We have put in place a new environmental analysis to better highlight climate-related issues and align our analysis with TCFD recommendations.
We have a fundamental analysis of environmental issues. Climate related-risks and opportunities are included into our global vision and taken into account for each analyzed company. Investment analysts have a responsibility to integrate environmental issues into their analysis and a distinction should be made between an issuer's environmental policy analysis and environmental thematic analysis.
To identify, assess and manage climate-related risks and opportunities, we have an environmental analysis which has 4 pillars depending on the sectors:
- Strategic management of environmental (including climate) issues: identify physical risks, transition risks, opportunities related to climate change, governance on environmental issues, management risks process, is the company member of the initiative Science-Based Targets?
- Change in business model: current positioning of finished products / activities, means implemented by the company to change its business model (% capex in low carbon activities, development of green products/services, new technologies, eco-conception, innovation, etc)
- Climate: carbon footprint, energy efficiency, internal carbon pricing, positioning the company in a 2°C scenario (new indicator in temperature)
- Resource and externalities management: 1/ efficiency of the production tool (input): energy consumption, water consumption, protection of biodiversity, 2/ externalities management (output): waste management, recycling, circular economy
In this environmental fundamental analysis, we use four KPI's to assess the transition risks :
- The carbon footprint: we use scope 1, scope 2, Upstream scope 3 for all sectors and we use sectorial-related carbon footprint when relevant (gCO2/km for the auto sector). In 2019, we changed provider of carbon footprint data. As a result, our scope has been expanded.
- Green Share: percentage of positive activities in the revenue of companies. It adresses only the positive side of company activities. The methodology for calculating the green share is based on European taxonomy.
- NEC: (Net Environmental Contribution). It is based on the environmental impact of all the products and services of the company: 100% is the best product or service performance available, 0% the industry average and -100% the worst. For example, for a utility, renewable energy would have 100%, and coal -100%. By netting positive and negative contribution to the environmental transition, this indicator is given a full picture of the issuer's performance and contribution and therefore giving an indication of its ability to face transition risks.
- Alignment of the company's strategy with a 2°C scenario (temperature): In 2019, we integrated a new indicator on the alignment of the company's strategy with a 2°C scenario (in temperature) in our internal environmental methodology. This indicator is analyzed under the “Climate” pillar of our methodology. This indicator provides a more forward-looking view of the company's positioning in the face of the energy transition.
Therefore, these environmental and climate issues are taken into account in the final recommendation if they have or will have a material impact on the company's activities and results.