China Onshore
A healthy ecological environment is a critical foundation for the sustainable development of the global economy and society. Actively participating in climate change governance plays a key role in promoting green, low-carbon development and fostering harmony between humanity and nature. To implement the principle of green development, E Fund is committed to responsible investment by integrating climate change considerations throughout the investment management process. We have created a monitoring system to quantify and properly manage climate risks and seize climate opportunities, thereby steering capital towards climate-friendly assets.
Climate Risk Monitoring System
The ESG team at E Fund has developed a comprehensive framework for climate risk management by incorporating scenario analysis. This framework includes a climate risk monitoring system that leverages innovative technologies, such as knowledge graphs and natural language processing (NLP). The system incorporates the guidelines from the Partnership for Carbon Accounting Financials (PCAF) and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It enables more thorough assessments of climate risks to inform investment decisions. By assessing and quantifying climate change-related risks, the system guides better investment decisions and risk management. Regarding indicator selection, based on the PCAF guidelines, we:
Use carbon emission-related indicators (e.g., total carbon emissions, carbon intensity) to identify and assess the climate-related physical and transition risks associated with investee companies.
Conduct baseline analysis for the portfolio’s carbon emissions (e.g., carbon footprint, weighted average carbon intensity) to assess its climate risk exposure and carbon performance.
Perform forward-looking climate scenario analysis to explore changes in carbon prices and risks of climate disasters under various climate scenarios.
Additionally, we regularly evaluate the impact of different climate scenarios on the value of both individual investments and portfolios, and run portfolio stress tests. Based on the above established thresholds, we monitor all our non-monetary mutual fund portfolios periodically.
Thanks to the forward-looking climate scenario analysis by our climate risk monitoring system and the baseline analysis of the portfolios’ carbon emissions, we can better respond to the uncertainties brought by climate change, and provide scientific guidance for investing for the portfolios’ long-term sustainability. This model takes into account not only the impact of physical and transition risks on investments, but also climate-related risk factors that may affect the portfolios over the short, medium, and long term, thus enhancing our climate risk management.
Effectiveness of Our Framework
The portfolio climate risk management framework of E Fund has achieved notable success in holistically managing the impact of investment-related climate risks.
It has resolved the issue of inadequate data coverage and standardization in the field of climate risks. Data coverage and quality are critical challenges and essential tools for implementing responsible investment and tackling climate change. Through the operation of the climate risk monitoring system, which pools together extensive climate change data of assorted types, we can assess and quantify the climate-related risks faced by the investee companies more comprehensively. Our approach considers both physical and transition risks, by reducing which we can contain the potential portfolio losses.
The framework has increased the accuracy of our climate investment decisions. The carbon emission-related indicators and climate scenario analysis tools provide more robust and precise theoretical support. This enables us to better predict changes in valuations and risk impacts under different climate scenarios, thereby enhancing the accuracy and timeliness of our investment decisions.
We actively exercise shareholder and creditor rights to promote carbon reduction and transition of investee companies. By engaging with high-carbon-emitters and encouraging them to disclose their carbon performance and adopt energy-efficient, carbon-reducing measures, we have played an active role in their climate transition journey. For instance, during discussions with a cement company, we successfully urged it to disclose its carbon emission data and to consider prioritizing technological upgrades over expansion in its capital expenditure. In another case, we advised a petrochemical company to consider the implications of the EU carbon border tax and to disclose its specific pathway to carbon neutrality.
As we look to the horizon, embedding a robust climate risk management framework into investment strategies is pivotal for fostering sustainable progress. To advance E Fund’s approach, we will enhance partnerships with industry leaders and academia to refine our assessment methodologies and tools, diversify our climate data sources, and sharpen the precision of our climate predictions. Simultaneously, we will harness the sway of mutual funds to amplify climate change and ESG consciousness through educational seminars and insightful research publications. Our mission is to inspire a broader engagement in climate risk management and the transition to a low-carbon economy. By enhancing transparency in disclosures and championing inclusive climate data sharing, we are committed to nurturing green finance and driving forward sustainable development.