Aegon decided to gain a better understanding of the CO2 impact of its investments as a first step in deciding on possible future actions regarding climate change and carbon emissions. Aegon selected three actively managed GA investment portfolios, which are managed against a recognized benchmark. Given its strong emphasis on fixed income investing, Aegon selected fixed income portfolios. Trucost provided a customized report for each portfolio showing the CO2 intensity of the portfolio against the benchmark that is being tracked.
Below is an extract from Aegon's Responsible Investment Report 2014, which features an interview with Mike Mansfield (Aegon Sustainability) and Claire Curtin (Trucost), who managed the project.
Why did you decide to measure the carbon footprint of your investments?
Mike: We are now beginning to see Aegon shareholders taking an active interest in our sustainability profile, including the companies we invest in. This has, for example, been seen recently in questions asked from the floor at our shareholder meeting about measuring Aegon’s environmental impact. As an insurance company, Aegon itself doesn’t have a big operational impact, but through its large portfolio of investments held by Aegon Asset Management it has an indirect ‘carbon footprint.’ The carbon footprint of a company is considered to be the most direct pointer to the sustainability profile of any enterprise. Aegon must be able to anticipate this demand for information and that means we are establishing the processes, tools and culture needed to respond to these requests.
Claire: It’s important to understand that this interest is not driven by soft environmental sentiment. The world is just beginning to realize that there can be no business sustainability without environmental sustainability – and, from an investment perspective, that means identifying companies which have made the reduction of their carbon footprint a priority.
With your initial activity, what was the focus and what was the result?
Mike: We selected three diverse portfolios, one in the UK, one in the Netherlands and one in the US. We initially considered carrying out the carbon footprint analysis ourselves, but rejected this in favor of engaging Trucost. In part this was because we wanted their independence to lend credibility to this process, and, in part, because in this newly emerging area of business analysis, they have already established a respected reputation.
Claire: The results of this initial investigation were interesting: each of the three portfolios was less carbon intensive than the benchmark, sometimes significantly so. We found that this was often because of an underweighting of the more carbon intensive sectors, for example utilities, which are typically highly carbon intensive because of their utilization of fossil fuels. Also other, less carbon intensive, sectors tended to be underweighted.
How have AAM portfolio managers responded to this initiative?
Mike: Positively, I think. We examined the results of the study with the relevant portfolio managers and analysts. They were keen to learn how the carbon footprint of their portfolios compared against the footprints of the companies in the relevant benchmarks. To be perfectly transparent, we also found that the carbon intensity is not a key factor in making these investment decisions or sector allocations, but we hope that our discussions around this analysis have planted a seed in the sense that portfolio managers will become more aware of these environmental considerations and their financial impact.
AAM is moving toward a position in which you can be ready to answer carbon footprint questions. But how can you turn this to business advantage for your clients?
Mike: We are at the start of this journey, but I believe we are beginning to create value. Just take, for example, the differences in understanding of carbon footprinting between equities and fixed income. It is far more advanced in the former than the latter, but as a significant fixed income investor we see a role for AAM in helping to further develop intelligence in this area – and we are already beginning to do so.
Claire: As an outsider, it is interesting to ask how AAM makes a difference. Although your own carbon footprint is modest, as investors you are able to influence the enterprises in which you invest. In this respect, your behavior has a direct impact on the environment – and the more that environmental impact analysis becomes integral to your portfolio choices, the greater the impact.
Further information
Aegon Responsible Investment Report 2014
Claire Curtin is the head of investor research at Trucost. Prior to joining Trucost, she worked as a client relationship manager at EIRIS. She has over ten years’ experience in the asset management and hedge fund industry, as a product specialist for a range of asset classes and strategies and working for Pioneer Alternative Investments, BlackRock and JPMorgan Asset Management.
This article was republished with permission from Trucost.
