Integrating climate change in a global listed equities portfolioCarlos Joly, chairman of the climate change Scientific Advisory Committee of Natixis Asset Management

TBLI, London11.11.2010

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Why the urgency ?

GHG emissions pose unacceptable risk

The challenge:

reduce world greenhouse

gas emissions by 50% by 2050

compared to the 2000 level

More than 500 ppm CO²(e):

risk of catastrophe

2040: 500 ppm CO² (e)

2009 : 430 ppm CO²(e)

“ business as usual ” scenario

= + 2.5 ppm per year

Only 70 ppm CO² (e) left

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Why isn’t climate change being integrated in portfolios?

• Investors don’t believe climate change is material yet

• Don’t know how to do it

• Asset managers are not being asked, so don’t

• Financial crisis has put stopper on innovation

• Makes no difference to passive investors

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How does climate fit in?

• Climate change risk generally not in price of equities or bonds

• Climate change is real, already present, and affecting the economy of nations. Impacts will get bigger

• CO2 obeys the laws of nature, not electoral politics

• Adaptation to impacts and reduction of GHG our only hope

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Ways of integrating climate change in portfolio management

• Adjust stock and bond indices for carbon emissions of index constituentsDrawbacks: penalizes cement, steel, alum, etc sectors that use lots of energy. These sectors key to development in EM and necessary for housing, infrastructure, railways, etc.

• Alternative Energy and “Envirotech” FundsDrawback: thin markets, too much money chasing too few names, niche sectors prone to bubble and bust cycles

• Comprehensive approach using climate change analysis along with sector and fundamental company analysis Pioneered by Natixis Asset Management and few others

Drawback: doesn’t work with passive. Needs longer term horizon for performance payoff. Institutional investors want short term verification and have low tolerance for deviations to indices.

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Impact Funds - Climate Change : a comprehensive approach broad spectrum of sub-themes and sectors

• This is example of a pioneering approach launched year agoin France with €100m

• Fund has a scientific advisory committee for thematic inputChair: Carlos Joly

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1. Mitigation : reduction in greenhouse gas emissions

Energy substitution

(lower carbon energy, alternative energy)

Transport Efficiency

Building efficiency

Modernization of power plants

2. Adaptation to the inevitable consequences of climate change

Changing consumer behaviour

Cover against extreme events Adaptation of

infrastructure

3. Better management of natural resources

Waste manage-ment

Water manage-ment

Soil manage-ment

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Impact Funds Climate Change investment process

Global equities universe (30,000)NAM equities coverage (1,500+)

- Quantitative filter - Qualitative/strategic analysis- Financial analysis

Portfolio

Climate change thematic filter

1 – Mitigation2 – Adaptation3 – Management of natural resources

Carlos JolyScientific Committee

PMand equities team

PM

External:Sell-Side

External: IPCC, EU, NGOs, academic studies, etc.

Exclusion of worst offenders

• Combination of thematic inputs & bottom-up expertise

• Themes define investment universe: solutions to MAM

• Companies are assessed qualitatively (products, positioning, strategy, management, financials) and quantitatively

• Strong convictions: only stocks fulfilling both thematic and financial criteria are eligible

Analysis

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Portfolio breakdown as of Oct 31st 2010

• Assets: $137 Million

• Equity exposure: 96%

• Number of countries: 20

• Number of holdings: 71

Source: Natixis Asset Management

*Breakdown of the part invested in equities (i.e. 96% of the portfolio).

Capitalization breakdown*Thematic breakdown*

5 - 10 Md$; 16%

10 - 20 Md$; 26%

> 20 Md$; 37%

< 1 Md$; 5%1 - 5 Md$;

16%

Better management

of natural resources;

15%

Adaptation to CC; 28%

Mitigation; 57%

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Portfolio breakdown as of Oct 31st 2010

• Emerging exposure : 17%

Geographical Breakdown* Sector Breakdown*

Source: Natixis Asset Management

*Breakdown of the part invested in equities (i.e. 96% of the portfolio).

Consumer Discretionary;

9%

I ndustrials; 36%

I nformation Tech.;

7% Materials; 23%

Utilities; 16%

Consumer Staples;

1%

Energy; 4%Finance;

2%

Health Care; 2%

North America19%

Asia10%

Latin America8%

Europe63%

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Performances as of Oct 31st 2010

Performance I Share EURSince Inception (5th of October, 2009)

+14.30%

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