Net Zero Pathway: or how to build a global equity portfolio aligned with the Paris Agreements? 

Faced with the climate emergency and regulatory requirements, institutional investors are initiating action plans to bring their portfolios into line with the long-term objectives of the Paris Agreements, aiming for carbon neutrality by 2050. Good as the intentions may be good, writing a 'Low Carbon Transition' roadmap, rolling it out and deploying it in portfolio still seems a tall order in several respects.  

LBP AM has just put in place a Global Equities portfolio for a European insurance client, with a Pathway to Net Zero. But it had to make trade-offs between the high ambitions of its client, which wanted a Net Zero portfolio from the outset, and the reality on the ground. Faced with the difficulty of building a representative universe fully (100%) aligned with the Paris Agreements, LBP AM has actually worked with the client on the short-term responses to be put in place and the milestones of a Pathway to Net Zero.  This approach could materialise thanks to the significant resources deployed by LBP AM in this area

LBP AM has opted to implement its client's portfolio, combining a tracking error of 3% and a sustainability rate of 100%, in a sequenced manner :

A. Firstly, to achieve the objective of a portfolio 55% aligned with the Paris Agreements by 2024, 
B. then establish a gradual increase in the selection of "Aligned +1.5°" securities to achieve carbon neutrality by 2040. 

This is a dynamic objective, therefore, since the portfolio should be enriched over the years with new companies that will have undergone a low-carbon transition and have, by the same token, become aligned with the Paris Agreements. As these companies currently account for only a small proportion of the investment universe, there is a wide margin for improvement.

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