Lombard Odier Investment Managers launches four Target Net Zero strategies

Global and European equity and fixed income strategies use forward-looking methodology and proprietary carbon expertise to decarbonise portfolios and target investment opportunities that capture the transition to net zero.

Lombard Odier Investment Managers (“LOIM”) today announces the launch of four ‘TargetNetZero’ strategies. The Fixed Income and Equity strategies – both Global and European - are designed to decarbonise portfolios and to help accelerate the transition to a more sustainable economy, while seeking to deliver strong returns for investors. Aligned to the Paris Agreement upon launch, with an implied temperature rise of no more than 2°C, the strategies will progressively accelerate the rate of decarbonisation of their constituents to target Net Zero CO2 emissions by 2050, aligned with the more ambitious objective of the Paris Agreement of limiting global warming to 1.5°C.

The TargetNetZero range of strategies offer diversification to investors and follow a differentiated and deeply integrated investment process. This process goes beyond a simplistic comparison of carbon footprints, to take into account the emission trajectories of companies across all emission scopes, as well as considering companies’ exposure to internal, industry and regulatory pressure that may further accelerate the climate transition. These unique, forward-looking insights allow us to re-assess exposure to carbon risks and opportunities and implement portfolio adjustments to improve alignment to the transition to a net zero economy progressively.

Hubert Keller, Managing Partner of Lombard Odier commented: “At Lombard Odier we believe that investors need to re-think their approach to Net Zero. Although the industry has started to understand the urgency around decarbonisation, many of the solutions available in the market are simplistic, don’t sufficiently address the problem and (in some cases) significantly increase the risks and biases within portfolios. Carbon footprints alone do not tell us the full picture of climate risks in a portfolio. We believe that maintaining a diversified portfolio that identifies companies on a strong decarbonisation path, irrespective of sector, will help accelerate the transition to net zero and provide compelling returns for investors. At LOIM, we continue to expand and deepen our carbon expertise, so that we can fully assess companies’ carbon exposure and transition pathways, as they move toward achieving net-zero emissions targets. We have developed a four-step decarbonisation process that adds a more forward-looking, nuanced perspective on the climate transition and forms the backbone of our new range of TargetNetZero strategies.”

Dr. Christopher Kaminker, Head of Sustainable Investment Research, Strategy and Stewardship at Lombard Odier commented: The race to net zero has started, with nearly 80% of the global economy now subject to a net zero target - a stunning acceleration from 16% last year. Increased policy ambition is set to follow in the months ahead and powerful economic and market forces are now creating and destroying value across markets. As signatories of the Net Zero Asset Managers initiative, we are committed to the development of new solutions that enable clients to position capital to capture value and hedge the risks that lay ahead. We recognise that to get to net zero, we cannot merely shy away from the more difficult, hard-to-abate industries. Rather, we must seek to identify those players that are emerging as the champions of the transition ahead in each of their respective sectors. Doing so requires diversified strategies that are able to distinguish the leaders from the laggards, and re-deploy capital accordingly.”

Target Net Zero Equity strategies

TargetNetZero range of strategies are low tracking error strategies that tilt the MSCI World and MSCI Europe indices towards companies in climate-relevant sectors that are aligning to the Paris Agreement through rapid decarbonisation. These companies, often in sectors that are high-emitting today, are often misinterpreted as laggards by investors who may only consider a company’s current footprint, rather than the trajectory it is on and the targets that a company may have set.

At the same time, the strategies will tilt away from companies in these same climate-relevant, high-emitting sectors that remain poorly-aligned to the transition ahead and are likely to contribute to higher levels of global warming.

The TargetNetZero range of strategies are high tracking-error credit strategies with a low turnover approach focusing on emissions-reducing companies aligned with the Paris Agreement. The strategies target a higher level of yield than the investment grade index, utilising insights from LOIM’s credit and sustainable research to understand the credit-worthiness of the underlying issuers to pay back their debt. 

Today’s higher carbon emitters that are aligned to rapid decarbonisation have a high impact in mitigating climate change and are an important opportunity set in the strategy’s universe which captures companies that are well-exposed to the opportunities linked to the climate transition across all sectors.