There’s only one way to summarise Q2:
a world divided. In North America and
Europe economic recovery exceeded
expectations as successful vaccination
programmes supported market
reopening. Here in the UK we emerged
from a bleak winter of strict lockdown
desperate to spend our savings and enjoy
life again. And it’s this pent-up consumer
demand that has helped drive robust
economic recovery in those economies
that have once again opened up.
Employment, too, is quickly on the road
to recovery.
However, the rise of the Covid-19
Delta variant in Asia has led to renewed
lockdowns in this region, either because
vaccine rollouts have been slow – as is
the case in Japan – and/or governments
are still committed to zero-Covid tolerance
policies. This has renewed pressure on
economies there and led to Asian markets
lagging both Europe and North America.
The inflation debate continued to rage
over the quarter, too, as global shortages
showed little sign of abating. In fact, the
fresh Covid wave in Asia and ensuing
lockdowns only further exasperated supply
chain disruptions leading to input cost
and price hikes. This has created some
extreme anomalies in global markets, for
example in the US used car prices for
several models are now higher than their
new car equivalents!
But unlike in Q1, the market has
taken a more pessimistic economic
view – fuelled by the rise of the Delta
variant – that these strong demand trends
will fade into year end and that high
inflation is temporary. This resulted in the
US 10-year bond yield retracing its lows
and a subsequent rotation back into
quality stocks which helped the strategy increase 8.4% over the quarter,
outperforming the MSCI ACWI benchmark
by 0.9%.1
Positively over the quarter, two of our
companies2 held capital market days
and spoke of accelerated sustainable
investments:
- SGS, a testing, inspection and certification services company, laid out its vision for 2023 with a focus on the mega trends driving additional demand for its services. As a result, sustainability is increasingly feeding into its business alignment. Beyond 2023, SGS aims to generate more than 50% of its revenues from sustainability solutions, versus 45% in 2020, with a clear focus to grow both health and nutrition and environmental services. This in turn will help its customers become more ESG compliant.3 SGS, a testing, inspection and certification services company, laid out its vision for 2023 with a focus on the mega trends driving additional demand for its services. As a result, sustainability is increasingly feeding into its business alignment. Beyond 2023, SGS aims to generate more than 50% of its revenues from sustainability solutions, versus 45% in 2020, with a clear focus to grow both health and nutrition and environmental services. This in turn will help its customers become more ESG compliant.3
- Orsted, the world’s largest offshore wind farm developer and operator, introduced a target of 50GW of installed renewable capacity by 2030, significantly ahead of its previous target of 30GW set in 2018 and against its current 12GW installed capacity. This signals its high confidence in its ability to win renewable contracts over the next decade.4
Engagement highlights:
The Global RI Team attended the
Exane ESG conference5 where the
overriding message was that sustainability
is increasingly a key driver of customer
demand for products and solutions.
We met with the management teams of
several of our holdings, including:
- Croda, a specialty chemicals company which commented that it is in a strong position to gain share in all segments given its focus on sustainable outcomes. In its personal care segment, for example, it is seeing key customers such as L’Oreal, increasingly focus on clean and green ingredients in their beauty products. Croda’s aim is that by focusing on sustainability in all its product innovation and investment it can help reduce the environmental impact of consumers through the products they consume, as well positioning the company on the right side of environmental legislation.
- Sika, a leading construction chemicals and products company, noted that the sustainability element in buildings and construction is growing. It expects sustainability in construction will become even more dominant over time as government environmental legislation and customer sustainability demands increase.
- Schneider Electric, which provides energy management and industrial automation solutions, also noted an increased sustainability focus across governments, customers and investors. It is seeing ever higher levels of stimulus packages in the EU and the US focused on energy transition, smart infrastructure and industry digitisation supporting structural demand for its sustainable solutions.
1Columbia Threadneedle Investments, June 2021.
2 Mention of specific stocks should not be taken as a recommendation to buy
3 SGS, Sustainability Ambitions 2030, July 2021.
4Orsted, Realising our full potential as a global green energy major, June 2021.
5 Exane BNP Paribas, 23rd European CEO Conference, 3 June 2021.
2 Mention of specific stocks should not be taken as a recommendation to buy
3 SGS, Sustainability Ambitions 2030, July 2021.
4Orsted, Realising our full potential as a global green energy major, June 2021.
5 Exane BNP Paribas, 23rd European CEO Conference, 3 June 2021.
![City in flood](https://www.columbiathreadneedle.se/uploads/2021/06/72dce9488db4cf9f9932bdd050f142a8/j31830_twitter-w1024px-h512px_02.jpg)
Germany was one of a number of countries around the world to experience extreme weather conditions this summer. Source: iStock.
Sustainable Theme Focus: The climate crisis becomes real
As I watched monsoon winds and rain lash our campsite over our summer break, flooding
tents and fields, it is hard to deny that climate change is real, writes Pauline Grange. Part of
climate change means more intense rains as well as more intense droughts – and we have
seen both around the world in recent months.
The volume of extreme weather so far
this year has been exceptional by any
standards, from the record-breaking
heatwave in Canada, which saw
temperatures reach a record 49.6 degrees
centigrade,1 to the disastrous floods in
Europe’s Rhineland2 and China’s Henan
Province3 to the huge wildfires raging
from Siberia4 to California5 to Turkey6 and
Greece.7 Images across media of destroyed
bridges, roads and houses show the
physical consequences of climate change.
We are now at around 1.1oC warming,
but are on track for temperatures to go
much higher. Figure 1 clearly illustrates just
how much the earth’s climate system has
warmed since the pre-industrial period. It
is hard not to agree with Greta Thunberg’s
tweet: “We’re at the very beginning of a
climate and ecological emergency, and
extreme weather events will only become
more and more frequent”.8
We are also seeing the effects of these
increasing numbers of extreme events
(Figure 2) in financial markets. For example,
coffee prices have surged to levels not
seen since 20149 after Brazil’s worst frost
in two decades, coupled with droughts,
impacted crop yields.
The heat waves and
droughts on both sides of the US-Canada
border this summer are also expected to
hit crop yields, and flooding in China’s key pork producing region has increased the
risk of animal disease. Meanwhile, the
Texas freeze earlier this year cost some
utility companies millions.10
Figure 1: Global average temperatures, 1850-2020
![Blue and red stripes of different shades](https://www.columbiathreadneedle.se/uploads/2021/06/a853a413a2f5b8f86c80511fc5060ea2/figure-1-global-sustainable-outcomes-q2.png)
Source: https://showyourstripes.info/ Each stripe is one year, blue stripes are cooler years, red stripes are warmer years.
Figure 2: Increasing extremes
![Geophysical events graph](https://www.columbiathreadneedle.se/uploads/2021/06/8281529c2b88f1d1d19c826d4269be5f/global-sustainable-outcomes-q2-figure-2.png)
Source: https://www.metoffice.gov.uk/weather/climate/climate-and-extreme-weather
We now know that immediate and
large-scale reductions in greenhouse gas
(GHG) emissions are vital if we are to limit
warming to less than two degrees – and
it looks like the world is finally starting to
wake up to this climate change emergency.
In May, the IEA (International Energy
Agency) released a report detailing the
pathway to a net zero energy system
by 2050.11 Net zero means an overall
balance between emissions produced
and emissions removed from the earth’s
atmosphere. The IEA’s key finding is that
this transition requires an unprecedented
transformation of how energy is both
produced and consumed globally.
This in turn requires the immediate and massive deployment of all available clean
and efficient energy technologies as well
as a co-ordinated global push to
accelerate innovation in new technologies
such as advanced batteries, green
hydrogen and carbon capture and storage.
Another stark conclusion is that no new
oil and gas developments are needed to
meet our future energy needs, and in fact
there should be no new investments in
fossil fuels starting this year if we are
to achieve net zero.
It shouldn’t come as a surprise, then,
that climate change pressure on oil and
gas companies is starting to build, not just
from regulatory bodies but also investors
and customers. In fact, there were some
key investor milestones that coincided
with the release of this IEA report:
- In the Netherlands a court ordered Shell to deepen its carbon emissions cuts by at least 45% by 2030 (versus a current 20%) compared to 2019 levels.12
- In the US, Exxon has notoriously lagged its European peers in its decarbonisation agenda. But in a surprise move, two members of the activist investor Engine No. 1, which only has a 0.02% stake, had two candidates with climate expertise elected to Exxon’s board of directors, with the public backing of other major investors.13
- At Chevron, meanwhile, investors passed a resolution in favour of cutting Scope 3 emissions, ie the emissions created by customers of Chevron’s products.14
The message is clear: if the autos
and utilities sectors can successfully
implement “green” transition plans, there
is no reason oil and gas companies cannot
do the same, with investor and government
pressure on these companies starting to
build both in Europe and in the US.
Although the rise of net zero targets
has been remarkable over the past 18
months, with pledges from jurisdictions
now covering 70% of global GDP,15 very
little has so far translated into actionable
plans. In fact, fewer than a quarter of these
net zero pledges have been fixed into
actual legislation or policy.
But in a positive step, Europe has
started to put its net zero targets into
action by unveiling its long-awaited “Fit for
55” package.16 This package, if passed,
aims to align Europe’s various climate
policies with its 55% carbon reduction by
2030 goal and in turn makes its existing
climate policies both more rigorous and
broader in scope.
One of the biggest policy changes is
the expansion of the EU carbon emissions
trading scheme (ETS). Climate change
policy over the past 10 years has largely
been focused on decarbonising the
power sector, with other industries largely
untouched. But this package seeks to
change that as Europe expands the ETS to all carbon emitting industries,
including transportation and buildings.
Europe is committed to making carbon
prices more reflective of the cost of
decarbonising its economies with the
aim being that as the carbon price rises,
corporates will better incorporate climate
factors into their investment decisions.
The package also introduces a new
carbon border tax, increased support for
sustainable fuels, greater growth prospects
for renewables, a push in the acceleration
of electric vehicles and renovating
buildings to be more energy efficient.
It will also see the introduction of more
stringent fossil fuel taxation.
We believe we are only at the
beginning of this decarbonisation mega
theme. Political will to tighten emission
targets will only rise from here as climate
change accelerates.
The Threadneedle Sustainable
Outcomes Global Equity strategy is
well positioned to benefit from these
changes.
We are invested in leading
renewable companies which will benefit
not only from the expected acceleration
in renewable investment over the next
decade, but also from greater demand for
electricity as we electrify our economies.
We are also invested in those companies
offering “green” solutions across mobility,
buildings, industries and agriculture.
We believe our focus on positive
sustainable outcomes places this
strategy in a strong position to deliver
solid returns for investors over the next
decade as we sit on the right side of both
environmental customer demand trends
and government regulation.
1https://www.bbc.co.uk/news/world-us-canada-57654133,
30 June 2021.
2 https://www.bbc.co.uk/news/world-europe-57850504,
15 July 2021.
3 https://www.theguardian.com/weather/video/2021/jul/22/
henan-floods-aerial-images-show-flood-devastation-in-chineseprovince-
video, 22 july 2021.
4https://www.theguardian.com/world/2021/aug/09/smokesiberia-
wildfires-reaches-north-pole-historic-first,
9 August 2021.
5 https://www.theguardian.com/us-news/2021/aug/17/ california-wildfires-dixie-fire-damage-crews, 17 August 2021.
6 https://www.bbc.co.uk/news/world-europe-58057081, 2 August 2021.
7 https://www.bbc.co.uk/news/world-europe-58141336, 9 August 2021.
8 https://twitter.com/GretaThunberg/ status/1415600846356819971?s=20, 15 July 2021.
9 https://www.ico.org/show_news.asp?id=761
10 https://www.wsj.com/articles/texas-grapples-with-crushingpower- bills-after-freeze-11614095953
11 https://www.iea.org/reports/net-zero-by-2050
12https://www.bbc.co.uk/news/world-europe-57257982
13https://www.reuters.com/business/sustainable-business/ shareholder-activism-reaches-milestone-exxon-board-votenears- end-2021-05-26/
14https://www.reuters.com/business/energy/chevronshareholders- approve-proposal-cut-customeremissions- 2021-05-26/
15Energy & Climate Intelligence Unit, TAKING STOCK: A global assessment of net zero targets, March 2021.
16https://ec.europa.eu/commission/presscorner/detail/en/ ip_21_3541
5 https://www.theguardian.com/us-news/2021/aug/17/ california-wildfires-dixie-fire-damage-crews, 17 August 2021.
6 https://www.bbc.co.uk/news/world-europe-58057081, 2 August 2021.
7 https://www.bbc.co.uk/news/world-europe-58141336, 9 August 2021.
8 https://twitter.com/GretaThunberg/ status/1415600846356819971?s=20, 15 July 2021.
9 https://www.ico.org/show_news.asp?id=761
10 https://www.wsj.com/articles/texas-grapples-with-crushingpower- bills-after-freeze-11614095953
11 https://www.iea.org/reports/net-zero-by-2050
12https://www.bbc.co.uk/news/world-europe-57257982
13https://www.reuters.com/business/sustainable-business/ shareholder-activism-reaches-milestone-exxon-board-votenears- end-2021-05-26/
14https://www.reuters.com/business/energy/chevronshareholders- approve-proposal-cut-customeremissions- 2021-05-26/
15Energy & Climate Intelligence Unit, TAKING STOCK: A global assessment of net zero targets, March 2021.
16https://ec.europa.eu/commission/presscorner/detail/en/ ip_21_3541
Company Q221 highlights
We have initiated new positions in the strategy:17
![Company Highlights](https://www.columbiathreadneedle.se/uploads/2021/06/0eb36c8a59afd3e9dd943046b2ab819c/company-highlights.png)
17The mention of any specific shares or bonds should not be taken as a recommendation to deal. All intellectual property rights in the brands and logos are reserved by the respective owners.
Threadneedle Global Sustainable Equity Composite
GIPS Report: Columbia Threadneedle Investments EMEA APAC
Reporting Currency: USD
![Statement of Performance Results](https://www.columbiathreadneedle.se/uploads/2021/06/bd8871a951f67ae30d0b40a2bf2a042d/statement-of-performance-results-q2-2021.png)
1. Columbia Threadneedle Investments EMEA APAC ‘the Firm’
claims compliance with the Global Investment Performance
Standards (GIPS®) and has prepared and presented this report
in compliance with the GIPS Standards. Columbia Threadneedle
Investments EMEA APAC has been independently verified by Ernst
& Young LLP for the periods 1st January 2000 to 31st December
2018. The verification reports are available upon request. A firm
that claims compliance with the GIPS standards must establish
policies and procedures for complying with all the applicable
requirements of the GIPS standards. Verification provides
assurance on whether the firm’s policies and procedures related
to composite and pooled fund maintenance, as well as the
calculation, presentation, and distribution of performance, have
been designed in compliance with the GIPS standards and have
been implemented on a firm-wide basis. Verification does not
provide assurance on the accuracy of any specific performance
report. GIPS® is a registered trademark of CFA Institute. CFA
Institute does not endorse or promote this organization, nor does
it warrant the accuracy or quality of the content contained herein.
2. The ‘Firm’ is defined as all portfolios managed by Columbia
Threadneedle Investments EMEA APAC (prior to 1 January 2021,
the firm was known as Threadneedle Asset Management) which
includes Threadneedle Asset Management Limited, (TAML),
Threadneedle International Limited, (TINTL), Threadneedle
Investments Singapore (Pte.) Limited, (TIS), and Threadneedle
Management Luxembourg S.A. (TMLSA), excluding directly
invested property portfolios. The firm definition was expanded in
2015 to include portfolios managed by then newly established
affiliates of Threadneedle Asset Management in Singapore. TAML
& TINTL are authorised and regulated in the UK by the Financial
Conduct Authority (FCA). TINTL is also registered as an investment
adviser with the U.S. Securities and Exchange Commission and
as a Commodities Trading Advisor with the U.S. Commodity
Futures Trading Commission. TIS is regulated in Singapore by
the Monetary Authority of Singapore. TMLSA is authorised and
regulated in Luxembourg by the Commission de Surveillance du
Secteur Financier (CSSF). On 1 July 2020, Threadneedle Asset
Management Malaysia Sdn. Bhd (TAMM) was removed from the
firm. Columbia Threadneedle Investments is the global brand
name of the Columbia and Threadneedle group of companies.
Beginning 30 March 2015, the Columbia and Threadneedle
group of companies, which includes multiple separate and
distinct GIPS-compliant firms, began using the global offering
brand Columbia Threadneedle Investments.
3. A concentrated global equity strategy with a focus on high
quality companies that seeks to deliver both positive sustainable
outcomes, in accordance with the UN Sustainable Development
Goals (SDGs), and superior financial returns. The composite was
created November 30, 2018.
4. The portfolio returns used in composites are calculated
using daily authorised global close valuations with cash flows
at start of the day. Composite returns are calculated by using
underlying portfolio beginning of period weights and monthly
returns. Periodic returns are geometrically linked to produce
longer period returns. Gross of fee returns are presented before
management and custodian fees but after the deduction of
trading expenses. Returns are gross of withholding tax. Net of
fee returns are calculated by deducting the representative fee
from the monthly gross return. Policies for valuing investments,
calculating performance, and preparing GIPS Reports, as well as
the list of composite descriptions, list of pooled fund descriptions
for limited distribution pooled funds, and the list of broad
distribution pooled funds are available upon request.
5. The dispersion of annual returns is measured by the equal
weighted standard deviation of portfolio returns represented
within the composite for the full year. Dispersion is only shown
in instances where there are six or more portfolios throughout
the entire reporting period. The Standard Deviation will not be
presented unless there is 36 months of monthly return data
available.
6. The three year annualised ex-post standard deviation
measures the variability of the gross-of-fees composite and
benchmark returns over the preceding 36 month period.
7. The following fee schedule represents the current representative
fee schedule for institutional clients seeking investment
management services in the designated strategy: 0.65% per annum. Gross of fee performance information does not reflect
the deduction of management fees. The following statement
demonstrates, with a hypothetical example, the compound effect
fees have on investment return: If a portfolio’s annual rate of
return is 10% for 5 years and the annual management fee is 65
basis points, the gross total 5-year return would be 61.1% and
the 5-year return net of fees would be 55.9%.
8. The MSCI AC World Index is designed to provide a broad
measure of equity-market performance throughout the world
and is comprised of stocks from 23 developed countries and
24 emerging markets. Index returns reflect the reinvestment of
dividends and other earnings and are not covered by the report
of the independent verifiers.
9. Past performance is no guarantee of future results and there is
the possibility of loss of value. There can be no assurance that an
investment objective will be met or that return expectations will
be achieved. Care should be used when comparing these results
to those published by other investment advisers, other investment
vehicles and unmanaged indices due to possible differences in
calculation methods.