross returns annualized in EUR for the 11/30/2010 to 08/29/2014 period.

** Annualized one-way index turnover for the 11/30/2010 to 06/30/2014 period.

The cumulative index performance is from MSCI

Key MetricsMSCI

EuropeMSCI EuropeLow Carbon

Leaders

Total Return* ‘(%) 11.1 11,7

Total Risk* (%) 11.7 11.6

Sharpe Ratio 0.91 0.97

Active Return* (%) 0 0.6

Tracking Error* (%) 0 0.7

Information Ratio NA 0.89

Turnover** (%) 1.9 9.9

Securities excluded NA 91

Market cap excluded (%) NA 23.5

Carbon Emission intensity reduction (tCO2/mm USD) (%)

NA 62

Carbon Reserves intensity reduction (tCO2/mm USD) (%)

NA 81

Excludes: – Largest 20% emitters with a

maximum 30% by weigh form any sector

– Largest owners’ reserves up to 50%

Major reduction of:– Carbon Emissions Intensity (-

62%)– Carbon Reserves Intensity (-

81%)

Low tracking error: 0.7 %

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MSCI Europe Low Carbon Leaders

Source: MSCI




Return vs. benchmark: – 12.1% vs 11.5%– Even if supposed to be

forward looking

Regular outperformance

Concrete investment:– Nov ‘14-April ‘15– 100bp of

outperformance

MSCI Europe Low Carbon

leaders

MSCI Europe

Two Main Approaches

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Target(optimizer)

Leaders(rules based)

Method • Optimization of Carbon footprint / TE

• Selection (best-in-class) + re-weighting

Footprint impact

• Function of calibration• High


Performance impact

• Positive if carbon risk not yet priced in


Risk/TE • Very low TE• Concentrated

remaining TE

• Low TE• Diversified remaining

TE

Signaling / Incentives

• Weak • Strong signaling, strong incentives

Both Target and leaders are achieving a very good balance low TE/Risk reductions

Target is based on an optimizer that reduces even more the TE

Leaders is based on rules that send clear messages to companies

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Mix of Different Approaches

• * Low carbon leaders: exclusion based on transparent rules and with a cap per sector• (1) For polluting companies

Exclusion Engagement

+ Easy to Implement

- Possible light impact

Risk Management+ Strong Signal

- Does not fit with constraints of most investors

- Scalability? Limits?

Targeted and dynamic exclusion*

+ Combines Exclusion and Engagement

+ Fits with investors constraints & Scalable

+ Competition within each sector to accelerate carbon transition 1

- Middle Road Approach

Existing Investment Vehicles

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Open-ended Index Funds:– Amundi Index Equity Europe Low Carbon

– Benchmark: MSCI Europe Low Carbon Leaders

– Launched in France: March 5

– Amundi Index Equity Global Low Carbon– Benchmark: MSCI World Low Carbon

Leaders– Launched in France: March 5

ETF (already launched):– Amundi Index Equity Global Low Carbon

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Concrete Decarbonization by Institutional Investors MSCI Low Carbon indices

– Developed alongside AP4 and FRR and Amundi 1

– FRR and AP4 plan to invest up to EUR 2bn

Tailored decarbonization– ERAFP 2:– Keep the same reference index– EUR 1.1bn

(1) https://www.msci.com/documents/10199/447d3ba7-e215-45c9-8b14-74031a80f4bc

(2) http://www.lesechos.fr/journal20140923/lec2_gestion_d_actifs/0203782634292-philippe-desfosses-lerafp-va-decarboniser-son-portefeuille-dactions-de-la-zone-euro-1045591.php

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Rewarded Clients IPE Awards 2014:

– AP4: – Best Public Pension Fund– Outstanding Industry Contribution

– FRR: Best French Pension Fund

Environmental Finance 2015:– AP4: Personality of the Year

Responsible Award 2014

– ERAFP: Positive economy

Wide Range of Solutions

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From liquid to illiquid assets

Illiquid

PE

« EDF »

Fixed Income

Passive

Stock Picking

Decarbonization of IndicesOverlay

Equities

Active Passive

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Fixed-Income

Barclays Euro Corporates# bonds ~ 1500

# issuers ~ 480Interest rate sensibility 498

Bonds sensibility 525Carbon intensity 145

# bonds ~ 1300# issuers ~ 380

Carbon reduction 36%Tracking Error 0.08%

# bonds ~ 110# issuers ~ 110

Interest rate sensibility 498Bonds sensibility 525

Carbon reduction 58%Tracking Error 0.17%

Investment universe/ Benchmark index

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Exclusion of 20% of the most polluting issuers (up to 30% maximum per sector) while having stranded assets

Sampling process aiming at reducing the amounts lent to polluting issuers

2

1 Decarbonization of Barclays Euro Corporate

Process:– 58% carbon footprint

reduction– Same market exposure

(yield/spread)– Low TE: 0.17%

Discussions with index providers to launch:– ETF– Mainstream index

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Portfolio Decarbonization Coalition Commitment to decarbonize:

– $45bn achieved up to now

Open platform: – Investors share best practice– Governance: UNEP-FI

Members: – AP4, Australian Ethical Investment, ERAFP,

Fonds Francais de Retraites, Church of Sweden, Environment Agency Pension Fund, Legal Government Super, University of Sydney, Toronto Atmospheric Fund

“Some of the biggest – and potentially transformational announcement at my Climate Summit came from the private sector. A coalition of institutional investors has committed to decarbonize $100bn in institutional equity investments”

Ban Ki-moon, UN Secretary General

 http://unepfi.org/pdc/

http://unepfi.org/pdc/

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2015 Sharing of Best Practices among Asset Owners March 9th: Columbia University

Asset owners in the first panel:– A. Stausboll, CEO, CalPERS– B. Litterman, Investment Committee, WWF– M. Eriksson, Deputy CEO, AP4– P. Desfossés, CEO, ERAFP– E. van Gelderen, CIO of APG

30 asset owners, $6tn

“The Decarbonization Portfolio Coalition is a positive step in this direction. I salute the mobilisation of its founders Amundi, AP4, CDP and UNEPFI, and investors that have signed up since its launch at the Climate Summit, and encourage all institutional investors to take these commitments even further by the COP21.” Laurence TubianaFrench Representative for the COP21

“We welcome asset owners and managers, such as those present at this critical gathering at Columbia University, to become members of the Portfolio Decarbonization Coalition so as to share, with the public and world governments, their approaches. PDC will then be able to make this 'wealth of action' visible to Governments in the lead-up to COP21 in Paris. This is what, in 2015, investors can concretely do in order to help us build an enabling environment towards a successful climate agreement at the Paris COP." Janos PasztorAssistant SG on Climate Change

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Sharing of Best Practices among Asset Owners April 7th: Rockefeller seminar at Bellagio

Sharing of best practices (including):– Asset ownersM. Andersson, CEO, AP4

G. Hahn, Head of RI, Church of Sweden

E. Mason, Head of RI, Church Commissioners for England

B. Litterman, Treasurer of the Board of Directors, WWF

P. Desfossés, CEO, ERAFP

S. Palmer, Head of Ethics, Australian Ethical Investment

O. Rousseau, Management Board, FRR

J. Sefton, Senior Analyst RI, New Zealand Super Fund

– Policy makersR. Arezki, Senior Economist, IMF

P. Canfin, Senior Advisor, World Resources Institute

H. Huang, Head of Sales and Trading, CICC

– AcademicsP. Bolton, Columbia University

J. Svejnar, Columbia University

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Academic Paper Columbia/AP4/Amundi Andersson, Bolton & Samama (2014)

– Signaling is key to generate right incentives;

– Risk analysis.

Top 10 most downloaded papers 1

Published in Revue d’Economie Financiere

High visibility:– “Long-termism, the problems with

capitalism and other holiday reading” (Dec 2014) 2

(1) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2499628

(2) http://www.top1000funds.com/opinion/2014/12/18/long-termism-the-problems-with-capitalism-and-other-holiday-reading/

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Conclusion

(1) Source: www.CDP.net as at 2014. “CDP Initiative is backed by more than 767 institutional investors representing an excess of US$92 trillion in assets.”

(2) Boston Consulting Group , Global Asset Management 2014 – Steering the Course to Growth

Climate change is now a real risk for investors– Analyze and disclose their risks– Consider carbon as an investment opportunity

In sum: investors can generate a free-option on a mispriced asset

Such solutions could be a base for further developments:– Country selection based on political sensitivity to climate change – Replication on other themes (e.g. water, waste, etc.)

Possible mobilization of a vast amount of money:– Investors with a green interest represent $92 trillion 1

– Passive management sums up to $10 trillion 2

Portfolio Decarbonization Coalition: – Sharing of best practices to mobilize investment flows toward the low carbon economy– $45bn commitment already achieved

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APPENDIX

   

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Climate Change: China Tackling Climate Change

(1) http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1194544.shtml

(2) http://www.theguardian.com/environment/2015/mar/05/china-vows-to-fight-pollution-with-all-our-might

(3) http://www.yicai.com/news/2015/02/4575974.html

“Tackling climate change is the intrinsic requirement of China's sustainable development as well as the international obligations of a responsible major country.” 1

President of People’s Republic of China, Jinping Xi (December 2014)

“China expects to reduce Carbon Emission further by more than 3.1% this year, adding it aims to stop coal consumption growing in key areas.” 2

Premier of People's Republic of China, Keqiang Li (March 2015)

“The PBOC highly valued the development of green finance, and aims to promote the attractiveness of green projects and investments in green industries.” 3

Deputy Governor of PBOC, Gongsheng Pan (February 2015)

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Climate Change: China Tackling Climate Change Commitment by 2030:

– Cap carbon emissions (earlier if possible)– Increase the share of non-fossil fuels to 20% 1

Actions:– Domestic ²:

– One of main policy focus: China’s Policies and actions on Climate change

– 7 ETS Pilots; National ETS in 2016 – International corporation:

– Widely involved in multilateral corporations: UNFCCC, G20, etc.

– Bilateral corporations: US, EU, etc.

Moving forward…– COP 21: Reduction target to be submitted in June– PBOC: Green Finance Development Project to be

included into the 13th FYP ³

(1). http://www.yicai.com/news/2015/02/4575974.html,

(2). http://www.theguardian.com/environment/2015/mar/05/china-vows-to-fight-pollution-with-all-our-might,

(3). http://www.baidu.com/link?url=BX8K8Tpgvzigew5H0Tpig4lnlpk-IJa4G4GI_was8GmHNqDxP-6hJ7JuGtIUZ4RE5teZpn-PfJygtcj9oJR-4t3ubTrp-84V8cWylVCS1ce

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Carbon Budget Equation in Line with 2°C Goal

(1) To have at least a 50 per cent chance of keeping warming below 2°C throughout the 21st century , the cumulative carbon emissions between 2011 and 2050 need to be limited to around 1,100 Gt CO2. See Nature, January 2015 and IEA, March 2015. (2)United Nations Department of Economic and Social Affairs/Population Division 3, World Population to 2300

Source : Nature 2009, Meinshausen et alii, Greenhouse-gas Emissions Tragets for Limiting Global Warming to 2°C

2°C objective key figures 2011-2050:

– CO2 concentration limit: 450ppm  Vs. 400ppm (particles per million) in 2015

– CO2 emissions / year limit: 35 GtCO2   Vs. 32.3 GtCO2 in 2014

– Carbon budget: 1,100 GtCO2 (1)

  Vs. 300 GtCO2 burnt since 2000

Growing energy needs:

– World pop. to reach 8.9bn in 20502

– 3bn more middle class consumers by 2030

– Growth in electricity demand in developing countries (e.g. x2 in India over the next 10yr)

– More than 1bn without access to electricity in 2013, rising to 2.5bn in 2030

World Energy-related CO2 Emissions by Scenario

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Remaining Ultimately Recoverable Resources

Stranded Assets

Source graphs: IEA 2013, Redrawing the Energy-Climate Map

(1) Nature, January 2015

(2) Nature, April 2009

The Carbon Budget Gap:– Budget for 2011-2050: 1,100 GtCO2

  CCS only slightly increases burnable reserves budget before 2050 (6% for coal, 2% for gas and oil)

– Proven fossil fuel reserves: 2,900 GtCO2e

– Estimated fossil fuel reserves: 11,000 GtCO2e

Low-demand Low-price 450ppm Scenario:– A 450ppm scenario requires energy-

efficiency measures– Lowering fossil fuel demand, depressing

prices– Impacting marginal producers: deepwater,

oil sands, shale oil, thermal coal– And resource owning countries:

Middle East (owns half of stranded assets)

Canada (very low utilization rate)

World Energy-related CO2 Emissions by Scenario

 Oil  Gas Hard Coal

 Lignite 2°C

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US Coal Crash

(1) Sen. Mitch McConnel of Kentucky, see The New York Times “McConnell Urges States to Help Thwart Obama’s ‘War on Coal’”

Asset Value Depends on Production Costs and Market Price

Climate Policy Initiative, 2014, « Moving to a Low-Carbon Economy: The Impact of Policy Pathways on Fossil Fuel Asset Values”

US Coal crisis is caused by shrinking demand With a combination of 3 factors:

– Cheap substitute (gas)

– Regulation: Clean Air Act, “Obama’s War on Coal” (1)

– Declining exports (slowdown in China and strong USD)

Equities and bonds of coal companies are affected:– Peabody’s stock has lost 87 % of its value in

the past 5 years

– 5 years CDS on Peabody: rose from 707bp to 948bps at the end of 2014

– Risk premia have surged

Share price performance of US coal companies, Jan 06 – Jan 15

Carbon Tracker, March 2015, The US Coal Crash, Evidence for Structural Change

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Carbon Pricing by Economists

Climate change impacts (negative externalities) will mostly materialize in a distant future (2050-2100 and after)

Carbon pricing relies on Cost-benefit analysis (CBA) to maximize intertemporal welfare:– Net Present Value of future damages generated by one tonne of CO2

– Discount rate is key (reflects elasticity of intertemporal substititution)– Is the discount rate a good proxy for risk aversion?– What is the Beta of reducing emissions? (i.e. Elasticity of monetized damages to the world

GDP)

Discount Rate Carbon Price ($/tCO2) Carbon Price ($/tCO2) in 2050

Nordhaus (2008) 5% $8 in 2008 $25.9

Stern (2007) 1,5% (2000$) 85 in 2007 NA

US EPA (2013) 2,5% // 3% // 5% (2010$) 57 // 37 // 11 in 2015 $97 // $71 // $26

3% with tail risk (95th percentile)

(2010$) 109 $220

Daniel, Litterman, Wagner (2014)

2.5% $53 $44 (in 2045), $28 (in 2105)

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The Issue of Externalities and Market Distortions

(1) IMF 2013

(2) IAE 2013

 Un

win

d reso

urce

sub

sidies

 Reco

gn

ize externalities

Private and social cost:

US$ 1,420 bn in 2013 (1)

Renewable energy subsidies:

US$ 121 bn in 2013 (2)

Fossil fuel subsidies:

US$ 548 bn in 2013 (2)

– The marginal private cost of CO2 emissions is inferior (usually being nil) to the social cost associated with global warming damage

E.g.: Adding the social and environmental cost associated with coal to its actual cost would raise its price by 175% (Greenstone & Looney 2011)

– Three ways to reduce CO2 output to the socially optimum level:

Pigovian Tax Regulation Creation of a market for polluting rights (e.g.

Emissions Trading Schemes)

– More than four times lower than fossil fuel subsidies

– Fossil fuel subsidies have decreased by US$ 25 billion compared to 2012, in part due to a decrease in international energy prices

– Subsidies to oil products represent over half of the total– Total fossil fuel subsidies represent more than four times the

amount invested globally in improving energy efficiency

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From Shadow Price to Internalization

(1) From the US China Climate deal: China, the biggest emitter of greenhouse gases in the world, has agreed to cap its output by 2030 or earlier if possible. Previously China had only ever pledged to reduce the rapid rate of growth in its emissions. Now it has also promised to increase its use of energy from zero-emission sources to 20% by 2030. The United States has pledged to cut its emissions to 26-28% below 2005 levels by 2025.

Pieces of Carbon- and Clean-energy Focused Legislation and/or Regulation – Worldwide

UNEP-FI 2012

Upward trend at sub-national and at national levels:– 490 pieces of carbon legislation in 2012 Vs. 151 in 2004– Bottom-up emergence of a global landscape

Developing countries are taking up the challenge: – ETS scheduled or implemented: China, South Korea,

Kazakhstan– ETS under consideration: Brazil, Chile, Mexico,

Thailand, Vietnam, Turkey

China’s new stance can be a game changer1:– Coal peak by 2020, CO2 peak in 2030

– Increases zero-emission sources to 20% by 2030– National ETS to be implemented in 2016

A new global deal is to be reached in 2015:

– All countries to commit themselves to implement their targets (first half of 2015)

– Durban Platform (ADP) to be adopted for an implementation in 2020

– New ways to finance this transition to be found, from the North to the South (Green Climate Fund still underfunded)

Concerns about free-riding issues remain high

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MSCI World Low Carbon Leaders Excludes:

– Largest 20% emitters with a maximum 30% by weigh form any sector

– Largest owners’ reserves up to 50%

Major reduction of:– Carbon Emissions Intensity (-

50%)– Carbon Reserves Intensity (-

68%)

Low tracking error: 0.6 %

Key metricsMSCIWorld

MSCI WorldLow Carbon

Leaders

Total Return* ‘(%) 12.7 13.1

Total Risk* (%) 13.2 13.3

Sharpe Ratio 0.95 0.99

Active Return* (%) 0 0.4

Tracking Error* (%) 0 0.6

Information Ratio NA 0.72

Turnover** (%) 1.7 6.9

Securities excluded NA 328

Market cap excluded (%) NA 17.4

Carbon Emission intensity reduction (tCO2/mm USD) (%)

NA 50

Carbon Reserves intensity reduction (tCO2/mm USD) (%)

NA 68

Source: MSCI




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MSCI World Low Carbon Leaders

Source: MSCI




Return vs. benchmark: – 13.1% vs 12.7 %– Even if supposed to be

forward looking

Regular outperformance

MSCI World Low Carbon leaders

MSCI World

Comparison of Decarbonization Methods

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Target funds (pure re-weighting)

Low carbon leaders Disinvestment

Method • Optimization of Carbon footprint / TE

• Selection (best-in-class) + re-weighting

• Selection (exclusion of sub-sectors)

Footprint impact



• Very high

Performance impact



• Uncertain, depends on relative performance of energy sector

Risk • Limited • Limited • Very strong sectorial bets

Signaling / Incentives

• Weak • Strong signaling, strong incentives

• Strong signaling, but weak incentives for divested companies

Concerns • Alignment with climate performance (Scope 3)

• Alignment with climate performance (Scope 3)

• Not commercially driven• Possible tension with

economic development of poor countries

Carbon Footprint Measurement

Detailed methodology in Appendix from Slide48 to Slide 54 36

Greenhouse Gas (GHG) Protocol sets the global standard for how to measure, manage, and report greenhouse gas emissions

GHG protocol defines three categories of carbon emissions:– Intensity = – Scope 1 = Direct GHG emissions– Scope 2 = Indirect GHG emissions from consumption of purchased electricity, heat or steam– Scope 3 = Other indirect emissions– Modelling if necessary

Stranded assets (Reserves):– Intensity = – Just a few companies concerned in the oil & gas, metals and mining and utilities sectors

Carbon Disclosure Project serves as a repository for corporate’s GHG emissions data

Financial data providers such as MSCI or Trucost fine tune and repackage CDP datas into comprehensive GHG emissions & stranded assets database

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Climate Change Reporting by Companies

Source: CDP 2014, CDP Russia Climate Change Report

(1) www.cdp.net

CDP Investor Base Continues to Grow A growing demand from investors(1):– 822 investors with $95 trillion in assets have

asked more than 5,000 companies to disclose their carbon emissions and climate change strategies through CDP

Gaps remain in reported emissions (Sc. 1 & 2):– ACWI: 48% of companies, 70% of market cap – World: 58% of companies, 75% of market cap

Caveats:– Standards / Benchmarking– Third party verification– Scope 3

Climate impact is not always aligned with scope 1 & 2 carbon footprint

Access to Scope 3 standardized data is the challenge:– Scope 3 emissions can account for as much as

90% of total carbon impact (e.g. automobile, retail, etc.)

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Equities Customized Solutions: Smart Beta Decarbonization Decarbonization of Scientific Beta Value Max

Deconcentration Smart Index:

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

0

100

200

300

400

500

600 Carbon emissions intensity

Key metricsEdhec Value Max Deconcentration

Low carbon “Rule”**

Low carbon “Carbon Optimizer”***

Annualized Return 16.7% 17.1% 16.9%

Annualized Risk 14.0% 14.0% 14.0%

Sharpe Ratio 1.12 1.15 1.13

Active Return - 0.4% 0.2%

Ex post Tracking Error - 0.55% 0.17%

Information Ratio - 0.71 0.93

Carbon Emission intensity* - -50% -50%

Carbon Reserves intensity* - -52% -53%

Carbon emissions:– Edhec Max Dec : high

carbon footprint (Reason: small polluting companies, mostly in the utilities sector, are overweighted*).

Decarbonization brings back to MSCI World carbon intensity level

With slight outperformance:– Rule: +0,4%– Carbon Optimizer: +0,2%

With limited TE:– Rule: 55bp– Carbon Optimizer: 17bp

*The difference between the Edhec and the MSCI World carbon intensities is 225 CO2 tons / millions $ of sales* Which 45% can be explained by the top 10 and bottom 10 contributors

** Low Carbon « Rule » : a proportion of the worst polluters within each sector is excluded before the TE optimization. The benefit of this approach is the transparency regarding the exclusion rule.

*** Low carbon « Carbon Optimizer »: no companies are excluded ex-ante. The benefit of this approach is its greater efficiency.

Edhec Max Deconcentration

MSCI World Carbon Optimizer/Rule Reduction

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Decarbonization of Fixed-Income Portfolios Debt decarbonization tackles carbon risk Green bonds investments are SRI / Impact-driven

Green Bonds Debt Decarbonization

Objective • Impact investing • SRI policy

• Carbon risk hedging

Functioning • Bonds with dedicated use of proceeds to projects generating a direct environmental benefit-renewable energies, energy efficiency, climate change adaption or social benefits

• Low carbon fixed income indexing with the exclusion of most polluting issuers based on their carbon footprint (and sampling to limit further the exposure to polluting companies)

Development • Expected to reach total outstanding amount of $100bn in 2015

• Beginning of standardization and emergence of Green bond indices

• Projects underway

Benefits • Impact-driven (“use of proceeds”)• Reputation• No extra financial costs as an investor (so

far)

• Reduction in amount lent to polluters• Diminishing carbon risks• Optimization to replicate the benchmark risk• No extra financial costs as an investor

Concerns • « Green-wash » risk• Low impact risk• No real standardization and lack of

« greenness » evaluation• Liquidation concerns

• Lack of accuracy of carbon footprints• No real value creation via exclusion

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Changes in rates of exchange and other factors may cause the value of an investment to go up or down. As a result, you may lose, as the case may be, the amount originally invested. Performances may be appreciated over the recommended investment period but cannot be a guarantee. The offering documents of the products should be read for further details.  AMUNDI accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. AMUNDI can in no way be held responsible for any decision or investment made on the basis of information contained in this material. This material, which is not a contract, is based on sources that AMUNDI considers to be reliable. Any data provided herein is based on assumptions and parameters that reflect AMUNDI’s good faith judgment and therefore no guarantee is given as to the accuracy, completeness or reasonableness of any such data. Data, opinions and estimates may be changed without notice. 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