Since 2007, the sustainability approach of the Carnot Energy Efficiency Fund has been based on reducing energy consumption. Since 2015, the same process has been used for positive screening (ESG bottom up) for the Carnot Efficient Resources Fund. The investment process focuses on resource efficiency through the active selection of companies that produce products or services that can reduce the consumption of natural resources.
To prove the impact of a company and make it comprehensible, a “Logic Model” is used to connect the company and its products, services and projects to its impact. This model is divided into 5 steps:
On the one hand, input refers to financial, human or other resources that are invested in products, services or projects. But part of the inputs are also concepts (e.g., mission, exclusion lists) that define the goals and direction of services or projects.
2. Activities / Process: Planning, developments and fabrication processes, which serve to achieve the goals and are implemented based on the input.
3. Output / Benefit: Output is understood as the direct result of the combination of input with the activities and processes of a company. These are quantifiable services such as products, services or projects. The performance is measured primarily by means of financial indicators.
4. Outcome / Effect: The outcome comprises the effects of products, services or projects that are implemented by the target groups and can be derived from the output.
5. Impact: On the other hand, are the effects of products, services or projects that go beyond the effects on the target groups. These can be effects in the surroundings of the target groups, on the social level or their environment.
Conclusion: Impact Measurement covers those effects (outcome) that a company triggers on the target groups through its output, but also longer-term effects (impact) that relate to the entire society or the state of the environment, which are not the direct addressees of the products, services or projects.
Impact-Analysis via Questionnaire
A systematic review of the impact portfolio companies via a set of questionnaires (impact analysis, sustainability analysis, engagement priorities) captures the positive as well as negative effects qualitatively.
The following four questions are answered using the questionnaires:
1. Are environmental (E) and social (S&G) risks reduced?
2. Is a financial return being generated?
3. Are environmental and social opportunities being pursued?
4. Does the company focus on measurable solutions with strong impact?
Reduction of environmental (E) and social (S&G) risks.
The first question concerns the strategic direction of the company, in which the fundamental willingness of the entire organization incl. Management is questioned: Are there mission-oriented business goals for environmental (E) and social (S & G) problems?
Answer: A company's strategy clearly shows how the business model targets specific positive social and / or environmental impacts.
o Mission / Goals / Intentions
• Products & Services
o Does the company have technology, or does it provide a service that reduces the consumption of natural resources or energy?
o Does this technology or service bring economic benefits (payback)?
o Does this technology or service account for at least 20% of the enterprise value of the company?
o Regarding energy efficiency: is the company in one of the target sectors of building technology, industry or transport?
Generating financial returns
The second question concerns the financial orientation of the company: Are there clear financial return targets and are these goals achievable?
Answer: The financial potential of the company meets the minimum criteria (ROCE & EV / EBIT) for quality and evaluation.
• Quality: o Indebtedness, debt ratio
o Return on capital employed (ROCE)
• Ratings & Valuations: o Low EV / EBIT
o Opportune P/E
o Attractive dividend yield
Pursuit of environmental and social opportunities
The third question concerns the focus on sustainable corporate governance: Do ESG goals flow into everyday operations and are they reported?
Answer: The sustainability potential of the company meets at least half of the industry average (purchased ESG analysis from Vontobel Asset Management AG) as well as the exclusion criteria.
• Industry contribution o Environmental footprint: Resource consumption, emissions, waste
o Social footprint: Working conditions, potential for social conflicts
• Business contribution o Environment: Supply chain, production, products
o Social: Suppliers, employees, society, clients
• Exclusion criteria o Arms
o Nuclear energy
o "Green" gene technology
o Tobacco, Alcohol
• Active selection for the area E = Environment
• S = Social and G = Governance; are not selected at first.
Focus on measurable solutions with strong impact
The fourth question concerns the direction of the company: Can the positive environmental or social contribution be disclosed and measured in relation to the company's objectives?
quantified on the selected SDGs (see chapter 6 Carnot Impact Mapping Tables)?
Answer: The impact on the selected SDGs is determined by the impact measurement, using primarily indirect and qualitative indicators. Quantitative goals derived from output are traditionally determined through traditional performance metrics.
Quantitative targets (performance measurement)
• Sales of dedicated products
• Number of people (i.e. clients, their families, neighbours) who are being reached / cared for
• Investment into research, development and innovation
• Other quantitative sources of information o Annual financial statement
o Social and environmental report
o Environmental balance sheet
Mixed Quantitative and Qualitative Objectives (Impact Measurement)
• Outcome o Efficiency; ROI
o Follow-up investments
o Reduction of ESG-risks
• Impact o Decreased usage of energy and resources (SDGs 2,3,6,8,12,14)
o Climate change (SDG 13)
o Better infrastructure (SDGs 9 & 11)