Présentation de Frédéric Samama, de chez Amundi, aux Ateliers du Shift Project du 9 juin 2015, questionnant les manières d'investir en réduisant son impact environnemental.

1. Investors Tackling Climate Change
June 2015
Frederic Samama
Deputy Global Head of Institutional & Sovereign Clients
Risk Management Approach

2. Executive Summary
 Asset owners have recognized climate change as a risk but have done little
so far.
 Things are now rapidly changing for three main reasons.
 Straightforward message:
– Markets do not price coming taxations on polluting companies (leading to a non rewarded risk);
– Investors’ fiduciary responsibility to identify and reduce these risks.
 Simple and transparent products:
– Reduce climate change related risks without impacting market exposure over the short term;
– MSCI Low Carbon Indexes (developed jointly with AP4, FRR and Amundi);
– Can be extended to the FI world.
 Sharing of best practices:
– Portfolio Decarbonization Coalition ($100bn commitment);
– Hedging Climate Change paper (AP4/Columbia University/Amundi);
– Events: Columbia Workshop, Bellagio Seminar, webinars, etc.
 Amundi, N1 European asset manager, plays a pivotal role in this field.
2

3. Climate Change Hedging
3

4. Climate Change : Global Risk for Investors
Source: WEF 2014, Global Risks Report 9th Edition
(1). Sources: Ceres, October 2013
(2). Sources: Bank of England, prudential authority, statement in Feb 2015
(3). Sources: UNEP; Financial institutions taking action on Climate change
4
 Climate risk among top 5
global risks as:
– Impactful as fiscal crisis
– Likely as unemployment, data fraud
or cyber attacks
Concern among regulators as
well:
– Bank of England warns of huge
financial risk from fossil fuel 2
– IMF, G20,…
The Global Risks Landscape 2014

5. Carbon Risk: A Shifting Debate
(1) See article from Martin Wolf published in FT 17/06/2014
(2) See article from Henry Paulson published in New York Times 21/06/2014
(3) Hearings at the Bank of England
5
“If that happened, fossil fuel reserves would indeed be
stranded. Investor beware: the risk of that cannot be zero.”1
Martin Wolf (17th June 2014)
“We’re staring down a climate bubble that poses enormous
risks to both our environment and economy.” 2
Henry Paulson (21st June 2014)
AP4 (Fjärde AP-fonden) has developed a strategy where it
underweights high carbon assets. “It’s an intelligent way of
motivating behavior than directly divesting out of oil,”
“Divesting out of oil is a bit like a blunderbuss, it doesn’t
give any incentives for companies.
“With the AP4 way you get incentives from companies in
industry to perform better. AP4 has found that
performance has improved in straight vanilla finance.’ 3
Lord Stern (26th February 2015)
 Shift from a risk to
society to a risk to
investors
 Not rewarded risks:
– Fiduciary responsibility
to identify them
– And to reduce them
– If long-term
investment horizon
 Among different
approaches, AP4
methodology is
promoted.

6. Two Major Risks to Investors
Polluting And Stranded Assets
 Fossil fuels companies:
mainly valued on their
reserves
 Reserves exceed the
budget of the planet:
– Reserves : 2,795 GtCO2
2
– Budget : 1,437 GtCO2
3
 No taxation:
– No cost for negative
externalities: impact on the
planet, assets, bodies…
– But a form of taxation will be
implemented in long term
 Direct subsidies:
– Fossil fuel : $480bn 1
– Eliminating these subsidies would
result in 4.1% reduction in energy
demand in 2020 4.
6(1). “Energy Subsidy Reform: Lessons and Implications”, IMF (2013)
(2). Carbon budget 2000-2050 for a 50% probability to stay under 2°C increase over pre-industrial level scenario. Source “Greenhouse-
gas emission targets for limiting global warming to 2 °C”, Meinshausen et al, 2009
(3). For a 50% probability to stay under a 2° increase scenario. Quantity of CO2 trapped in the world’s top 200 fossil fuel reserves,
excluding unconventional sources. Source: Carbon Tracker Initiative
(4). McKinsey (2010): Energy Efficiency: a compelling global resource

7. Climate Change: Need for Solutions
A major threat And
Complex
situation
7
Call for Innovation
Lack of Action
 Long-term issue
(that does not match with
investment horizons);
 Complexity
(technologies and
incentives);
 Lack of scalable
solutions

8. Methodology: Carbon Reduction Constraints
8
Provider’s
Selection
Then Climate Risk
Reduction
 Carbon footprint:
X% reduction of companies
with the highest carbon
footprint (Emission intensity)1
 Stranded assets
Z% reduction of carbon
reserves (Reserves intensity)2
 Index Provider
(MSCI)*
 Carbon Data
Provider (MSCI)*
Then
TE
Reduction
 Optimization of
the weights
 Regular
rebalancing
Simple, Transparent and Rules Based Approach
1 Carbon footprint divided by sales
2 Reserves divided by market cap

9. Decarbonization: Free Option on Carbon Repricing
NB: Random simulations with annual volatility at 20%, annual expected return 7% and a 0,5% TE.
1 2
Benchmark Low Carbon Low TE Benchmark Low Carbon Low TE
If no repricing:
same performance
If repricing:
Outperformance
9
Free Option
– Either no climate change impact : same performance
– Or a climate change impact : outperformance

10. MSCI Europe Low Carbon Leaders
10Source: MSCI
* Gross returns annualized in EUR for the 11/30/2010 to 08/29/2014 period.
** Annualized one-way index turnover for the 11/30/2010 to 06/30/2014 period.
The cumulative index performance is from MSCI
Key Metrics
MSCI
Europe
MSCI Europe
Low Carbon
Leaders
Total Return* ‘(%) 11.1 11,7
Total Risk* (%) 11.7 11.6
Sharpe Ratio 0.91 0.97
Active Return* (%) 0 0.6
Tracking Error* (%) 0 0.7
Information Ratio NA 0.89
Turnover** (%) 1.9 9.9
Securities excluded NA 91
Market cap excluded (%) NA 23.5
Carbon Emission intensity
reduction (tCO2/mm USD)
(%)
NA 62
Carbon Reserves intensity
reduction (tCO2/mm USD)
(%)
NA 81
 Excludes:
– Largest 20% emitters with a
maximum 30% by weigh form
any sector
– Largest owners’ reserves up
to 50%
 Major reduction of:
– Carbon Emissions Intensity (-
62%)
– Carbon Reserves Intensity (-
81%)
 Low tracking error: 0.7 %

11. MSCI Europe Low Carbon Leaders
11Source: MSCI
* Gross returns annualized in EUR for the 11/30/2010 to 08/29/2014 period.
** Annualized one-way index turnover for the 11/30/2010 to 06/30/2014 period.
The cumulative index performance is from MSCI
 Return vs. benchmark:
– 12.1% vs 11.5%
– Even if supposed to be
forward looking
 Regular outperformance
 Concrete investment:
– Nov ‘14-April ‘15
– 100bp of
outperformance
MSCI Europe
Low Carbon
leaders
MSCI Europe

12. Two Main Approaches
12
Target
(optimizer)
Leaders
(rules based)
Method • Optimization of
Carbon footprint / TE
• Selection (best-in-
class) + re-weighting
Footprint
impact
• Function of calibration
• High
• Function of calibration
• High
Performance
impact
• Positive if carbon risk
not yet priced in
• Positive if carbon risk
not yet priced in
Risk/TE • Very low TE
• Concentrated
remaining TE
• Low TE
• Diversified remaining
TE
Signaling /
Incentives
• Weak • Strong signaling,
strong incentives
 Both Target and leaders
are achieving a very
good balance low
TE/Risk reductions
 Target is based on an
optimizer that reduces
even more the TE
 Leaders is based on
rules that send clear
messages to companies

13. Mix of Different Approaches
• * Low carbon leaders: exclusion based on transparent rules and with a cap per sector
•
(1) For polluting companies
13
Exclusion Engagement
+ Easy to
Implement
- Possible light
impact
Risk Management
+ Strong Signal
- Does not fit with
constraints of most
investors
- Scalability?
Limits?
Targeted and dynamic
exclusion*
+ Combines Exclusion
and Engagement
+ Fits with investors
constraints & Scalable
+ Competition within
each sector to accelerate
carbon transition 1
- Middle Road Approach

14. Existing Investment Vehicles
14
 Open-ended Index Funds:
– Amundi Index Equity Europe Low Carbon
– Benchmark: MSCI Europe Low Carbon
Leaders
– Launched in France: March 5
– Amundi Index Equity Global Low Carbon
– Benchmark: MSCI World Low Carbon
Leaders
– Launched in France: March 5
 ETF (already launched):
– Amundi Index Equity Global Low Carbon

15. Concrete Decarbonization by Institutional Investors
 MSCI Low Carbon indices
– Developed alongside AP4 and FRR
and Amundi 1
– FRR and AP4 plan to invest up to
EUR 2bn
 Tailored decarbonization
– ERAFP 2:
– Keep the same reference index
– EUR 1.1bn
(1) https://www.msci.com/documents/10199/447d3ba7-e215-45c9-8b14-74031a80f4bc
(2) http://www.lesechos.fr/journal20140923/lec2_gestion_d_actifs/0203782634292-
philippe-desfosses-lerafp-va-decarboniser-son-portefeuille-dactions-de-la-zone-euro-
1045591.php
15

16. Rewarded Clients
16
 IPE Awards 2014:
– AP4:
– Best Public Pension Fund
– Outstanding Industry Contribution
– FRR: Best French Pension Fund
 Environmental Finance 2015:
– AP4: Personality of the Year
 Responsible Award 2014
– ERAFP: Positive economy

17. Wide Range of Solutions
17
From liquid to illiquid assets
Illiquid
PE
« EDF »
Fixed Income
Passive
Stock
Picking
Decarbonization
of Indices
Overlay
Equities
Active Passive

18. Fixed-Income
Barclays Euro Corporates
# bonds ~ 1500
# issuers ~ 480
Interest rate sensibility 498
Bonds sensibility 525
Carbon intensity 145
# bonds ~ 1300
# issuers ~ 380
Carbon reduction 36%
Tracking Error 0.08%
# bonds ~ 110
# issuers ~ 110
Interest rate sensibility 498
Bonds sensibility 525
Carbon reduction 58%
Tracking Error 0.17%
Investment universe/ Benchmark index
3
Exclusion of 20% of the most polluting issuers (up to 30%
maximum per sector) while having stranded assets
Sampling process
aiming at reducing the amounts lent to polluting issuers
18
2
1
 Decarbonization of
Barclays Euro Corporate
 Process:
– 58% carbon footprint
reduction
– Same market exposure
(yield/spread)
– Low TE: 0.17%
 Discussions with index
providers to launch:
– ETF
– Mainstream index

19. Portfolio Decarbonization Coalition
19
 Commitment to decarbonize:
– $45bn achieved up to now
 Open platform:
– Investors share best practice
– Governance: UNEP-FI
 Members:
– AP4, Australian Ethical Investment, ERAFP,
Fonds Francais de Retraites, Church of
Sweden, Environment Agency Pension
Fund, Legal Government Super, University
of Sydney, Toronto Atmospheric Fund
“Some of the biggest – and potentially transformational
announcement at my Climate Summit came from the
private sector. A coalition of institutional investors has
committed to decarbonize $100bn in institutional
equity investments”
Ban Ki-moon, UN Secretary General
http://unepfi.org/pdc/

20. 2015 Sharing of Best Practices among Asset Owners
20
 March 9th: Columbia University
 Asset owners in the first panel:
– A. Stausboll, CEO, CalPERS
– B. Litterman, Investment Committee, WWF
– M. Eriksson, Deputy CEO, AP4
– P. Desfossés, CEO, ERAFP
– E. van Gelderen, CIO of APG
 30 asset owners, $6tn
“The Decarbonization Portfolio Coalition is
a positive step in this direction. I salute the
mobilisation of its founders Amundi, AP4,
CDP and UNEPFI, and investors that have
signed up since its launch at the Climate
Summit, and encourage all institutional
investors to take these commitments even
further by the COP21.”
Laurence Tubiana
French Representative for the COP21
“We welcome asset owners and managers, such as those
present at this critical gathering at Columbia University, to
become members of the Portfolio Decarbonization
Coalition so as to share, with the public and world
governments, their approaches. PDC will then be able to
make this 'wealth of action' visible to Governments in
the lead-up to COP21 in Paris. This is what, in 2015,
investors can concretely do in order to help us build
an enabling environment towards a successful climate
agreement at the Paris COP."
Janos Pasztor
Assistant SG on Climate Change

21. Sharing of Best Practices among Asset Owners
21
 April 7th: Rockefeller seminar at Bellagio
 Sharing of best practices (including):
– Asset owners
M. Andersson, CEO, AP4
G. Hahn, Head of RI, Church of Sweden
E. Mason, Head of RI, Church Commissioners for England
B. Litterman, Treasurer of the Board of Directors, WWF
P. Desfossés, CEO, ERAFP
S. Palmer, Head of Ethics, Australian Ethical Investment
O. Rousseau, Management Board, FRR
J. Sefton, Senior Analyst RI, New Zealand Super Fund
– Policy makers
R. Arezki, Senior Economist, IMF
P. Canfin, Senior Advisor, World Resources Institute
H. Huang, Head of Sales and Trading, CICC
– Academics
P. Bolton, Columbia University
J. Svejnar, Columbia University

22. Academic Paper Columbia/AP4/Amundi
22
 Andersson, Bolton & Samama (2014)
– Signaling is key to generate right
incentives;
– Risk analysis.
 Top 10 most downloaded papers 1
 Published in Revue d’Economie
Financiere
 High visibility:
– “Long-termism, the problems with
capitalism and other holiday reading”
(Dec 2014) 2
(1) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2499628
(2) http://www.top1000funds.com/opinion/2014/12/18/long-termism-the-problems-with-capitalism-and-other-
holiday-reading/

23. Conclusion
(1) Source: www.CDP.net as at 2014. “CDP Initiative is backed by more than 767
institutional investors representing an excess of US$92 trillion in assets.”
(2) Boston Consulting Group , Global Asset Management 2014 – Steering the Course to
Growth
 Climate change is now a real risk for investors
– Analyze and disclose their risks
– Consider carbon as an investment opportunity
 In sum: investors can generate a free-option on a mispriced asset
 Such solutions could be a base for further developments:
– Country selection based on political sensitivity to climate change
– Replication on other themes (e.g. water, waste, etc.)
 Possible mobilization of a vast amount of money:
– Investors with a green interest represent $92 trillion 1
– Passive management sums up to $10 trillion 2
 Portfolio Decarbonization Coalition:
– Sharing of best practices to mobilize investment flows toward the low carbon economy
– $45bn commitment already achieved
23

24. APPENDIX
24

25. Climate Change: China Tackling Climate Change
(1) http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1194544.shtml
(2) http://www.theguardian.com/environment/2015/mar/05/china-vows-to-fight-pollution-with-all-our-might
(3) http://www.yicai.com/news/2015/02/4575974.html
25
“Tackling climate change is the intrinsic requirement of China's sustainable
development as well as the international obligations of a responsible major country.” 1
President of People’s Republic of China, Jinping Xi (December 2014)
“China expects to reduce Carbon Emission further by more than 3.1% this year, adding
it aims to stop coal consumption growing in key areas.” 2
Premier of People's Republic of China, Keqiang Li (March 2015)
“The PBOC highly valued the development of green finance, and aims to promote the
attractiveness of green projects and investments in green industries.” 3
Deputy Governor of PBOC, Gongsheng Pan (February 2015)

26. Climate Change: China Tackling Climate Change
26
 Commitment by 2030:
– Cap carbon emissions (earlier if possible)
– Increase the share of non-fossil fuels to 20% 1
 Actions:
– Domestic ²:
– One of main policy focus: China’s Policies and
actions on Climate change
– 7 ETS Pilots; National ETS in 2016
– International corporation:
– Widely involved in multilateral corporations:
UNFCCC, G20, etc.
– Bilateral corporations: US, EU, etc.
 Moving forward…
– COP 21: Reduction target to be submitted in June
– PBOC: Green Finance Development Project to be
included into the 13th FYP ³
(1). http://www.yicai.com/news/2015/02/4575974.html,
(2). http://www.theguardian.com/environment/2015/mar/05/china-vows-to-fight-pollution-with-all-our-might,
(3). http://www.baidu.com/link?url=BX8K8Tpgvzigew5H0Tpig4lnlpk-IJa4G4GI_was8GmHNqDxP-6hJ7JuGtIUZ4RE5teZpn-
PfJygtcj9oJR-4t3ubTrp-84V8cWylVCS1ce

27. Carbon Budget Equation in Line with 2°C Goal
(1) To have at least a 50 per cent chance of keeping warming below 2°C throughout the 21st century , the cumulative
carbon emissions between 2011 and 2050 need to be limited to around 1,100 Gt CO2. See Nature, January 2015 and
IEA, March 2015. (2)United Nations Department of Economic and Social Affairs/Population Division 3, World Population
to 2300
Source : Nature 2009, Meinshausen et alii, Greenhouse-gas Emissions Tragets for Limiting Global Warming to 2°C
27
 2°C objective key figures 2011-2050:
– CO2 concentration limit: 450ppm
Vs. 400ppm (particles per million) in 2015
– CO2 emissions / year limit: 35 GtCO2
Vs. 32.3 GtCO2 in 2014
– Carbon budget: 1,100 GtCO2
(1)
Vs. 300 GtCO2 burnt since 2000
 Growing energy needs:
– World pop. to reach 8.9bn in 20502
– 3bn more middle class consumers by
2030
– Growth in electricity demand in developing
countries (e.g. x2 in India over the next
10yr)
– More than 1bn without access to
electricity in 2013, rising to 2.5bn in 2030
World Energy-related CO2 Emissions by Scenario

28. Remaining Ultimately Recoverable Resources
Stranded Assets
Source graphs: IEA 2013, Redrawing the Energy-Climate Map
(1) Nature, January 2015
(2) Nature, April 2009
28
 The Carbon Budget Gap:
– Budget for 2011-2050: 1,100 GtCO2
CCS only slightly increases burnable reserves
budget before 2050 (6% for coal, 2% for gas and
oil)
– Proven fossil fuel reserves: 2,900 GtCO2e
– Estimated fossil fuel reserves: 11,000
GtCO2e
 Low-demand Low-price 450ppm
Scenario:
– A 450ppm scenario requires energy-
efficiency measures
– Lowering fossil fuel demand, depressing
prices
– Impacting marginal producers: deepwater,
oil sands, shale oil, thermal coal
– And resource owning countries:
Middle East (owns half of stranded assets)
Canada (very low utilization rate)
World Energy-related CO2 Emissions by Scenario
Oil Gas Hard
Coal
Lignite2°C

29. US Coal Crash
(1) Sen. Mitch McConnel of Kentucky, see The New York Times “McConnell Urges States to Help Thwart Obama’s ‘War
on Coal’”
29
Asset Value Depends on Production Costs
and Market Price
Climate Policy Initiative, 2014, « Moving to a Low-Carbon Economy: The
Impact of Policy Pathways on Fossil Fuel Asset Values”
 US Coal crisis is caused by shrinking demand
 With a combination of 3 factors:
– Cheap substitute (gas)
– Regulation: Clean Air Act, “Obama’s War on Coal” (1)
– Declining exports (slowdown in China and strong USD)
 Equities and bonds of coal companies are
affected:
– Peabody’s stock has lost 87 % of its value in
the past 5 years
– 5 years CDS on Peabody: rose from 707bp to
948bps at the end of 2014
– Risk premia have surged
Share price performance of US coal companies, Jan 06 – Jan 15
Carbon Tracker, March 2015, The US Coal Crash, Evidence for Structural Change

30. Carbon Pricing by Economists
30
 Climate change impacts (negative externalities) will mostly materialize in a distant
future (2050-2100 and after)
 Carbon pricing relies on Cost-benefit analysis (CBA) to maximize intertemporal
welfare:
– Net Present Value of future damages generated by one tonne of CO2
– Discount rate is key (reflects elasticity of intertemporal substititution)
– Is the discount rate a good proxy for risk aversion?
– What is the Beta of reducing emissions? (i.e. Elasticity of monetized damages to the world
GDP)
Discount Rate Carbon Price ($/tCO2) Carbon Price ($/tCO2) in
2050
Nordhaus (2008) 5% $8 in 2008 $25.9
Stern (2007) 1,5% (2000$) 85 in 2007 NA
US EPA (2013) 2,5% // 3% // 5% (2010$) 57 // 37 // 11 in 2015 $97 // $71 // $26
3% with tail risk (95th
percentile)
(2010$) 109 $220
Daniel, Litterman, Wagner
(2014)
2.5% $53 $44 (in 2045), $28 (in 2105)

31. The Issue of Externalities and Market Distortions
(1) IMF 2013
(2) IAE 2013
31
Unwindresource
subsidies
Recognizeexternalities
Private and social cost:
US$ 1,420 bn in 2013 (1)
Renewable energy
subsidies:
US$ 121 bn in 2013 (2)
Fossil fuel subsidies:
US$ 548 bn in 2013 (2)
– The marginal private cost of CO2 emissions is inferior
(usually being nil) to the social cost associated with global
warming damage
E.g.: Adding the social and environmental cost
associated with coal to its actual cost would raise its
price by 175% (Greenstone & Looney 2011)
– Three ways to reduce CO2 output to the socially optimum
level:
 Pigovian Tax
 Regulation
 Creation of a market for polluting rights (e.g.
Emissions Trading Schemes)
– More than four times lower than fossil fuel subsidies
– Fossil fuel subsidies have decreased by US$ 25 billion
compared to 2012, in part due to a decrease in international
energy prices
– Subsidies to oil products represent over half of the total
– Total fossil fuel subsidies represent more than four times the
amount invested globally in improving energy efficiency

32. From Shadow Price to Internalization
(1) From the US China Climate deal: China, the biggest emitter of greenhouse gases in the world, has agreed to cap its
output by 2030 or earlier if possible. Previously China had only ever pledged to reduce the rapid rate of growth in its
emissions. Now it has also promised to increase its use of energy from zero-emission sources to 20% by 2030. The
United States has pledged to cut its emissions to 26-28% below 2005 levels by 2025.
32
Pieces of Carbon- and Clean-energy Focused
Legislation and/or Regulation – Worldwide
UNEP-FI 2012
 Upward trend at sub-national and at national levels:
– 490 pieces of carbon legislation in 2012 Vs. 151 in 2004
– Bottom-up emergence of a global landscape
 Developing countries are taking up the challenge:
– ETS scheduled or implemented: China, South Korea,
Kazakhstan
– ETS under consideration: Brazil, Chile, Mexico,
Thailand, Vietnam, Turkey
 China’s new stance can be a game changer1:
– Coal peak by 2020, CO2 peak in 2030
– Increases zero-emission sources to 20% by 2030
– National ETS to be implemented in 2016
 A new global deal is to be reached in 2015:
– All countries to commit themselves to implement their targets (first half of 2015)
– Durban Platform (ADP) to be adopted for an implementation in 2020
– New ways to finance this transition to be found, from the North to the South (Green Climate Fund still
underfunded)
 Concerns about free-riding issues remain high

33. MSCI World Low Carbon Leaders
33
 Excludes:
– Largest 20% emitters with a
maximum 30% by weigh form
any sector
– Largest owners’ reserves up
to 50%
 Major reduction of:
– Carbon Emissions Intensity (-
50%)
– Carbon Reserves Intensity (-
68%)
 Low tracking error: 0.6 %
Key metrics
MSCI
World
MSCI World
Low Carbon
Leaders
Total Return* ‘(%) 12.7 13.1
Total Risk* (%) 13.2 13.3
Sharpe Ratio 0.95 0.99
Active Return* (%) 0 0.4
Tracking Error* (%) 0 0.6
Information Ratio NA 0.72
Turnover** (%) 1.7 6.9
Securities excluded NA 328
Market cap excluded (%) NA 17.4
Carbon Emission intensity
reduction (tCO2/mm USD) (%)
NA 50
Carbon Reserves intensity
reduction (tCO2/mm USD) (%)
NA 68
Source: MSCI
* Gross returns annualized in EUR for the 11/30/2010 to 08/29/2014 period.
** Annualized one-way index turnover for the 11/30/2010 to 06/30/2014 period.
The cumulative index performance is from MSCI

34. MSCI World Low Carbon Leaders
34Source: MSCI
* Gross returns annualized in EUR for the 11/30/2010 to 08/29/2014 period.
** Annualized one-way index turnover for the 11/30/2010 to 06/30/2014 period.
The cumulative index performance is from MSCI
 Return vs. benchmark:
– 13.1% vs 12.7 %
– Even if supposed to be
forward looking
 Regular outperformance
MSCI World Low
Carbon leaders
MSCI World

35. Comparison of Decarbonization Methods
35
Target funds (pure re-
weighting)
Low carbon leaders Disinvestment
Method • Optimization of Carbon
footprint / TE
• Selection (best-in-class)
+ re-weighting
• Selection (exclusion of
sub-sectors)
Footprint
impact
• Function of calibration
• High
• Function of calibration
• High
• Very high
Performance
impact
• Positive if carbon risk not
yet priced in
• Positive if carbon risk
not yet priced in
• Uncertain, depends on
relative performance of
energy sector
Risk • Limited • Limited • Very strong sectorial
bets
Signaling /
Incentives
• Weak • Strong signaling, strong
incentives
• Strong signaling, but
weak incentives for
divested companies
Concerns • Alignment with climate
performance (Scope 3)
• Alignment with climate
performance (Scope 3)
• Not commercially driven
• Possible tension with
economic development
of poor countries

36. Carbon Footprint Measurement
Detailed methodology in Appendix from Slide48 to Slide 54 36
 Greenhouse Gas (GHG) Protocol sets the global standard for how to measure,
manage, and report greenhouse gas emissions
 GHG protocol defines three categories of carbon emissions:
– Intensity =
𝐶𝑎𝑟𝑏𝑜𝑛 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 𝑠𝑐𝑜𝑝𝑒 1+𝐶𝑎𝑟𝑏𝑜𝑛 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 𝑠𝑐𝑜𝑝𝑒 2
𝑆𝑎𝑙𝑒𝑠
– Scope 1 = Direct GHG emissions
– Scope 2 = Indirect GHG emissions from consumption of purchased electricity, heat or steam
– Scope 3 = Other indirect emissions
– Modelling if necessary
 Stranded assets (Reserves):
– Intensity =
𝐶𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑐𝑎𝑟𝑏𝑜𝑛 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 𝑓𝑟𝑜𝑚 𝑟𝑒𝑠𝑒𝑟𝑣𝑒𝑠
𝑀𝑎𝑟𝑘𝑒𝑡 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛
– Just a few companies concerned in the oil & gas, metals and mining and utilities sectors
 Carbon Disclosure Project serves as a repository for corporate’s GHG emissions data
 Financial data providers such as MSCI or Trucost fine tune and repackage CDP datas
into comprehensive GHG emissions & stranded assets database

37. Climate Change Reporting by Companies
Source: CDP 2014, CDP Russia Climate Change Report
(1) www.cdp.net
37
CDP Investor Base Continues to Grow  A growing demand from investors(1):
– 822 investors with $95 trillion in assets have asked
more than 5,000 companies to disclose their carbon
emissions and climate change strategies through
CDP
 Gaps remain in reported emissions (Sc. 1 & 2):
– ACWI: 48% of companies, 70% of market cap
– World: 58% of companies, 75% of market cap
 Caveats:
– Standards / Benchmarking
– Third party verification
– Scope 3
 Climate impact is not always aligned with scope
1 & 2 carbon footprint
 Access to Scope 3 standardized data is the
challenge:
– Scope 3 emissions can account for as much as 90%
of total carbon impact (e.g. automobile, retail, etc.)

38. Equities Customized Solutions: Smart Beta Decarbonization
38
 Decarbonization of Scientific Beta Value Max
Deconcentration Smart Index:
0
100
200
300
400
500
600
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Carbon emissions intensity
Key metrics
Edhec Value Max
Deconcentration
Low carbon
“Rule”**
Low carbon
“Carbon Optimizer”***
Annualized Return 16.7% 17.1% 16.9%
Annualized Risk 14.0% 14.0% 14.0%
Sharpe Ratio 1.12 1.15 1.13
Active Return - 0.4% 0.2%
Ex post Tracking Error - 0.55% 0.17%
Information Ratio - 0.71 0.93
Carbon Emission intensity* - -50% -50%
Carbon Reserves intensity* - -52% -53%
 Carbon emissions:
– Edhec Max Dec : high
carbon footprint (Reason:
small polluting
companies, mostly in the
utilities sector, are
overweighted*).
 Decarbonization brings
back to MSCI World
carbon intensity level
 With slight
outperformance:
– Rule: +0,4%
– Carbon Optimizer: +0,2%
 With limited TE:
– Rule: 55bp
– Carbon Optimizer: 17bp
*The difference between the Edhec and the MSCI World carbon intensities is 225 CO2 tons / millions $ of sales* Which 45% can
be explained by the top 10 and bottom 10 contributors
** Low Carbon « Rule » : a proportion of the worst polluters within each sector is excluded before the TE optimization. The benefit
of this approach is the transparency regarding the exclusion rule.
*** Low carbon « Carbon Optimizer »: no companies are excluded ex-ante. The benefit of this approach is its greater efficiency.
Edhec Max Deconcentration
MSCI World Carbon Optimizer/Rule Reduction

39. Decarbonization of Fixed-Income Portfolios
39
 Debt decarbonization tackles carbon risk
 Green bonds investments are SRI / Impact-driven
Green Bonds Debt Decarbonization
Objective • Impact investing
• SRI policy
• Carbon risk hedging
Functioning • Bonds with dedicated use of proceeds to
projects generating a direct environmental
benefit-renewable energies, energy efficiency,
climate change adaption or social benefits
• Low carbon fixed income indexing with the
exclusion of most polluting issuers based on
their carbon footprint (and sampling to limit
further the exposure to polluting companies)
Development • Expected to reach total outstanding amount
of $100bn in 2015
• Beginning of standardization and emergence
of Green bond indices
• Projects underway
Benefits • Impact-driven (“use of proceeds”)
• Reputation
• No extra financial costs as an investor (so far)
• Reduction in amount lent to polluters
• Diminishing carbon risks
• Optimization to replicate the benchmark risk
• No extra financial costs as an investor
Concerns • « Green-wash » risk
• Low impact risk
• No real standardization and lack of
« greenness » evaluation
• Liquidation concerns
• Lack of accuracy of carbon footprints
• No real value creation via exclusion

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