The investment objectives of the Fund are to achieve attractive risk-adjusted returns over the medium to long-term while reducing the risk of permanent capital loss. These objectives incorporate consideration of environmental, social and governance risks and the application of a proprietary low carbon framework.
Globally agreed climate goals provide the guiding framework for the Magellan Sustainable Fund. According to modelling by the Intergovernmental Panel on Climate Change (IPCC), implementation of the 2015 Paris Agreement to limit global post-industrial era temperature increases to 2 degrees Celsius will necessitate a 30% cut in global emissions intensity over the next five years and, by 2100, a carbon neutral world.
Magellan believes it is highly likely that the world will move further towards addressing climate change risks by reducing carbon emissions. Climate change is therefore an increasingly important issue for global companies and investors, with the potential to profoundly affect business models through government regulation (eg carbon pricing), technology and changes in consumption patterns. These factors directly and indirectly impact the relative cost of companies’ products and services, customer demand, and pricing power.
Magellan incorporates a proprietary low carbon overlay in portfolio construction by:
Screening out companies based on their carbon emissions intensity.
Excluding companies with fossil fuel exposures or interests, such as for example companies engaged in the extraction, storage and transportation of fossil fuels.
Limiting the overall carbon emissions of the portfolio through a portfolio emissions intensity cap. Both the company emissions and portfolio emissions caps will be revised over time to remain in line with evolving carbon reduction goals.
The caps and exclusions set a very high standard compared to global equities benchmarks. Magellan believes this is appropriate given the magnitude of the risks associated with climate change and the ambitious nature of globally agreed climate goals.
Magellan’s investment team conducts detailed due diligence on companies’ exposures under the caps and exclusions to verify their low carbon status. As a signatory of CDP’s climate change program, Magellan has access to detailed climate change reports and data on companies. Magellan is a signatory of the United Nations Principles for Responsible Investment (UNPRI).