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Climate change means investment portfolios will face great challenges

The mitigation of climate change and the transition to a CO2-neutral economy is one of the biggest challenges for the coming years. "Business-as-usual" is no longer an option. Climate change and numerous measures to contain it constitute a systemic risk. An integration of this risk is therefore becoming increasingly important as a fundamental component of holistic risk management in all industries.
 
Increasing social and regulatory pressure leads to the fact that the financial industry must also make its contribution. With a traditional equity portfolio (MSCI World), the economy is on a global warming path of ca. six degrees Celsius. To achieve the target of 1.5 degrees Celsius agreed in the Paris climate agreement, the measurement, disclosure and reduction of the CO2 footprint of investment portfolios are becoming increasingly important. Leading institutional investors are already working hard to decarbonize their portfolios.

Finreon ZeroCarbon®: Thinking through the CO2 reduction of investment portfolios

Market-based approaches have prevailed – The development of sustainable investments (ESG) to date has shown that broad, market-based solutions have prevailed over concentrated, thematic approaches. Market-based approaches reduce the carbon footprint of a portfolio by overweighting low carbon stocks and underweighting high carbon stocks.

The patent pending Finreon ZeroCarbon® solution follows reliably this approach: By negatively weighting securities with high CO2 emissions (High Carbon) and positively weighting securities with low CO2 emissions (Low Carbon), the Finreon ZeroCarbon® solution reduces the ecological footprint as a real CO2 hedge. In combination with an equity portfolio for example, this solution can lead to a complete neutralization of the investment's CO2 emissions.

Decarbonize investment portfolios simply and efficiently

Performance  ZeroCarbon®
Daten per 30.04.2020. Quelle: Refinitiv.
As the world's first market-based CO2-neutral solution, Finreon ZeroCarbon® makes it possible to adapt efficiently investment portfolios to the impact of climate change.
 
Complete CO2 Neutralization: As a world's first, Finreon ZeroCarbon® makes it possible to not only reduce the CO2 emissions of portfolios with a market-based solution, but also to neutralize them completely.
 
Very low risks: Existing approaches to reduce CO2 often lead to high tracking errors, as the exclusion rate increases, in particular when whole industries are excluded. Finreon ZeroCarbon® enables a complete CO2 neutralization with very little additional tracking error thanks to innovative portfolio construction.
 
Efficient mechanism: Due to the high degree of efficiency, only a very small allocation to the Finreon ZeroCarbon® CO2 hedge is required to achieve a CO2 neutralization of the portfolio.

    

The Finreon ZeroCarbon® Solution

Flexible use:

Like a currency hedge to neutralize foreign currency exposures, the Finreon ZeroCarbon® hedge can be used in a completely flexible way to neutralize CO2 exposure: CO2-neutral equity, bond, real estate or mixed portfolios are conceivable.

 

Finreon ZeroCarbon® Funds

The CO2 exposure of different universes (e.g. Swiss, global or emerging markets equities) can be neutralized with the ZeroCarbon® fund solutions. 
 

Finreon ZeroCarbon® Mandate

It is also possible to easily and efficiently decarbonize individual, respectively existing categories or mixed portfolios by adding a Finreon ZeroCarbon® grade.
 

Implementation & Reporting:

We would be pleased to assist investors in the decarbonization of their portfolios and, in cooperation with our partners, ensure that the appropriate reporting of the decarbonization process using Finreon ZeroCarbon® is employed.