Investments involve risk.
The portfolios managed by Henrik and his team seek alignment with the goals of the Paris Agreement, while avoiding unnecessary sources of expected tracking error relative to MSCI developed, emerging and country indices.
He believes that Storebrand’s Plus funds can offer significant advantages compared to traditional passive index funds or those that follow a purchased ESG index.
“Our fossil-free Plus strategies attract investors who are looking to take market risk without deviating too much from the index. They are based on the idea of climate beta – an estimate of stock sensitivity to climate risk – and we expect them to outperform if we meet the goals of the Paris Agreement,” explains Wold Nilsen.
Solving climate challenges
In addition to excluding companies generating more than 5% of revenues from the production or distribution of fossil fuels, the Plus strategies are characterised by their focus on companies with low carbon intensity and high ESG ratings relative to the index. They also allocate a material proportion of capital to companies providing climate solutions to help accelerate our transition to a low carbon future.
“This is the ‘plus’ part of the strategy. Depending on the region, we invest between 12 and 15 percent of the portfolio in climate solution companies,” explains Wold Nilsen, “these businesses provide products and services that address important areas like renewable energy, green transport, recycling and water.”
When it comes to market benchmarks, Storebrand has chosen to measure its Plus funds against broad indices, such as MSCI.
“We want the funds to deviate from these benchmarks in terms of sustainability and climate exposure, but we also want them to reflect the market return profile as closely as possible. This means we strive to find substitutes for excluded companies to prevent, for example, the portfolio valuation, interest rate sensitivity and geographical exposure straying too far from the index. This optimisation results in a relatively low tracking error compared to other ESG indices, such as the EU-defined Paris Aligned Benchmarks (PABs),” adds Wold Nilsen.
Taking responsibility
Another advantage of the Plus funds, according to Wold Nilsen, is the flexibility they offer.
“As portfolio managers we can develop the strategy in response to new data and insights. This is something that is difficult to achieve with off-the-shelf sustainability indices, which are typically updated only once or twice a year.”
Regular oversight of portfolio construction also ensures that climate-related risks can be monitored and not replaced with other securities sharing the same underlying climate risk. Wold Nilsen ultimately believes that it important for investors to take responsibility for what’s in their portfolios: “We would never blame an index provider for risks related to ESG. We are accountable and have the power to make our own adjustments,” he concludes.
By actively applying the latest scientific knowledge and analysis, Storebrand’s Plus funds offer a strategy that is ideal for investors seeking a low carbon alternative to passive equities.
Performance
The Storebrand Global ESG Plus fund has returned 122% in USD since its launch on May 27, 2017 (as of September 30, 2024), which is in line with the MSCI World index with 1.37 % tracking error*
* Fund performance net of fees. The MSCI World Index, has returned 124% in USD over the same period including dividends. Tracking error based on 36 months of historical data.
The funds can be found on Islandsbanki.
