Viewpoints

With central banks speeding though their hiking cycles, a return to rates stability could allow investors to reap the rewards of bond yields that are unusually high for this point in the cycle.

Asset owners are increasingly demanding net zero plans from their investment managers, who need to determine how to track and reduce portfolio emissions. Issues include: rebalancing vs rate of reduction, whether it’s too early for Scope 3, and ensuring engagements go beyond the more receptive European and US markets.

The Queen may have remembered 1992 as her “annus horribilis,” but for financial markets and particularly multi-asset investors, it’s 2022 that deserves this sorry distinction. However, with Jerome Powell moving the federal funds rate ever higher, “60/40” may yet be back in fashion, according to our multi-asset expert Anton Oberhofer.

How much do listed companies contribute to emissions? We estimate they account for about 16.9 billion tons of greenhouse gases compared to a global total of 46.3 billion tons annually. These are needle-moving volumes. Investors can make a difference by working with management teams to encourage abatement plans.

High inflation creates the illusion of falling carbon intensity, a common measure used to track greenhouse gas emissions from portfolios. It is critical for investors who are targeting Paris Aligned reductions to adjust for this issue. By using alternatives to revenue-backed carbon intensity tracking metrics, we can help maintain data integrity and save years of progress.

The circular economy, popularized by expressions such as “zero waste”, “right to repair”, or “from farm to fork”, is rooted in the knowledge that resources are finite. Companies that manage to reduce their consumption of raw materials are likely to increase their profits and market share, which will ultimately benefit investors. Past examples of corporate successes based on the circular economy include the Italian Vespa scooter.

Discussing sustainability matters with Chinese companies is rewarding and challenging. Part of it is fact-finding, part of it is education. But investors need to tread with caution, and little extras such as talking Chinese help, says Hong Kong-based ESG analyst Gayle Chan. She also explains the approach of mtx Equities, citing a concrete example.

Lofty pledges of governments to “go green” often hit a snag in parliament. However, there are also success stories like that in the US, where lawmakers backed a proposal to cut carbon emissions by roughly 40%. The plan, just signed into law by Joe Biden, could boost domestic wind and solar companies, potentially also benefiting “impact investors”.

The original Fragile Five emerging markets morphed into the Compelling Quartet and Portfolio Manager Thierry Larose explains why that’s good news for bond investors.