The 2050 net zero target recommended by the IPCC may seem to lie far in the future, yet the current decade out to 2030 will be decisive in the world’s efforts to build a carbon-neutral future. With this in mind, the various stakeholders with the wherewithal to deliver a positive climate impact will need to throw their weight behind this goal and the right technological choices made to set us on the path to a greener economy.
Against this backdrop, Dorval European Climate Initiative Environmental makes ‘green intensity’ and decarbonization the cornerstones of its management process, drawing on an active portfolio management approach, governed by a multi-theme method and our socially responsible investment policy. We build our fund on eight “eco-activities” that play an active part in driving the environmental transition and the fight against climate change.
The fund’s investment philosophy is built on four key principles:
- initiative, as we seek to develop investments and pursue net zero,
- the impact of our investment choices, as we strive to combine financial management with efforts to respond to the climate emergency,
- alignment of interests for all stakeholders,
- transition to a conscious and virtuous economic system.
Dorval Asset Management has therefore developed this fund with a view to addressing growing investor demand and meeting their increasing commitment to supporting environmental, social and societal priorities. As investors seek out a targeted approach on specific themes, such as climate change, Dorval European Climate Initiative provides an opportunity to draw on the growth potential of European companies that offer solutions to environmental and climate challenges, while supporting their growth.
Stéphane Furet, Deputy CEO and Co-founder of Dorval Asset Management states: “The energy transition will require us to reinvent our production processes, review our consumption habits and overhaul our energy mix: this extensive economic transition offers a range of investment opportunities. Against this backdrop, environmental funds can accelerate the transition to a greener economy by pursuing an active shareholder engagement policy and scrutinizing governance with a view to directly inciting companies towards better practices. Our goal in our new fund is thus to select the best investment opportunities for our clients among companies operating across the various eco-activities and that fit with the economic and stock-market cycle.”
Jean-François Baralon, CEO of Dorval Asset Management, notes: “Europe enjoys a buoyant economic and regulatory environment for investing in the climate and energy transition. The launch of our first environmental fund devoted to the climate relies on our proprietary SRI methodology to offer a tailored response to the climate emergency and support the economic and ecological transition. All our stakeholders will be in a position to assess the impact of our strategy on the back of the fund’s transparency and the measurement indicators developed: non-financial performance will be set against a reference indicator that aligns with the Paris Agreement. With this fund, Dorval Asset Management supports Natixis Investment Managers’ goal of developing more than €600bn of assets under management in the sustainable or impact investing category by 2024.”
Green intensity and decarbonization are the cornerstones of the management process
Dorval Asset Management builds on its longstanding European equities management expertise for this new Dorval European Climate Initiative fund, which is eligible for PEA French share savings plans and carries the French SRI accreditation: it is also undergoing the Greenfin certification process. The fund provides an opportunity to invest in European companies across all market capitalizations, primarily in the euro area, that offer products and/or services with a positive environmental impact or that contribute to the goals set out in the Paris Agreement.
The management process seeks to develop a portfolio of 40-50 stocks and is based on five stages:
1. The fund draws on our inhouse economists’ and portfolio managers’ expertise to decipher today’s key trends, combining macroeconomics with efforts to respond to sustainable development challenges to develop an asset allocation approach based on eight eco-activities.
2. Our portfolio management team relies on our proprietary SRI model to analyze non-financial performances for the fund’s investment universe, comprising climate action leaders. We exclude companies deemed to be least compatible with our management strategy and SRI policy, and also apply a specific exclusion policy in terms of both standards and sectors, i.e. ruling out companies operating in the fossil fuel industry and corporations that fail to comply with the ten principles set out in the United Nations Global Compact.
3. Our team then conducts its financial analysis to assess the intrinsic quality of these companies in terms of growth prospects, valuations, management quality and potential competitive advantages. Economic performance considerations dictate our buy and sell decisions for each position.
4. Our team also ensures that the portfolio aligns with a 2°C warming scenario, which can potentially prompt us to reduce the weighting of certain stocks in our portfolio, or even opt not to invest in any given company.
5. We take an iterative approach to portfolio construction, based on these various financial, non-financial and environmental impact analyses and assessments, while constantly reviewing and adapting the process.
We focus on companies in the eco-activity categories that develop goods and services that protect the environment or support natural resource management.
Our investments’ ‘green intensity’ varies according to companies’ revenue composition:
- Intense: more than 50% of companies’ revenues are generated by at least one eco-activity,
- Dynamic: 10% to 50% of companies’ revenues are generated by at least one eco-activity,
- Neutral: less than 10% of companies’ revenues are generated by at least one eco-activity.
Dorval European Climate Initiative therefore strives to combine economic performance with social and environmental impact, while mobilizing all or part of investments to support the energy and ecological transition.
The weighting for stocks in our portfolio is governed by:
- our controversy management policy,
- a score for classification as an eco-activity,
- a score for the ‘green intensity’,
- a non-financial score derived from Dorval Asset Management’s proprietary DRIVERS system,
- a financial score.
Tristan Fava, fund co-manager, explains: “Dorval European Climate Initiative is a resolutely green equity fund that is certified by experts, having achieved the French SRI accreditation and with the Greenfin certification process currently under way. Our goal was to roll out a sustainable investment strategy built on environmental convictions – that we want to share with our end investors – with a view to supporting European companies that address climate challenges. Our approach also goes a step further as the fund will donate 10% of management fees net of retrocessions to Epic Foundation, which fights childhood and youth inequalities by selecting and supporting high-impact social organizations. An approach that is chiming with our ESR roadmap here at Dorval AM and our pledge to “bring value to your values”.”
Lastly, Laurent Trules, fund co-manager, adds: “non-financial analysis plays a fundamental role in our investment process as 70% of the issuer’s final score is dictated by ESG criteria i.e. ESG score, ‘green intensity’ and classification as an eco-activity. This final score governs the maximum weighting for the stock in the portfolio and ensures that we select European companies that have the strongest impact in terms of combating climate change. With this fund, we are taking a clear stand with the companies that we invest in, inviting them to join us in stepping up the transition, as the climate investors we represent are committed to supporting the funding of solutions that accelerate the ecological and environmental transition. We further bolster this strategy by taking a long-term investment approach and making the climate the focal point in our shareholder dialogue. Our investment process for Dorval European Climate Initiative applies a methodology to actively support companies as they take concrete action: the cost of inaction is high, so it is vital to go beyond exclusions and take a proactive approach built on dialogue and transition.”
Enfin pour Laurent Trules, co-gérant du fonds : « L’analyse extra-financière occupe une place prépondérante au sein du processus d’investissement : 70% de la note finale de l’émetteur est déterminée sur la base de critères ESG (notation ESG, intensité verte, appartenance à une éco-activité). Cette note finale définit le poids maximum de la valeur au sein du portefeuille et permet de sélectionner les entreprises européennes les plus impactantes sur le changement climatique. Nous souhaitons envoyer un signal fort aux entreprises dans lesquelles nous prenons des participations : accélérons ensemble la transition, les investisseurs climat que nous représentons sont aujourd’hui prêts à contribuer aux financements des solutions en faveur de la transition écologique et environnementale. Cette dynamique est renforcée par un investissement de long terme et un dialogue actionarial plaçant le climat au cœur des discussions. Dans la gestion de Dorval European Climate Initiative nous avons fait le choix d’une méthodologie d’accompagnement vers l’action. Face au coût de l'inaction, il est crucial d’adopter une approche basée sur le dialogue et la transition au-delà des exclusions. »
Ambitious approach with reference indicator aligned on Paris Agreement
Our portfolio management team opted for a reference indicator that aligns with the Paris Agreement for our Dorval European Climate Initiative fund, as we seek to achieve stronger financial and non-financial performances than the EURO STOXX Total Market Paris-Aligned Benchmark Net Return EUR. This reference indicator is a share index that represents the large- and mid-cap markets in the main euro area countries, and promotes investment alignment with the Paris Agreement on the climate by following climate index requirements (EU Paris-based alignment) outlined by the European Commission in the Technical Expert Group (TEG) report on climate benchmarks:
- carbon intensity that is 50% below a traditional index,
- companies’ decarbonization of 7% per year,
- the absence of fossil fuel,
- a <2°C trajectory out to 2100.
Dorval European Climate Initiative is classified Article 9 in EU Sustainable Finance Disclosure Regulation (SFDR), and particularly addresses nine of the 17 United Nations Sustainable Development Goals (SDG).
Dorval European Climate Initiative makes green intensity and decarbonization the cornerstones of portfolio construction
As at December 31, 2021, Dorval European Climate Initiative comprises 46 companies that offer solutions to today’s climate challenges through their product and services ranges or by contributing to the goals set out in the Paris Agreement.
The following three examples illustrate our investment philosophy:
- Schneider Electric, which carries an intense rating in the industry eco-activity, incorporates its goal in its corporate purpose – empower all to make the most of its energy and resources, bridging progress and sustainability for all. For example, the company offers Wiser, a sustainable, smart and connected home solution to control and optimize the use of heating, lighting and shutters in the home.
- Aker Carbon Capture, which carries an intense rating in the Energy eco-activity, offers a tried and tested turnkey carbon capture solution for clients, such as steel works and cement plants. At HeidelbergCement’s cement plant in Brevik, Aker Carbon Capture enables the company to avoid emission of 400,000 metric tons of CO2 into the atmosphere each year. The company’s aim is to secure capture of 10 million metric tons of CO2 per year out to 2025.
- Arcadis, which carries an intense rating on the Building eco-activity, is the leading global design and consultancy organization for natural and built assets. For example the company is involved in designing and managing canal works for Seine-Nord Europe, one of the largest infrastructure projects in Europe. This new waterway will connect the Seine (Paris) to the Escaut river (Northern Europe) to develop the first European waterway transport network (1,100 km long), reducing CO2 emissions by a factor of three as compared with road transportation for 1,500 metric tons transported.
90% of the portfolio is invested in businesses that promote the energy and ecological transition, as outlined in the Greenfin classification or the European Taxonomy, while the remainder of the portfolio may also be rounded out by stocks outside the eco-activity scope – for example Teleperformance – that contribute to the fund’s sustainable investment objective.
Dorval European Climate Initiative aligns with efforts to meet the United Nations SDG
Our fund aligns with efforts to support the sustainable development goals, drawing on this classification and these objectives in both our stock-picking process and as a practical way to illustrate the investments we make.
The fund particularly targets nine of the 17 United Nations Sustainable Development Goals i.e. Good Health and Wellbeing (SDG 3), Clean Water and Sanitation (SDG 6), Affordable and Clean Energy (SDG 7), Decent Work and Economic Growth (SDG 8), Industry, Innovation and Infrastructure (SDG 9), Reduced Inequalities (SDG 10), Sustainable Cities and Communities (SDG 11), Responsible Consumption and Production (SDG 12), and Climate Action (SDG 13).
A portfolio management team with strong expertise in assessing climate challenges
Our fund is managed by two analyst-portfolio managers, Tristan Fava and Laurent Trules, both ESG specialists who have developed their expertise inhouse here at Dorval Asset Management. They are guided by Stéphane Furet, Deputy CEO and Co-founder of Dorval Asset Management, as they take a long-term view and assert strong convictions on both financial and non-financial expertise.
Stéphane Furet, Deputy CEO and Co-CIO, CESGA, draws on the experience he has acquired over more than 30 years on the financial markets, along with his in-depth analysis of the economy and extensive and clear analysis of corporate governance for companies invested for the long term, to guide Dorval AM and its team.
Tristan Fava, Portfolio Manager – Financial Analyst and Responsible Investment Coordinator, CESGA, relies on meetings with company leaders to single out corporations with the strongest financial and non-financial profiles.
Tristan is working towards achieving the CFA certification and is currently a candidate for level 2.
Laurent Trules, Portfolio Manager – Financial Analyst and Responsible Investment Coordinator, CESGA, advocates the benefits of incorporating non-financial criteria into our investments, as he applies this approach at Dorval Asset Management on a daily basis, while also sharing his expertise with Master’s students at school of management ESSCA.
Laurent holds a Master’s in Banking and Financial Engineering from ESSCA obtained in 2017 and is also working towards achieving the CFA certification: he is currently a candidate for level 3.
Dorval European Climate Initiative is rated category 6 on the risk-return scale.
Risk and return indicator: 1 is low but not zero risk, 7 is the highest risk. With a lower risk comes a potentially lower return; conversely the higher the potential return, the higher the risk will be.