EdenTree Investment Management Ltd Case Study
Case Study: EdenTree Investment Management Ltd & Effective Investment Carbon Risk Management
EdenTree Investment Management Ltd, the UK-based fund manager, became convinced that measuring their funds' carbon intensity would allow them to manage carbon risk more effectively, report to clients more affirmatively, and ultimately to sign the Montreal Pledge. The detailed carbon footprint analysis carried out by South Pole delivered an independently verified assurance stamp on portfolio risk forEdenTree's Amity UK Fund.
Climate change is a key component of EdenTree's responsible investment engagement strategy, and has been further strengthened by the fund manager joining IIGCC (Institutional Investors Group on Climate Change), signing the COP21 Paris Pledge, and working collaboratively with other investors on climate change initiatives.
At present, portfolio companies are included and excluded based on EdenTree's negative and positive screens, and most carbon intensive companies are avoided under the fund manager's positive environmental screens. EdenTree has also adopted a House position to exclude companies with exposure to oil sands and Arctic drilling.
As a key part of their responsible investment strategy, EdenTree wanted to establish the carbon footprint of their leading ethical and responsible funds. The fund manager's clients have become increasingly interested in funds with a low climate change impact or minimal exposure to fossil fuels, and recent stakeholder meetings have been dominated by questions around fossil fuel divestment. EdenTree believed, intuitively, that their Amity UK Fund represented a clear choice for clients interested in low-carbon exposed funds, but wished independently to verify this. Whilst an in-house model provided significant utility, the fund manager decided at an early stage that a third party verification process would provide the overall assurance that they and their clients were looking for.
A measured portfolio footprint is becoming a mandatory requirement in some jurisdictions, and an advantage in EdenTree's home market. The fund manager's due diligence needed to establish that they could achieve the portfolio footprint scientifically and based on verifiable, published data. EdenTreewanted to keep modelling assumptions to a minimum, and to focus mainly on liabilities related to direct emissions from owned sources (Scope 1 emissions) and power generation (Scope II).
EdenTree started by using the Bloomberg portfolio tool to assess the carbon impact of their Amity UK Fund, and to gain data on the key contributors to the intensity of the Fund. The next step was to commission an independent, third party portfolio analysis: EdenTree shortlisted nine key service providers based on methodology, competency, scope and price. EdenTree finally chose South Pole for the Group's global reach as well as their dedicated and specialist expertise in managing climate risk. The size of the universe covered and the methodology used by the Group also provided reassurance to EdenTree. Finally, EdenTree was attracted to the use of South Pole's Climate Transparent Investment Label to show the resource being committed to managing climate risk within the Funds.
EdenTree chose South Pole's portfolio carbon footprint analysis solution to carry out a sophisticated carbon footprint analysis. The solution covered the Amity UK Fund and ensured an independently verified assurance stamp on portfolio risk for EdenTree's range of ethically screened Funds.