2° INVESTING · EQUITY PORFOLIO OWNERS LISTED PARENT COMPANIES STOCK TICKERS DATA ON PHYSICAL...
Transcript of 2° INVESTING · EQUITY PORFOLIO OWNERS LISTED PARENT COMPANIES STOCK TICKERS DATA ON PHYSICAL...
2°INVESTINGSTRESSTESTINGPORTFOLIOSINA2°CSCENARIO
2°C
WHOAREWE?
• Thinktankcreatedin2012.$3.3Mbudgetin2016
• Connectthedotsbetween:• Climate-relatedfinancialmetrics• Financialpolicies• Investmentprocesses
• Groupof3affiliatedlegalenIIes(NYC,Paris,Berlin):• Not-for-profit,noncommercial• MulI-stakeholdergovernance• CollaboraIveapproach:re-granIngto+15partners
Staff:20+6
NewYorkDC
LondonParisBerlin
PARTNERS,FUNDERS&GRANTEES
FINANCIALANALYSTS(par=cipantsin2Diiresearchprojects)
GOVERNMENTS(funding+technicalpartners)
FINANCIALINSTITUTIONS(fundingourprojectsandtechnicalpartners)
RESEARCH(par=cipantsin2Diiresearchprojects)
NGOs(par=cipantsin2Diiresearchprojects)
INVESTCOALITIONS(co-authors)
CORE CONCEPT
• “ConnecIngthedotsbetweenclimategoals,investmentprocessesandfinancialregulaIon”
• ‘MasterPlan’waslaidoutin2012-13:
1.ASSESSMENT
• DecarbonizaIontargetsforinvestors• Useofphysicalassetsdata• 2Dstresstestsforstocks&bonds• 2Dstresstestsforbanks
2.DISCLOSURE
• Mandatoryclimatedisclosureonclimate-relatedrisksandimpactforcompanies,banksandinvestors
• Labellingoninvestmentproducts
3.INCENTIVES
• AligntaxincenIvesoninvestmentproducts
• TransparencyonImehorizonsmismatch• Climateriskintroducedintocapital
requirements
RESEARCH REGULATION FINANCIALTOOLSCONVENING
Advancedindicators
CLIMATE-RELATEDMETRICSFORINVESTORS
LimitsofcarbonfootprintDifferentusecases
Useofphysicalassetdata
FINANCIALRISKMANAGEMENT
Definingclimate-relatedrisksforthefinancesectorIntroducingtheconceptof2Dstresstest
ImplicaIonsofarIficialshorteningofhorizons
FINANCIALPOLICIES
MappingchangesrequiredinfinancialpoliciesinEurope,France,ChinaRecommendaIonsonmonetarypoliciesRecommendaIonsontaxpolicies
RESEARCH REGULATION FINANCIALTOOLSCONVENING
KEYPARTNERS:FrenchParliament,EuropeanCommission,OECD,BanquedeFrance,S&P,Moody’s,MSCI,…
CITIES:Paris,London,Brussels,Frankfurt,Berlin,Zurich,NewYork,SanFrancisco,Montreal,Toronto,Tokyo
FORMAT:workshops,conferences,webinars,TEDxtalks
RESEARCH REGULATION FINANCIALTOOLSCONVENING
KEYPARTNERS:FrenchGovernment,EuropeanCommission,GermanGovernment,SwissgovernmentNEXTSTEPS:SupporIngothercountries+taxbreaksoninvestmentproducts,informaIonofretailinvestors
FIRSTACHIEVEMENT:Mandatoryclimate-relateddisclosureforinvestors(France)
Law ImplementaIondecree Governmentalaward Guidanceforinvestors
RESEARCH REGULATION FINANCIALTOOLSCONVENING
FIRSTACHIEVEMENT:Frameworktoassessthealignementofporfolioswith2Dscenarios
Forward-lookingphysicalassetsdata
2Dscenario(IEA)
Investmentporjolio
MatchingwithsecuriIes
ForwardlookingemissionsC02
C02
C02
Freetestfor+100investors(+1000porfolios)
Securitydatabase
OnlineporUoliorisk&alignmentanaly=cs
Fundsdatabase
Regulatormonitoringtool
STEP1:TESTINGREALASSETSALIGNMENT
Backgroundwithwindfarmsandpowerplants
SEIMETRICSPROJECT
BEYONDCARBONFOOTPRINTING
OBJECTIVES
PRIMARYUSERS&USECASE
2DALIGNMENTMisalignmentofinvestmentsandassetsintherealeconomywithclimategoals
2DSTRESSTESTResilienceofporjoliosandfinancialinsItuIonstoacceleratedEnergyTransiIon(2Dstresstest)
BETTERVALUATIONBelerpricingofETrisks(assumingbaselinescenario)
POLICYMAKERS/REGULATORSMonitoringprogressonParisagreementandpotenIalbuild-upoffinancialrisks/economicinefficienciesthatmaytranslateintorisksforfinancialmarkets
PRUDENTIALAUTHORITIESAnIcipaIngtheimpactofclimateacIononfinancialstabilityandfinancialinsItuIons
LONGTERMINVESTORSImprovinglong-termreturnsofInsItuIonalinvestors(e.g.pensionfunds,Insurancecompanies)
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2
3
TESTING2DALIGNMENTOFREALASSETS
EnergytechnologyroadmapIEA2DS
COMPARINGTHEROADMAPWITHREALASSETS
2Dporjoliocheck
Energy-relatedCO2
LINKINGREALASSETSTOFINANCIALPORTFOLIOS
Assetleveldata:• 97,000powerplants• 22,000Oil-andGasfields• 95millionproducedcars
• 36,000Airplanes• 10,000Ships• 2,200Cementfactories• 13,000Steelplants
EQUITYPORFOLIO
OWNERS
LISTEDPARENTCOMPANIES
STOCKTICKERS
DATAONPHYSICALASSETS
SCENARIOS
LINKINGREALASSETSTOFINANCIALPORTFOLIOS
EQUITYPORFOLIO
OWNERS
LISTEDPARENTCOMPANIES
STOCKTICKERS
DATAONPHYSICALASSETS
SCENARIOS
Compz Compw Compq
Compx Compy
Comp
Compt
Security
S&PCross-referenceservices/Orbisdatabase
LINKINGREALASSETSTOFINANCIALPORTFOLIOS
EQUITYPORFOLIO
OWNERS
LISTEDPARENTCOMPANIES
STOCKTICKERS
DATAONPHYSICALASSETS
SCENARIOS
Bloomberg,S&P….
LINKINGREALASSETSTOFINANCIALPORTFOLIOS
EQUITYPORFOLIO
OWNERS
LISTEDPARENTCOMPANIES
STOCKTICKERS
DATAONPHYSICALASSETS
SCENARIOS
Databases(e.g.Morningstar,AMBEST,SECMutualfundholdings),Investorsdirectly(+100investors),and/
orFinancialSupervisoryAuthoriXes(e.g.BankofEngland)
TESTING2DALIGNMENTFORREALASSETS(SAMPLEPORTFOLIO)
CHANGESINCAPACITY(MW)
EMISSIONSBEYONDBUDGET
(KtofCO2enext5years)
CAPEXvs.NEEDS
($Mnext5years)
REVENUEGAP
($Mnext5years)
0
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2
3
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10
2015 2020 2025
Actualplans
2°Ctarget
0
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2015 2020 2025
Actualplans
2°Ctarget
COALPOWER RENEWABLEPOWER
Gap:2.1MW
Gap:2.7MW
TESTING2DALIGNMENTFORREALASSETS(SAMPLEPORTFOLIO)
CHANGESINCAPACITY(MW)
EMISSIONSBEYONDBUDGET
(KtofCO2enext5years)
CAPEXvs.NEEDS
($Mnext5years)
REVENUEGAP
($Mnext5years)
0
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2015 2020 2025
Actualplans
2°Ctarget
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2015 2020 2025
Actualplans
2°Ctarget
COALPOWER RENEWABLEPOWER
Gap:52.2ktCO2
Gap:35.2ktCO2
TESTING2DALIGNMENTFORREALASSETS(SAMPLEPORTFOLIO)
CHANGESINCAPACITY(MW)
EMISSIONSBEYONDBUDGET
(KtofCO2enext5years)
CAPEXvs.NEEDS
($Mnext5years)
REVENUEGAP
($Mnext5years)
0
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10
2015 2020 2025
Actualplans
2°Ctarget
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2015 2020 2025
Actualplans
2°Ctarget
COALPOWER RENEWABLEPOWER
Gap:$4.1M
Gap:$10.5M
TESTING2DALIGNMENTFORREALASSETS(SAMPLEPORTFOLIO)
CHANGESINCAPACITY(MW)
EMISSIONSBEYONDBUDGET
(KtofCO2enext5years)
INVESTMENTvs.NEEDS
($Mnext5years)
REVENUEGAP
($Mnext5years)
0
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10
2015 2020 2025
Actualplans
2°Ctarget
0
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2015 2020 2025
Actualplans
2°Ctarget
COALPOWER RENEWABLEPOWER
Gap:$3.3M
Gap:$2.2M
OTHERSECTORSCOVERED
Plansd’inves=ssement
Cible2°C
Plansd’inves=ssement Plansd’inves=ssement
Cible2°C
Cible2°C
COAL OIL GASFOSSILFUELS
Capexplans Capexplans2°CTarget
2°CTarget 2°CTarget
OTHERSECTORSCOVERED
Plansd’inves=ssement
Cible2°C
Plansd’inves=ssement
Plansd’inves=ssement
ELECTRIC HYBRIDS ICEsAUTOMOTIVE
LINKINGREALASSETSTOFINANCIALPORTFOLIOS
PORTFOLIOALIGNMENTANALYSIS
5°C
2°C
FUNDSCOMPARISION
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
TOWARDS5°C
BELOW2°C
RENEWABLEPOWER
NEXTSTEP:MAPPINGFINANCIALMARKETSVSPARISTARGET
Searchcompany,index…
Scenarios
Period
Indicators
GLOBALTRANSITIONCAPITALMONITOR
Investmentcategories
Technologies
Makingfinancialflowsconsistentwiththegoalofkeepingglobalwarmingwellbelow2°C
FranceannouncedmandatoryclimatedisclosureExxonMobilereleased2DstresstestresultsNews
Economyasawhole
AllequiIes
Listedequi=esonly
Corp.debtissuance
Corp.bondissuance
…
STEP2:STRESSTESTINGFINANCIALASSETS
BackgroundwithstockmarketcurveandWallstreetskyline
ETRISKPROJECT
TOWARDSVALUEATRISKASSESSMENT
CURRENTBESTPRACTICES
ASSET-CLASSLEVELANALYSIS(MERCER)
CURRENTBESTPRACTICES
ASSET-CLASSLEVELANALYSIS(AXA)
AXA
UNIVERSE
NEXTSTEP:STANDARDIZEDSCENARIOSTRANSLATING2DROADMAPSINTOFINANCIALPARAMETERS
MORE
LESS
OUTCOMESINTHE2DROADMAP RESULTSFROMTHE2DSTRESSTEST
IMPACTONCASHFLOWS
PARAMETERSOFA2DSTRESSSCENARIO
TAXONFUELS
FUELEFFICIENCYSTANDARD
NEGOTIATEDAGREEMENTONFLEETEFFICIENCY
TAXONVEHICLES
CONGESTIONCHARGES
NEXTSTEP:SECURITYLEVELANALYSISOPTIONSAVAILABLE
Source:2diifromsampleMorningstarindustrialscompanyDCFModel,2014:Datawillbeupdatedpendingfurtherindustryengagement
Op=on2:‘adjusttheriskpremium’
NETPRESENTVALUE
EFFECTOFTHERISKPRE
MIUM
Forecastperiod
EFFECTOFTHEDISCOUNTRATE
NEXTSTEP:SECURITYLEVELANALYSISOPTIONSAVAILABLE
Source:2diifromsampleMorningstarindustrialscompanyDCFModel,2014:Datawillbeupdatedpendingfurtherindustryengagement
Op=on2:‘adjusttheriskpremium’
Op=on1:‘extendtheforecastperiod’
NETPRESENTVALUE
EFFECTOFTHERISKPRE
MIUM
Forecastperiod
EFFECTOFTHEDISCOUNTRATE
NEXTSTEP:SECURITYLEVELANALYSISOPTIONSAVAILABLE
Source:2diifromsampleMorningstarindustrialscompanyDCFModel,2014:Datawillbeupdatedpendingfurtherindustryengagement
Op=on2:‘adjusttheriskpremium’
Op=on2:‘Acceleratethe
risk’
NETPRESENTVALUE
EFFECTOFTHERISKPRE
MIUM
Forecastperiod
EFFECTOFTHEDISCOUNTRATE
ExtrapolaIon
NEXTSTEP:SECURITYLEVELANALYSISOPTIONSAVAILABLE
Source:2diifromsampleMorningstarindustrialscompanyDCFModel,2014:Datawillbeupdatedpendingfurtherindustryengagement
Op=on2:‘adjusttheriskpremium’
Op=on3:Increasetheriskpremium
NETPRESENTVALUE
EFFECTOFTHERISKPRE
MIUM
EFFECTOFTHEDISCOUNTRATE
STEP3:OVERCOMINGTHEOBSTACLES
Backgroundwithtradingfloor
TRAGEDYOFTHEHORIZON
ADDRESSINGTHETRAGEDYOFTHEHORIZON
CHALLENGE#1:RISKCONCENTRATEONLONGTERM
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ElectricU=li=esNPV(cashflowbyperiod)
Naturalcoalcapacityre=rements(byage)
IEA450Scenariore=rements
2015-2020 2020-2025 2025-2030 2030-2035 2035-2040 Post2040
ReXrementgap
AnalysisgapEquityresearchanalyst
RealeconomyXmehorizon
Analystshorizon
CHALLENGE#1:RISKCONCENTRATEONLONGTERM
35
ElectricU=li=esNPV(cashflowbyperiod)
Naturalcoalcapacityre=rements(byage)
IEA450Scenariore=rements
2015-2020 2020-2025 2025-2030 2030-2035 2035-2040 Post2040
ReXrementgap
AnalysisgapEquityresearchanalyst
RealeconomyXmehorizon
Analystshorizon
CHALLENGE#1:RISKCONCENTRATEONLONGTERM
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ElectricU=li=esNPV(cashflowbyperiod)
Naturalcoalcapacityre=rements(byage)
IEA450Scenariore=rements
2015-2020 2020-2025 2025-2030 2030-2035 2035-2040 Post2040
ReXrementgap
AnalysisgapEquityresearchanalyst
RealeconomyXmehorizon
Analystshorizon
CHALLENGE#1:RISKCONCENTRATEONLONGTERM
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0%
5%
10%
15%
20%
25%
30%
35%
1 2 3 4 5 6 7 8 9 10 11
Percen
tageofR
espo
nses
ConsumerDiscre=onary ConsumerStaples Energy
HealthCare Industrials Informa=onTechnology
Materials Telecommunica=onServices U=li=es
Bloombergissuesasurveytoequityresearch
analystsonearningsesGmates.Theresponseslisted
intheirdatabasetailoffaLer5yearsofforecasts,
with74%ofanalystresponsescominginthefirst
threeyearsand94%cominginthefirst5years.
POTENTIALFORMISPRICINGOFLONGTERMRISKSLISTEDEQUITIES
38
41to50years
31to40years
26to30years
20to25years
6to7years
8to9years
10to11years
39
POTENTIALFORMISPRICINGOFLONGTERMRISKSBONDS
CHALLENGE#2:LACKOFDEMANDFORLONGTERMANALYSIS
0
0,05
0,1
0,15
0,2
0,25
0,3
0,35
0
50
100
150
200
250
300
10,0
5,0
3,3
2,5
2,0
1,7
1,4
1,3
1,1
1,0
0,9
0,8
0,8
0,7
0,7
0,6
0,6
0,6
0,5
0,5
Num
bero
fFun
ds
PorUolioTurnoverPeriod(Years)
PorUolioTurnoverofLong-OnlyMutualFundManagers(Source:2diiandMercer,Forthcoming)
Turnover AUM%ofTotal
Average
PorUolioturnoveroflong-onlymutualfundmanagers(Source:2dii,Mercer&TheGenera=onFounda=on,Forthcoming)
100%annualp
orjolio
turnoverimpliesa
Ime
horizonof1ye
ar.
NYSEAverageHoldingPeriodforstocks,1940-2005(Source:Haldane,2010)
STEP4:INTEGRATIONINTOFINANCIALPOLICIES&SUPERVISION
REGULATORYPARTNERSHIPS
REGULATORYINITIATIVESINEUROPEPartnershipsinSwitzerland,France,UK(forthcoming),Germany(forthcoming)
Source:2°InvesXngIniXaXve
KPIrepor=ngtoregulators.Financial ins=tu=ons should use adefinedmethodology.
Holdingsrepor=ngtoregulators.Regulatorsperformtheassessment
Holdingsdisclosuretothepublic.NGOsperformtheassessment.
KPIdisclosuretothepublic.Flexibleguidanceprovidedonapplicablemethodologies
INTERNATIONALTASKFORCES
DGFISMAHIGHLEVELEXPERTGROUP
G20GREENFINANCESTUDYGROUP
IDEASFLOTTINGINTHEAIR
TweakingcapitalrequirementscalculaIon
Mandatoryclimatedisclosureforinvestors
Climate‘stresstests’forissuers
Mandatoryclimate‘stresstests’forfinancialins=tu=ons
TaxincenIveongreenassetsissuanceor/andholding
NegoIatedclimatecommitmentsforinvestors
AnalysisbyCentralBanksdirectly
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