SmartCarbon™ is a proprietary, risk-based investment approach for managing exposure to companies with fossil fuel reserves on their balance sheets. This methodology1 uses a multi-scenario approach to compute an expected valuation of energy companies likely to be impacted by future climate-related regulation. The investment conclusions arising from these scenarios range from gradual to complete divestment of energy company holdings.
Pax World Funds utilizing SmartCarbon have completely divested to become fossil fuel free, replacing energy company holdings with a diversified basket of energy efficiency stocks that historically have been reasonably correlated to energy prices but, in our view, could provide better risk-adjusted returns over the long term.
“We believe climate change is a material investment risk and that astute investors will want to mitigate this risk in order to achieve better investment results over time.”
Founder and Chief Executive,
Impax Asset Management
Smart for investors
We believe that re-allocating exposure from fossil fuel energy to energy efficiency provides a more optimal risk-return profile. Climate change poses material risks to fossil fuel companies in the form of expected government intervention to regulate greenhouse gases, changes in consumption patterns, potential litigation and other liabilities. We believe these climate change transition risks are not priced into securities for fossil fuel companies. Conversely, energy efficiency companies are well positioned to benefit from rising energy demand and the transition to a more sustainable global economy.
Smart for the planet
The SmartCarbon approach divests from the most carbon-intensive fuels and substitutes energy efficiency companies whose products, services and business strategies directly address climate change and other global sustainability challenges.