Impact investing

Impact Investing

Financial yield is no longer the only benchmark of sustainable investments in many cases. The requirement to drive social and environmental change in a targeted fashion by way of investment decisions is becoming increasingly clear. As a result, more and more institutional investors have to address this issue as well. The Sustainable Development Goals of the UN development contain 17 goals for the development of our planet until 2030. These goals have been legally binding for the member states of the United Nations since 2016. All goals have in common the search for solutions for global challenges and mega trends.

sustainable development goals

Quelle: https://www.un.org/sustainabledevelopment/sustainable-development-goals/

Impact investment is one response to this demand for an alternative approach for sustainable investments. It offers investors the chance to effect a pre-defined kind of social or environmental change in a targeted fashion and to participate financially in its success. The sustainability risks are of course also taken into account in this case.

Erste Asset Management currently offers two solutions in this area, each of which pursues numerous goals with regard to sustainable development.

Sustainable footprint

In order to establish the sustainable footprint, we choose three criteria from the environmental, social, or governance field given that these can be easily measured across sectors and can thus be used for a weighted average of equity funds. We identify the CO2 emission and the independence of the Supervisory Board of the companies in the funds and calculate the value for the fund upon weighting the companies (the same applies to the entire investment universe of the fund). For human rights violations, we measure the number of companies with violations.

The rating of the fund is a weighted average of the companies in the fund. This means that every company in the fund has a sustainability rating that is based on our analysis and the analysis of our external research partners. This results in an aggregate rating across the holdings.

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We can provide a more detailed overview about the sustainable footprint for the following funds:

Impact Messung

Erste AM is one of the first asset managers to offer a global impact bond fund, i.e. ERSTE RESPONSIBLE BOND GLOBAL IMPACT. This fund guarantees that all invested bonds have a positive impact on the environment and/or society. To this end, the issuers have to report transparently on the use of their funds. This is subject to external auditing.

On this basis, Erste AM has calculated the impact of projects financed by the fund since 2017. This measure represents a special form of innovation, since impact models had previously been largely restricted to equity funds.

Impact achieved by the investments of ERSTE RESPONSIBLE BOND GLOBAL IMPACT:

CO2 risks in the Erste AM mutual funds

Erste Asset Management was the first investment company in Austria to sign the Montréal Carbon Pledge in 2015. This international investor initiative was created at the end of 2014 with the goal of contributing to a long-term reduction in greenhouse emissions by measuring and reporting the CO2 emissions of the companies held in equity funds. In the meantime, this initiative has grown to more than 120 investors managing more than USD 10,000bn worth of assets.

Since the first publication of the CO2 emissions associated with the mutual equity funds of Erste Asset Management, the CO2 risks have been cut continuously. This is on the one hand due to the integration across the company of ESG information (beyond the sustainable range of funds). On the other hand, Erste Asset Management decided as early as 2016 not to invest in coal anymore as part of its coal policy.*

*Sources: Bloomberg, MSCI-ESG, Institutional Shareholder Services Germany AG, calculations by Erste Asset Management, water and sales data for FYs 2015-2018

Calculation of the CO2 risks in the mutual fixed income funds

For its holdings of end-of-2018, Erste Asset Management expanded the calculation of the CO2 risks across the entire range of mutual funds for the first time. This means that for the first time and beyond the specification of the Montréal Pledge, bond funds have been taken into account in the model.

The result is impressive both in relation to all mutual bond funds of Erste Asset Management (more than 30% below the referential value) and to the sustainable bond funds alone (less than one third of the global fixed income average).

As for of individual funds, ERSTE RESPONSIBLE BOND (16.7%) and ERSTE RESPONSIBLE RESERVE 26.6%) showed a particularly convincing result. In addition to the low CO2footprint of ERSTE RESPONSIBLE BOND GLOBAL IMPACT, the investment in green bonds have also contributed to the avoidance of greenhouse emissions of more than 74mn tonnes (please refer to the separate impact sheet for this fund).

Calculation of the CO2 risks in the mutual fixed income funds
Calculation of the CO2 risks in the mutual fixed income funds

As part of the Montréal Carbon Pledge, Erste Asset Management has reported the cumulative CO2 footprint of its mutual equity funds for three consecutive years. The result, which takes into account both explicitly sustainable funds and traditional funds, was yet again a convincing one in comparison with the global equity market: the CO2 intensity of the EAM equity funds in the sample was more than 38% below that of the global equity market (61.8%), i.e. down significantly again from the previous year.

Mutual equity funds, better than the global equity market

The most recent results for the mutual equity funds of Erste Asset Management, which have been published for four years and running, were again convincing. The CO2 intensity of the EAM equity funds is more than 25% below that of the global equity market, and when taking into account only sustainable equity funds, even below half of global emissions.

The detailed analysis on the basis of individual funds shows a particularly good result for ERSTE RESPONSIBLE STOCK AMERICA (29.9%) and for ERSTE RESPONSIBLE STOCK GLOBAL (33%). The separate impact sheet for ERSTE WWF STOCK ENVIRONMENT illustrates the fact that future CO2 emissions can be avoided by investing in the companies selected for the fund (whose footprint is less than half of the peer group value). Among other things, 22 million households have been provided with renewable energy.

co2 risks in the equity funds
co2 risks in the equity funds

What does CO2 intensity mean?

There are many different ways of calculating the CO2 footprint. EAM calculates the footprint of its funds on the basis of the weighted CO2 intensity of the companies held in the fund. To this end, at first our research partners establish the greenhouse emissions of the companies held by our funds. They may have been caused directly by the companies (scope 1 emissions) or indirectly by the way energy, heat or similar are used (scope 2 emissions). In order to facilitate comparison across companies of different sizes, the emission values are standardised on the basis of the respective company sales. On the level of individual companies, the CO2 intensity therefore indicates how many tonnes of CO2 were emitted per million currency units of sales. In a second step, the CO2 intensities of the individual companies are aggregated to a weighted average. On the level of funds, the weighted CO2 intensity shows how high the exposure to CO2-intensive companies is by comparison to other funds.

In establishing the footprint of EAM, we then calculated a weighted average across those mutual equity funds whose individual shares had sufficient CO2 data available.

What relevance do CO2 risks have for investors?

We have seen that the accelerating progress of climate warming entails more restrictive measures and regulatory frameworks in connection with greenhouse emissions. The taxation of such emissions will affect those companies in particular that have not sufficiently redesigned their production processes within their sector. Therefore, it would appear important to monitor their CO2 intensity also from an economic point of view.

Water footprint of ERSTE RESPONSIBLE equity funds

On the occasion of World Water Day on 22 March 2018, Erste Asset Management published the second water footprint for its sustainable equity funds. The initial publication of water risks in 2017 was an important step towards inducing companies to publish their water data. In our second year, we had significantly improved data coverage at our disposal. While in 2017 46.8% of companies had published their calculations, by 2018 that percentage had increased to 56%.*

*Sources: Bloomberg, MSCI-ESG, Institutional Shareholder Services Germany AG; calculations by Erste Asset Management; water and sales data for FYs 2015-2018.

Water data coverage for sustainable equity funds

Water data coverage for sustainable equity funds

Taking into account water risks in the investment decision

The selection of companies in the sustainable funds of Erste Asset Management that is geared towards the more responsible use of water is bearing fruit: our sustainable funds paint a more favourable picture than the global equity market both from a holistic perspective and when focusing on the risk regions. And this situation improved again from 2017 to 2018. The water intensity of ERSTE RESPONSIBLE STOCK AMERICA in the highest stress regions was only a fraction of those of the global equity market (15%). This was also the case for the other RESPONSIBLE equity funds.

ANALYSIS WATER FOOTPRINT
global equity market vs. sustainable equity funds

ANALYSIS WATER FOOTPRINT

Sources: Bloomberg, MSCI-ESG, Institutional Shareholder Services Germany AG; calculations by Erste Asset Management; water and sales data for FYs 2015-2018; index data as of 28 December 2018

This is due to a comprehensive ESG analysis. In order to reduce water risks, the sustainability analysts of Erste AM take into account the management and regional distribution of water withdrawal in the valuation of the company. For the ESG rating, data on the degree to which a company is active in arid risk areas and depends on large volumes of water withdrawal there also enters the model, as does the question of what measures have been taken to improve the use of water towards a more sustainable process.

In establishing the average water intensity of the companies held by the funds, we use the water withdrawal as published by the respective companies as key ratio. Water intensity measures water consumption in cubic metres per USD million in sales.

Microfinance

There are investments that are aimed at making the world a better place. Microloans provide the chance of a better life and facilitate a stable yield for investors. The fund ERSTE RESPONSIBLE MICROFINANCE offers both: making the world a bit better through microloans while ensuring a nice return.

The goal of the fund is to finance entrepreneurs and micro enterprises in emerging markets. So far, microloans have provided some 50,000 people with a livelihood.

The focus on working capital credit creates high social yield.

  • Creation of new sources of income
  • Realisation of business ideas
  • Job creation
  • Long-term gain in prosperity
  • Minimisation of consumer credit

A special focus is on women as entrepreneurs, as experience has shown that this tends to translate into a higher social benefit. The number of people reached and the composition of projects are continuously monitored by our fund management team so as to ensure compliance with this goal.

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Disclaimer

This document is an advertisement. All data is sourced from Erste Asset Management GmbH, unless indicated otherwise. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH, pursuant to the provisions of the AIFMG in connection with the InvFG 2011.

The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the key investor document/KID can be viewed in their latest versions at the  web site www.erste-am.com or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the key investor document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund. Please note that investments in securities entail risks in addition to the opportunities presented here. The value of shares and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your shares. Persons who are interested in purchasing shares in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of fund shares to American citizens. Misprints and errors excepted.