BEST-IN-CLASS APPROACH

Within Erste Asset Management's investment department, a team of several experts deals exclusively with the topic of sustainable investments.

The investment process of Erste Asset Management is a so-called "integrative" approach, consisting of positive and exclusion criteria, engagement and best-in-class. At the heart of this process is the "ESG analysis", which refers to environmental, social and governance issues.

In order to qualify as a sustainable investment, a company must meet a number of requirements. At the same time, there are clear exclusion criteria, such as outlawed weapons, nuclear power, arms production or trade. Nor may investments be made in companies involved in child labour, violations of human and labour rights, corruption, etc.

Companies that have qualified for our investment universe are managed according to a clearly structured approach. An advisory board set up specifically for this purpose, the First Responsible Advisory Board, checks whether the investment actually meets sustainability criteria.

CARBON FOOTPRINT

CO₂ risks in the mutual funds of Erste AM

Erste Asset Management was the first investment company in Austria to sign the Montréal Carbon Pledge in 2015. This international investor initiative was created at the end of 2014 with the goal of contributing to a long-term reduction in greenhouse emissions by measuring and reporting the CO₂ emissions of the companies held in equity funds. In the meantime, this initiative has grown to more than 120 investors managing more than USD 10,000bn worth of assets.

Since the first publication of the CO₂ emissions associated with the mutual equity funds of Erste Asset Management in 2017, the CO₂ risks have been cut continuously. This is on the one hand due company-wide integration of ESG information across the entire fund range. On the other hand, Erste Asset Management decided as early as 2016 not to invest in coal anymore as part of its coal policy.*

^{*Sources: Bloomberg, MSCI-ESG, Institutional Shareholder Services Germany AG, calculations by Erste Asset Management, water and sales data for FY 2022}

Calculation of the CO₂ risks in the mutual fixed income funds

For its holdings of end-of-2018, Erste Asset Management expanded the calculation of the CO₂ risks across the entire range of mutual funds for the first time. This means that since then and beyond the specification of the Montréal Pledge, bond funds have been taken into account in the model.

The result of CO₂ emissions of all bond mutual funds of Erste Asset Management was 63.6%. Considering only the sustainable bond funds, the CO₂ emissions amounted to 59.7%.

At the individual fund level, ERSTE ETHIK ANLEIHEN (16.1%), ERSTE RESPONSIBLE RESERVE (31.0%) and ERSTE RESPONSIBLE BOND (31.7%) performed particularly well.

As part of the Montréal Carbon Pledge, Erste Asset Management has reported the cumulative CO₂ footprint of its mutual equity funds for six consecutive years. The result, which takes into account both sustainable funds and traditional funds, was yet again a convincing one in comparison with the global equity market: the CO₂ intensity of the EAM equity funds in the sample was more than 44% below that of the global equity market.

Mutual equity funds, better than the global equity market

The most recent results for the mutual equity funds of Erste Asset Management, which have been published for six years and running, were again convincing. The CO₂ intensity of the EAM equity funds is below that of the global equity market, and when taking into account only sustainable equity funds, 55% of global emissions.

The detailed analysis at individual fund level shows very good results for ERSTE RESPONSIBLE STOCK EUROPE (27.2%), ERSTE RESPONSIBLE STOCK GLOBAL (37.9%) and ERSTE RESPONSIBLE STOCK AMERICA (39.6%).

What does CO₂ intensity mean?

There are many different ways of calculating the CO₂ footprint. EAM calculates the footprint of its funds on the basis of the weighted CO₂ intensity of the companies held in the fund. To this end, at first our research partners establish the greenhouse emissions of the companies held by our funds. They may have been caused directly by the companies (scope 1 emissions) or indirectly by the way energy, heat or similar are used (scope 2 emissions). In order to facilitate comparison across companies of different sizes, the emission values are standardised on the basis of the respective company sales. On the level of individual companies, the CO₂ intensity therefore indicates how many tonnes of CO₂ were emitted per million currency units of sales. In a second step, the CO2 intensities of the individual companies are aggregated to a weighted average. On the level of funds, the weighted CO2 intensity shows how high the exposure to CO₂-intensive companies is by comparison to other funds.

In establishing the footprint of EAM, we then calculated a weighted average across those mutual equity funds whose individual shares had sufficient CO₂ data available.

What relevance do CO₂ risks have for investors?

We have seen that the accelerating progress of climate warming entails more restrictive measures and regulatory frameworks in connection with greenhouse emissions. The taxation of such emissions will affect those companies in particular that have not sufficiently redesigned their production processes within their sector. Therefore, it would appear important to monitor their CO₂ intensity also from an economic point of view.