Allianz Global Investors Climate Transition Fund

overall rating:

0.8

planets

Kate Pruden
3/16/2022
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Allianz Climate Transition fund (“the Fund”) is an equity strategy developed by Allianz Global Investors (“the Firm”). The Fund adopts a thematic approach to addressing the “climate transition”, which allows its managers to seek companies across sectors which are engaging with the transition. While expressing and reiterating the importance of selecting the companies best-positioned in the climate transition, many of its holdings are exposed to substantial risk from ESG-related issues, and at least one top holding continues to actively finance projects leading to greenhouse gas emissions. As a result, the Fund receives a rating of 0.8 planets.

What it's made of:

0.5

The size of the Fund is EUR 216million (as of February 2022) and its inception date is the 19th February 2019. A European equity strategy, the Fund’s top ten holdings, alongside their percentage weightings in the portfolio and Sustainalytics ESG ratings, as of January 2022 are as follows:

Astrazeneca PLC (3.24% | 23.2) | BNP Paribas (2.7% | 23.8) | ING Groep NV (2.42% | 22.6) | Iberdrola SA (2.39% | 20.4) | Barclays PLC (2.3% | 24.5) | Diageo PLC (2.19% | 16.7) | Muenchener Rueckver AG-REG (2.17% | 18.3) | KBC Group NV (2.11% | 13.1) | Infineon Technologies AG (2.11% | 17.9) | Stora Enso OYJ-R SHS EUR (2.06% | 18.8). 

Barclays’ presence in this list is notable; leading up to the COP26 conference, it was reported that Barclays had already financed USD 5.6billion in new fossil fuels projects during the first ten months of 2021; its inclusion in a climate transition fund should be scrutinised very critically. Moreover, the Sustainalytics ESG rating is a measure of exposure to various material ESG issues such as climate change. Many of the Fund’s top ten holdings class as “medium”, rather than “low”, risk according to Sustainalytics, hence, we should question whether a fund focussed upon the transition ought to better factor in future risk. 

The Fund’s sectoral allocations encompass various European markets; receiving the largest allocations are France (23.9%), the UK (21.13%), the Netherlands (12.4%), Germany (10.22%), and Switzerland (7.39%). The five sectors which receive the largest allocations are industrials (19.38%), financials (16.68%), materials (13.85%), consumer discretionary (9.47%), and health care (8.88%). That financials are a large contributor is hardly surprising due to the lower operational carbon footprint of services industries. The presence of consumer discretionary, with its associated carbon emissions, is more surprising. Allianz rate the Fund 6/7 using their risk and reward indicator, where a higher score suggests greater risk. Alongside a list of opportunities which the Fund presents, the Firm lists several risks, including high stock volatility, risk of underperformance of the investment theme, and potential currency losses where share classes aren’t hedged against investor currency.

How it's made:

0.8

The Fund employs a thematic investment strategy whereby it seeks companies which engage with and are involved in the climate transition, which Allianz defines as actions to “reduce energy consumption and limit greenhouse gas emissions from production means, and ultimately achieve a low-carbon economy”. Its approach favours certain sectors more closely aligned with the climate transition; however, the Fund’s thematic approach seeks to identify companies across sectoral boundaries which stand to aid and benefit from the climate transition. Crucially, the Fund aims to reduce its carbon footprint over a “recommended” (but unspecified) investment horizon without excluding sectors traditionally associated with high greenhouse gas emissions. While such exclusions would not be necessary, it would be reassuring to hear details of an engagement strategy whereby Allianz sought to help companies in these sectors through the climate transition, but the Firm devotes little attention in its investment strategy outline to company engagement in the thematic issue. 

The Fund meets its sustainable development criteria partly through the implementation of several negative screens. Companies without greenhouse gas reduction targets are excluded. As are those with “serious controversies in the environmental field” or “very high-risk practices”. The Fund invests in companies with lower carbon emissions relative to peers and those with commitments to improve their carbon emissions (called “best efforts”). Comparing companies to their peers might justify the inclusion of companies with high greenhouse gas emissions, provided their sectoral peers are even more polluting. More positively, the Fund targets companies producing products or services to facilitate the transition to a low-carbon economy, although it is noted that the Firm’s literature refers only to “low-carbon” rather than “net zero”.

Who makes it:

1.2

The Fund’s manager is clearly visible from the Firm’s website: Christine Clet-Messadi is Lead Portfolio Manager for SRI (Sustainable and Responsible Investing) Strategies at Allianz and developed expertise in pharmaceuticals while working as an analyst before moving into portfolio management. With a background in traditional finance, Clet-Messadi is not listed as having any specific Sustainability or ESG qualifications or experience. 

Allianz Global Investors is a German asset manager and part of Allianz Group. Allianz Global Investors has EUR 673billion assets under management (as of December 2021), of which 28% are invested in equities, 31% in fixed income, 27% in multi-asset strategies, and 14% in private markets. In summer 2021, the Firm was investigated over “Structured Alpha funds” (a cluster of US hedge fund products) which suffered big losses at the onset of the Covid pandemic. The Arkansas Teachers Retirement System filed claims against the Firm that these funds had bet against market volatility and stood to suffer heavy losses if US equity markets fell. 

Allianz is considered a leading asset manager in its commitments to various ESG and sustainability initiatives: Allianz Group is in Principles for Sustainable Insurance, UN Principles for Responsible Investing, UN-convened Net Zero Asset Owner Alliance, and UN-convened Global Investors for Sustainable Development Alliance among others. Allianz Group publishes an annual sustainability report, and an SRI policy. Its approach to SRI incorporates responsibility through engagement and proxy voting. The policy addresses sustainability across various domains such as environmental, social, human rights, and governance characteristics. 

Allianz scores highly among asset managers in various external assessments: Shareaction ranks the Firm twentieth of sixty-five asset managers ranked according to their proxy voting records. In 2021, the Firm voted in favour of 81% of environmental and 76% of social resolutions, averaging 77% overall. Moreover, the Firm has featured in the FTSE4Good index since 2001 and received a AAA (the highest) ESG rating from MSCI. Despite such accolades, greater transparency regarding the team behind the Fund and their commitment to and experience with sustainability would be helpful.