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“In terms of sustainable investment, our main focus is on the opportunities offered by the transition”
Élise Beaufils, Deputy Head of Sustainability Research, LOIM at Lombard Odier Investment Managers (LOIM)
Article published in FundsPeople on 13 January 2025.
Elise Beaufils’ experience, prior to joining Lombard Odier IM (LOIM) more than six years ago, was in nuclear engineering. Now, as LOIM’s Deputy Head of Sustainability Research, she feels her previous career has given her a fresh perspective. “Although nuclear engineering is somewhat different from the world of finance, it gave me valuable insight into many of the issues now confronting us in relation to the energy transition,” she explains.
Her mission on joining LOIM was to scale up the institution’s sustainability analysis capacities, developing both quantitative and temperature metrics, an area the company pioneered. Beaufils notes, “The team has grown a lot since then – there are thirty of us now.” Now Beaufils role has expanded – her job currently involves not only the quantitative analysis side but also analysing the regulatory and sustainable investment landscape from the private market side (private equity and impact investing).
Our main focus is on the transition, on what will lead us to a net-zero and nature-positive scenario which, if possible, should also be socially constructive
Sustainability analysis at Lombard Odier IM
When it comes to sustainability analysis, Beaufils says, “Our main focus is on the transition, on what will lead us to a net-zero and nature-positive scenario which, if possible, should also be socially constructive. We try to understand how these changes will affect the different sectors of the economy.”
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Explaining why LOIM introduced a two-dimensional analysis framework, she continues, “On the one hand it focusses on determining whether countries are doing all they can to speed up the transition, in line with what European regulatory bodies have been proposing in recent years. On the other, it involves finding out which companies might benefit from the transition – this should be reflected in their results.”
Some companies, she explains, are performing well when it comes to sustainability, but not yet seeing it in their financial results. Then there are others that could benefit from the transition but are simply not committing enough.
Most of LOIM’s range of sustainable funds come under Article 8 of the Sustainable Finance Disclosure Regulation1 (SFDR), although they distinguish between those that only promote environmental and social (E&S) characteristics, and those that have a minimum level of sustainable investments.
“We take great care with the classification and are very rigorous with the sustainability threshold we have set,” Beaufils explains. “In order to define sustainable investments, we use a system that distinguishes between sustainable, grey and red companies. We feel it is too simplistic to say that everything that is not sustainable is necessarily unsustainable, so we have three groups. There are lots of companies – in the services sector for instance – that fit better into that grey zone. The red ones, in our opinion, are the ones that slow the pace of the transition.”
…while there are sufficient companies making the transition to sustainable business models that it is possible to build a global portfolio aligned with the Paris Agreement’s goal of limiting global warming to 2 degrees Celsius, the 1.5 degrees Celsius goal is harder to reach
Proprietary models
Within the LOIM analysis team there is a group specialising in data analysis. Its mission is to build its own quantitative models and compile data on companies. Explaining that outsourcers are also used, Elise Beaufils says, “We perform quality control on the data and compare it with our own to ensure that the quality of the final data is optimal – so it can be the basis for our proprietary models.”
One of these models is the Implied Temperature Rise (ITR), which measures the degree to which companies are aligned with the aim to limit global warming to within the threshold set by the Paris Agreement.
“It is not enough to measure GHG2,” Beaufils says, because “we might end up with a portfolio of low-carbon sectors like technology, banking and health. This is quite different from a transition portfolio. We need to look beyond the carbon footprint. With our proprietary ITR tool we can make sure we have a portfolio that contains those companies leading the transition across different sectors. That will also allow us to achieve a greater degree of diversification and a more precise tracking error.”
The ITR tool is based on carbon emission estimates covering 160 activities in six different regions, which provides LOIM analysts with very granular knowledge, she continues. “Then we analyse historic emissions and goals that have been set with different deadlines. We look at their credibility in quantitative terms, so that we can predict emissions and compare them with the estimates, which in turn gives us the implied temperature. The design work is complex, but it simplifies the work of the investment teams considerably.”
Beaufils points out that, while there are sufficient companies making the transition to sustainable business models that it is possible to build a global portfolio aligned with the Paris Agreement’s goal of limiting global warming to 2 degrees Celsius, the 1.5 degrees Celsius goal is harder to reach, since the economy is now well out of alignment with this more stringent target.
Cross-border regulation
When it comes to regulation, and the myriad rules – spanning multiple jurisdictions – to which an international management company must adapt, Beaufils explains that LOIM would benefit from greater cross-jurisdictional interoperability. In practice, though, she notes, with the majority of funds registered in Luxembourg, LOIM’s most relevant regulation is the EU’s SFDR, though the firm also closely follows the UK’s Sustainable Disclosure Requirements3 and the equivalent Swiss regulations.
From the point of view of sustainability, the use of nuclear energy can contribute to decarbonisation… but the fact remains that nuclear does not carry significant weight in the equity markets
What about nuclear?
Given Beaufils’ experience in the field of nuclear energy, she is ideally positioned to comment on its potential place in sustainable investment portfolios. At LOIM, she says, nuclear is not excluded by the firm’s Socially Responsible Investments policy4, “which excludes controversial weapons, agricultural raw materials, coal-fired power plants and coal mining, unconventional oil and gas, tobacco and non-compliance with the UN Global Compact.”
From the point of view of sustainability, she explains that the use of nuclear energy can contribute to decarbonisation but, taking into account the EU’s Do No Significant Harm (DNSH) principle, it is essential to ensure that it is run as safely as possible.
“Although the discussion is very interesting, and many clients ask about it, the fact remains that nuclear does not carry significant weight in the equity markets,” she points out. However, she says, interest has been revived partly by nuclear mini-reactors capable of supplying multiple data centres. “They are cheap and there is no intermittence. The technology is interesting, but there are not many listed companies investing directly in this field right now. All things nuclear are subject to a vast amount of regulation, so caution is needed for the time being.”
We invest in the entire plastic value chain, not just in recycling
Circular plastics
One of the strategies being worked on in the Private Equity side is plastics circularity. “The focus is not directly on biodiversity, but there is a connection with protecting biodiversity and natural capital,” Beaufils highlights.
“We invest in the entire plastic value chain, not just in recycling. In developed countries, a person uses around 70 kg of plastic a year. That’s a huge amount. Plastic is a cheap material that has multiple uses. It’s important to recycle more of it and give it a more circular use. We must go beyond single-use, and move to techniques that can increase the number of times an item can be recycled,” she says.
One of the fund’s main pillars is new forms of plastic use that can help reduce both emissions and waste. Other pillars centre on novel plastic materials, such as bioplastics, and on recycling and its collection. Beaufils ends by stressing the importance of gauging both the on-the-ground results and the expectations of profitability, “otherwise the impact will not gain scale,” she concludes.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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