Case Study

Towards a 1.5ºc world: How sustainable finance decarbonized portfolios

22 pages
November 2021
Reference: IMD-7-2310

The case features Sara Razmpa, head of responsible investment, and Fiona Frick, CEO of Unigestion, at a critical juncture in the Geneva-based asset management firm’s ESG journey: the decision to launch an equities fund that specifically tackles climate change. While Unigestion had launched product families that integrated ESG in the past, this would be a new and more challenging undertaking. The case opens with the two debating between whether to launch a Climate Transition Fund or the more ambitious Paris-aligned Fund. Both methods aligned with the Paris Agreement by placing the portfolio on a 1.5ºC trajectory, with no or limited overshoot, and heading towards net-zero by 2050. However, they differed in their starting points and stringency. Students are placed in the shoes of Razmpa and Frick and need to decide which portfolio to launch – while balancing climate impact, commercial considerations and fund performance. The selection of climate funds is not straightforward. The decision touches on key debate points in sustainable finance: a financial investor’s fiduciary duty, whether to exclude or engage with high emitters and what would be most effective in tackling climate change. Finally, the case includes a practical application exercise where students can construct their own climate-focused portfolio. This is a timely case. There is a growing spotlight on climate change, especially with COP 26 in late 2021. Despite country pledges for net-zero emissions, a UN study found that current fossil fuel production plans set forth by governments worldwide for 2030 is double the level required to limit global warming to 1.5ºC. The financial sector, as a key allocator of capital, has a key role to play. This case can help students better understand the role financial institutions can play in the transformation towards a 1.5ºC world, the nuances of building climate positive portfolios and how to critically analyze different climate strategies and their implications.

Learning Objective

1. Describe different ESG investment methodologies. 2. Evaluate how to integrate environmental factors to build a climate-focused portfolio. 3. Implement the ESG integration process for a Climate Transition Fund or Paris-aligned Fund. 4. Assess the reputational risks and opportunities of building different types of climate change portfolios. 5. Critically reflect on the role of financial institutions in engaging with corporates for business model transformation towards a 1.5ºC world in 2050.

Keywords
Environmental Sustainability, Environmental Responsibility, Stakeholder Engagement, Asset Management, Low-carbon Economy, Climate Change, Fiduciary Duty, Portfolio Management, Paris Agreement, Decarbonization, Responsible Investment, Sustainable Finance Disclosure Regulation, Climate Action
Settings
Europe, Switzerland
Unigestion, Finance and Insurance, Financial Services
2021
Type
Field Research
Copyright
© 2021
Available Languages
English
Related material
Teaching note, Video
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