Union Investment Probes Pollution Profile of Its Asset Holdings

  • Investor to assess carbon emissions after Paris climate deal
  • Frankfurt-based investor manages funds of 250 billion euros

Union Investment isn’t waiting for the Paris climate accord to be poured into government policy. The fund manager, one of Europe’s biggest, is taking a fresh look at the pollution emitted by the companies in which it invests in anticipation government rules will change.

With the ink barely dry on new global climate-protection resolutions, the Frankfurt-based investor will kick off detailed scrutiny of the carbon dioxide “footprints” of its assets this year, Ingo Speich, a senior portfolio manager and Union Investment’s head of sustainability and engagement, said in an interview.

“For us, the most important task this year will be to quantify the CO2 emissions of our portfolios and to assess the scale of the CO2 footprint sector for sector, industry for industry,” Speich said. “Over the next 12 to 18 months and following on from Paris, questions will be raised that will have enormous importance for German industry.”

The comments provide a rare glimpse into how some fund managers are thinking about how to re-order investment priorities following the landmark deal on climate change reached by 195 countries at a United Nations conference in December in Paris. Union Investment has 250 billion euros ($271 billion) under management, including 11 billion euros in sustainable funds, which it plans to expand.

Climate Policies

Hazards for investors relate first to the European Union’s overhaul of emissions trading, the executive said. Chancellor Angela Merkel plans to set new climate policies for 2020-2050 as early as the third quarter.

Union Investment started applying criteria on sustainable investment to its holdings 15 years ago and is tightening up its scrutiny after the Paris deal. It doesn’t want to follow the same path as Allianz SE and Norway’s sovereign investment fund, which have said they will sell assets in the most polluting industries.

Union Investment will expand its “nudge” policy to cajole companies to cut excessive CO2 emissions instead of divesting its holdings, Speich said. In 2015, the company held 240 meetings with company executives about their sustainability policy. It targets those issues actively at annual shareholder meetings.

The asset manager will apply carbon footprint testing initially to its sustainable funds where investment criteria relating principally to Montreal Pledges apply, said Speich. The pledges, initiated in 2014, commit investors to public disclosure of CO2 footprints. Some 120 investors managing $10 trillion in assets signed up.

Carbon Footprint

“Fundamentally, scrutiny of the footprint applies to all of our assets,” he said. A CO2 footprint is commonly defined as the total greenhouse gas emitted directly and indirectly by a person, organisation, event or product.

Some of Germany’s biggest CO2 emitters -- and assets in Union Investment portfolios -- can expect to be called by asset managers, who plan to seek information on carbon issues as early as this month at the Siemens AG AGM.

“If we know for instance that RWE AG as the biggest CO2 emitter in Europe may be in line for stricter pollution controls then we have to take account of that in our analysis decisions,” said Speich. Higher-priced CO2 pollution certificates would dent profit and a higher discount rate would be applied to cash flows due to expanded risk, he said.

“The decisions made in Paris must be converted into concrete costs, and that’s a job we have to start now.”

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