The Allianz Smart Energy Fund was launched in 2019 with the aim of investing in companies engaging with the energy transition. To select these companies, the fund follows a strategy aligned with the United Nations’ Sustainable Development goals (“SDGs”), thereby choosing firms that follow one or more of these goals and that have a positive social and environmental impact. I have decided to award this fund an overall rating of 1.9 planets as it follows some good sustainable practices and is very transparent, but a few things could be improved. For instance, it could remove the principle that 10% of the portfolio can come from companies that do not follow the fund’s investment goals and give a more precise criterion for excluding companies that may harm sustainable investment goals.
The top ten holdings are as follows: Umicore (4.24%), Quimica y Minera CHIL-SP ADR (4.20%), SSE PLC (4.09%), Albemarle corp (3.70%), Vestas Wind Systems A/S (3.67%), Solaredge Technologies inc (3.66%), EDP Renovaveis SA (3.45%), On Semiconductor (3.15%), Renesas Electronics corp (2.97%), Toyota Motor Corp (2.94%).
These top holdings amount to 36.07%. Among them, I was disappointed to find Toyota Motor Corp. Toyota may produce electric vehicles but these have proven controversial from an environmental standpoint. They use lithium batteries which have devastating effects on the planet and communities living around the mining areas. Large amounts of water are necessary to process the lithium, taking this vital resource away from local populations and polluting the remainder with toxic chemicals such as hydraulic acid. Unfortunately, it just so happens that Albemarle corp, another top holding, is a major lithium producer. Companies like this one claim that they are contributing to energy decarbonisation since lithium is increasingly used in renewable energies, but with such a harmful production process it is difficult to call them sustainable.
On the other hand, I was happy to find companies such as Renesas and On Semiconductor that produce semiconductors which are necessary for the production of renewable energies. On the same note, companies such as Vestas Wind Systems and EDP Renovaveis SA are great additions to the portfolio as they are directly driving the energy transition by developing renewable energies. SSE PLC has potential but is involved with the production and transport of gas which is a fossil fuel and hence is not renewable.
The sectoral breakdown is as follows: industrials (26.45%), materials (23.21%), information technology (19.84%), utilities (9.68%), consumer discretionary (9.68%) and energy (2.61%). This mostly aligns with the goals of the fund even if it is a little disappointing to find the energy sector at the bottom of the list representing only 2.61%. This is however not surprising considering the current volatility of energy prices with the ongoing crisis in Ukraine and in my opinion cannot be held against the fund. Fund managers have to ensure that investments are viable to attract investors, and I believe that in this case, it is better to lower investments in the energy sector than to lose all ESG investors. Nonetheless, we will have to see how this evolves when energy prices become more stable. It is however surprising to find that consumer discretionary amounts to 9.68%, as it is not a sector usually associated with the energy transition, on the contrary, it is often criticised for its high amount of CO2 emissions.
The fund uses a thematic approach to selecting the companies it invests in, focusing on companies that are positively contributing to the shift away from fossil fuels. The fund is actively managed according to Allianz’s SDG-Aligned Strategy Type A. It means that the fund invests in companies that contribute to one or more of the SDG goals. The SDGs for the Smart energy fund are n° 6, 7, 8, 9, 11, 12 and 13. The fund excludes companies that are involved in controversial weapons, and companies that derive more than 10% of their revenue from weapons and military equipment. It also excludes companies that generate more than 5% of their revenue from the production and distribution of tobacco and those that derive more than 30% of their revenue from oil and coal mining or power generation from these sources.
These criteria all seem to align with the goal of the fund, but some of them could be more precise. For instance, it is stated that the manager analyses ‘that companies do not significantly harm Sustainable Investment objectives in accordance with principle adverse indicators…’. However, among these indicators, none of them gives a clear threshold of ‘significantly’. It means that we do not know exactly when companies should be included or not and therefore that managers could include companies that they do not believe ‘significantly’ harm Sustainable Investment goals when they might. This could explain why we find companies involved with lithium among the top holdings. It is also important to point out that the fund manager is allowed to invest up to 10% of the assets into companies that do not follow the fund’s objectives. This may explain how Toyota found itself among the top holdings of the firm.
The fund has one manager: David Finger. Only very limited information is available about him, and it does not appear that he has any previous experience in sustainability. Having experience in sustainability is usually a sign that the firm is committed to ESG principles.
Allianz Global Investors is a German asset manager part of the Allianz group. Among the different funds that it manages, many of those are committed to ESG by following SDG goals or an SRI approach - such as the Global Investors Climate transition fund and the global sustainability fund. In 2021, ESG and sustainable finance amounted to a total value of 303 billion euros and ESG investments increased by 47% compared to 2020. This shows that the asset manager is aiming to become continuously more sustainable over time (rather than stay at the same level of sustainability). Allianz publishes sustainability reports every year, indicating once more the intentionality of the fund, yet we must remain cautious of such information. It is not because there are many ‘sustainable’ funds and reports that the actions behind these align with our definition of sustainability.
Regarding its workforce, Allianz has reached a good gender balance among lower positions but women remain underrepresented at the top of the hierarchy. Nonetheless, I was happy to see that Allianz has been taking steps to diversify its workforce with programs such as the ‘10,000 Black Interns’ one. They have also been working on gender inclusivity by enabling workers to include their pronouns in their email signatures.
Another indicator of intentionality is the amount of transparency in the practices of a firm. Overall, I was very impressed with the level of transparency in their information for all three aspects of this review. Information was perhaps sometimes a bit difficult to come across (there is one document for all funds), but I was able to find it all relatively easily and in one place.