In the article below, our sister company, Orbis, looks at how climate change is a topic of increasing importance to many clients and how Orbis can most effectively be a part of the solution.


Climate change is a topic of increasing importance to many of our clients. At Orbis we support the objective, set out in the Paris Agreement, to limit the global average temperature increase to well below 2°C – preferably to 1.5°C – above pre-industrial levels. We are committed to playing our part, both in terms of the actions we take as stewards of our clients’ capital and how we conduct our own operations.

The question now is how we can most effectively be a part of the solution. We could simply buy a portfolio of stocks that, on paper, have low emissions, divest from those that are perceived as “dirty”, and pat ourselves on the back for a job well done. In reality, this would do nothing to reduce emissions in the real world. There is no simple solution, and in order to have the greatest impact, we must look beyond the headlines and the “clean” or “dirty” labels given to companies.

“The question now is how we can most effectively be a part of the solution.”

As an illustration, consider one of the metrics that is commonly used to measure the carbon intensity of an investment portfolio. Known as WACI—weighted average carbon intensity—it is a convenient way to measure the emissions of businesses owned in a portfolio relative to their revenues. At first glance, it might seem natural to assume that a lower WACI would be indicative of a more “climate-friendly” portfolio and asset managers should do all they can to achieve as low a WACI as possible.

Not necessarily. Take AES—a US-based power producer and utility company. It was by far the largest contributor to the carbon intensity of our flagship Global Equity Strategy at 31 December 2021. Despite being only around 1% of the portfolio, AES accounted for over 40% of the portfolio’s WACI. We could have easily reduced the Strategy’s carbon exposure by avoiding a stock like AES, but we think it’s important to take a more nuanced and thoughtful approach.

Rather than automatically avoiding or divesting from companies that have high emissions, we believe there can be opportunities to invest in those that are trying to be part of the solution to climate change. In the case of AES, its emissions are currently high because only half of its power is generated from renewable sources while about 20% comes from coal. But this ignores the substantial reduction AES has made in its coal-fired capacity over the last decade and its commitment to be done with coal altogether by 2025. The company is also investing heavily in renewables and owns a stake in Fluence, a leading installer of grid-scale energy storage that will be key to enabling renewables to be deployed at scale.

“We must look beyond the headlines and the ‘clean’ or ‘dirty’ labels given to companies.”

In our view, AES’ share price does not reflect its growth potential, nor the value of its stake in Fluence and other renewable energy ventures. AES trades at a much lower multiple than other clean energy companies and has the potential for a valuation rerating if investors change their perception of the company—an opportunity that would be missed by an investor solely focused on today’s emissions data.

While AES is just one example, we have developed a broader framework that helps us understand the progress high-emitting companies are making toward the Paris Agreement’s objective. We also use this information in our engagement efforts, which are an essential part of our role as active and responsible investors.

A key step in assessing the climate-related risks facing companies and their efforts to mitigate them is reviewing a company’s disclosures. Jardine Matheson Holdings, a Hong-Kong-based conglomerate, rated poorly in our framework and was a notable outlier. When we engaged with management on this topic, they explained that the company intends to disclose additional climate-related information in a sustainability report to be published in mid-2022. In our view, the company is already doing a good job of following responsible business practices, making it well placed to improve investor sentiment with better public disclosure.

In some cases, our engagement efforts are unsuccessful, and we may decide that it is best to walk away. In 2019 and 2020 we reduced and eventually eliminated the position in Korea Electric Power Corporation, due in part to a loss of confidence in management’s ability to make a meaningful and rapid transition to low-carbon sources of energy. The portfolio’s WACI declined as a result, but not because less carbon was being released into the atmosphere. A far better outcome would have been meaningful change at the company and a real-world improvement in its carbon footprint.

For more detail on the examples above and other steps we have taken, we encourage clients to read our latest Stewardship Report. Looking ahead, we are building a small team of responsible investing specialists to help deepen our understanding of issues such as climate change that can have a material impact on the intrinsic value of the investments we consider for the Orbis Funds. We believe that having dedicated expertise and research capabilities in these areas will further enhance our ability to generate superior returns for clients while also acting as responsible stewards of their capital.


Financial advisers can contact their local Regional Manager to learn more about the Orbis Global Equity Fund.