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Terra Alpha Investments, LLC

PRI reporting framework 2020

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe Scenario analysis plays a role in helping us evolve our investment thinking. We have found that various climate scenarios have helped us identify material ESG-related factors for certain industries of the economy.
Describe When evaluating companies for inclusion in our portfolio, our investment analysts model future performance based on sector, regional, and company-specific factors. We utilize scenario analysis as a component of our assessment when considering the business model, the financials, and the operations of a company.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]


SG 13 CC.

13.4 CC. Describe how your organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, its results, and any future plans.

Describe

When we conduct initial assessments on companies, we include climate-related risks and opportunities into our analysis over at least a 5-10 year time horizon. These assessments include whether the company itself is exposed to any physical climate risks, as well as how the company is positioned to handle transition climate risks. Our analysts also begin assessing how companies are capitalizing on the opportunities associated with our changing world.

Describe

The incorporation of scenario analysis to manage climate-related risks and opportunities starts with our initial assessment of companies and continues as part of the ongoing review of our holdings. As part of our proprietary Environmental Productivity Rating and Enduring Business Model Score frameworks, we are constantly assessing physical climate risks, transition climate risks, and climate opportunities and their impacts on a company’s business model, operations, and financials. This analysis is completed from both a top-down (thematic and industry-level) and bottom-up (company-specific) perspective. We are actively working on ways to more systematically incorporate the TCFD disclosures of companies into our analysis. We are also assessing various scenario portfolio assessment tools to determine if they can enhance our overall portfolio construction process.

Describe

We engage with current portfolio companies and potential portfolio companies on a regular basis which could include questions related to climate risk that stem from our scenario analysis. An example of this would be when the carbon price we model in our analysis is materially different from what a company is modeling or disclosing. Another example would be when we engage with companies on the types of emissions targets that are being set by management (e.g., science-based targets vs. regular percentage targets vs. no targets).

13.5 CC. Indicate who uses this analysis.

specify

          Investment Analysts
        

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Describe

While we primarily focus on a five-year to 10-year time horizon when considering investment possibilities, we evaluate the potential impact of climate-related risks well beyond the specified time horizon. In an effort to limit the average global temperature rise, transition risks associated with climate change will be present for decades to come. Moreover, physical climate risks will increase in quantity and magnitude over the long-term as the environment absorbs the impacts of global temperature increases and the associated weather events. A company’s ability to plan for these risks and build its resilience will be better positioned to succeed in our changing world.

13.7 CC. Indicate whether a range of climate scenarios is used.

13.8 CC. Indicate the climate scenarios your organisation uses.

Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          Evolving food/agricultural systems
        

other description (2)

          Decarbonization
        

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

Our entire fund is based on investing in companies that have lower emissions vs their peers. 

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

Our proprietary Environmental Productivity metrics built from information and data from company reports, Carbon Tracker, CDP, GRI, SASB and Bloomberg.

14.5. Additional information [Optional]


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          To measure the performance of potential and existing holdings vs peers and over time.
        
          Science Based Targets, internal corporate targets that follow the emissions pathway laid out in the Paris Accord.
        
          Corporate Disclosed Environmental Data.
        
Weighted average carbon intensity
          To measure the performance of potential and existing holdings vs peers and over time.
        
          CO2e
        
          Corporate Disclosed Environmental Data.
        
Carbon footprint (scope 1 and 2)
          To measure the performance of potential and existing holdings vs peers and over time.
        
          CO2e
        
          Corporate Disclosed Environmental Data.
        
Portfolio carbon footprint
          To measure the footprint of the companies within our portfolios.
        
          CO2e
        
          Corporate Disclosed Environmental Data.
        
Total carbon emissions
          To measure the footprint of the companies within our portfolios.
        
          CO2e
        
          Corporate Disclosed Environmental Data.
        
Carbon intensity
          To measure the performance of potential and existing holdings vs peers and over time.
        
          Carbon intensity. CO2e/revenue.
        
          Corporate Disclosed Environmental Data.
        
Exposure to carbon-related assets
          Our assessment of energy companies includes a stranded asset screen.
        
          Various
        
          Corporate Disclosed Environmental Data.
        
Other emissions metrics
          
        
          
        
          
        

14.7 CC. Describe in further detail the key targets.

Target type
Baseline year
Target year
Description
Attachments
          Emissions (scope 1 & scope 2)
        
          
        
          We utilize corporate-disclosed environmental data to measure our portfolio's overall resource intensity progress.
        

          Waste Stream.
        
          
        
          We utilize corporate-disclosed environmental data to measure our portfolio's overall resource intensity progress.
        

          Water.
        
          
        
          We utilize corporate-disclosed environmental data to measure our portfolio's overall resource intensity progress.
        

          
        
          
        
          
        

          
        
          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risk management processes used for identifying, assessing and managing climate-related risks.

Please describe

The assessment of climate-related risks and opportunities and their impacts on companies are embedded into our research, investment, and risk management processes. Risks and opportunities are reviewed from both a cross-sectional viewpoint and an industry/company-specific viewpoint since materiality varies by factor. These risks and opportunities are assessed by our analysts from both top-down and bottom-up perspectives as part of their initial assessments of companies, as well as part of their ongoing review of companies that are in the portfolio. These assessments include analyzing both existing and potential transition and physical climate risks and how they impact a company’s business model, operations, and financials. To complete these assessments, we utilize our proprietary Environmental Productivity Rating and Enduring Business Model Score frameworks. Our investment team actively monitors the portfolio’s footprint and regularly reports on our holdings’ emissions, water, and waste intensity levels. We not only monitor trends in the data to help identify potential risks but also to assist in identifying potential opportunities for companies in the form of resource efficiencies, energy sources, etc. Our CIO and portfolio manager oversee that these risks and opportunities are assessed by the investment team.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

TCFD disclosures are part of what we consider ideal disclosure for companies. Our ideal disclosure document is available on our website and is part of our engagement initiatives with companies. We believe companies should consider the risks and opportunities around climate change into their business models and strategies.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

100 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

12 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

We consider key thematics throughout our investment process, including decarbonization, the electrification of everything, and technological innovations. Energy efficiency and clean technologies are naturally then considered within those key thematics. We consider those thematics in all investment decisions, though we do recognize that they are more materially relevant for some sectors over others. 

Asset class invested

4 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

 As demand for natural resources rises, we'll need to consider alternative ways to generate enough energy to support a growing population. As stated above, our key thematics of  the electrification of everything and technological innovations are integral to our investment thought process. Renewable energies will play a key role in addressing the needs of our changing world. 

Asset class invested

4 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

The opportunity to more efficiently measure and manage the use of natural resources, specifically with regard to green house gas emissions from buildings, is undervalued in the current markets. Companies that offer solutions to make buildings greener are not only capitalizing on this market opportunity, but are also providing solutions to curb emissions and reduce dependency on natural resources. A key step in our investment process involves determining the intentionality of companies as well as identifying which companies are enabling change at a much larger scale. 

Asset class invested

1 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

We view forestry as a key environmental factor to consider in our reserach process. The production of goods which rely on forests potentially have high environmental and social costs, including greenhouse gas emissions, habitat and biodiversity loss, and social conflict, whose costs are not fully reflected in pricing or value assets. Sustainable forestry can be material when determining the enduringness of a company's business model. 

Asset class invested

13 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Soil supports and impacts essential elements of societies, including food production, water filtration and retention, forest growth, and general ecosystem health. Sustainable agriculture can be material when determining the enduringness of a company's business model. It is our view that the company's who implement more sustainable practices with regard to agriculture will be better positioned to thrive in the long-term.

Asset class invested

18 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

The threat of climate change not only effects the health of our environment, but also human health. We've identified several key environmental factors in our Environmental Productivity rating system to be used when evaluating companies for our portfolio. Those factors (carbon, water, and waste) pose immediate threats to global health if not intentionally measured and managed by investors, business leaders, and stakeholder organizations.

Asset class invested

12 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

The impacts of water stresses reach across sectors – all companies may face physical, regulatory, or reputational risks if they operate or rely on operations in any water-stressed area. 

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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