As the commitment has been made to ‘transition away’ from fossil fuels, Asset Owners and Managers can start today to ensure their investment strategies are in concert with these global sustainability ambitions. But what is the first step investors can take to achieve this?
Forge Progressive, Dynamic Benchmarks
We advocate for ambitious, dynamic benchmarks, designed to evolve over time in line with international sustainability objectives. Anchored in our 3D-ESG investment framework, our SmartESG custom indexing solution can help create benchmarks with an optimal combination of risk, return and impact. Iterating these annually enables a risk-optimised journey to net zero.
A European Pension Fund: More Impact with Less Expected Risk
Our recent partnership with a major European financial institution’s pension plan has showcased the strength of our methodology. Together, we developed the ‘Impact Cubed SmartESG Global Sustainability Index’ (Bloomberg code: ICGLSUST). This index is meticulously tailored to meet their tailored sustainability goals, and it stands out by significantly surpassing traditional ESG benchmarks. Remarkably, it delivers up to 90% reductions in carbon emissions intensity, freshwater usage, and waste generation. Moreover, it enhances the proportion of holdings in environmentally positive activities to 23%. This achievement was accomplished while ensuring a lower risk of underperformance (tracking error) compared to their previous strategy.
SmartESG index performance improvements against specific iShares MSCI tracked indices.
Such custom benchmarks can be annually refined to progress towards the elimination of fossil fuels and achieving net zero. SmartESG is instrumental in setting ambitious environmental targets with optimal risk and return considerations, aligning with the COP28 objectives and highlighting the need for impactful investments in this urgent climate crisis.
The Path Forward
The road to net zero remains a challenging one. As highlighted by the Union of Concerned Scientists, COP28’s agreement lacks adequate financial support mechanisms for low and middle-income countries in their energy transition. This gap accentuates the pivotal role investors play in fostering sustainable development and equality.
At Impact Cubed, we are committed to transforming the goals of COP28 into practical, impactful investment strategies. Our focus is on constructing portfolios that don’t just meet but exceed the demands of a world undergoing an environmental shift.
Discover more about SmartESG and its role in shaping your sustainable investment strategy on our investment solutions page.