GLOBAL ALPHA PARIS-ALIGNED 2021 - Baillie Gifford
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GLOBAL ALPHA PARIS- ALIGNED 2021 THIS PAPER IS INTENTED SOLELY FOR THE USE OF PROFESSIONAL INVESTORS AND SHOULD NOT BE RELIED UPON BY ANY OTHER PERSON. IT IS NOT INTENDED FOR USE BY RETAIL CLIENTS.
– Global Alpha Paris-Aligned Baillie Gifford
RISK FACTORS
All investment strategies have the potential for profit and loss.
Stock Examples
Any stock examples, or images, used in this presentation are not
intended to represent recommendations to buy or sell, neither
is it implied that they will prove profitable in the future. It is
not known whether they will feature in any future portfolio
produced by us.
Any individual examples will represent only a small part of the
overall portfolio and are inserted purely to help illustrate our
investment style.
CM15821 GA Paris-Aligned Brochure 1220 0621
Ref: 53074 ALL AR 0105
2021
GLOBAL ALPHA
PARIS-ALIGNED
The Global Alpha strategy will turn 15 years old this year. The product was
launched in 2005 in response to a client need for an unconstrained and
diversified global stock-picking portfolio, with a focus on superior long-term
growth. Much has changed in the intervening decade and a half, but amid
relentless change in the world and an evolution of our process, we have
always been guided by our fiduciary duty to clients.
We understand that the issue of climate The central aim of the Paris Agreement,
change is a key focus for an increasing adopted by 196 state parties in December
number of investors. There is a clear 2015, is to limit the average temperature
scientific consensus that human activity rise to well below 2 degrees above
is warming the planet and that we are pre-industrial levels and to strive for
facing a climate emergency. Urgent 1.5 degrees by the end of this century.
action is required to transition economies
to a low-carbon future and reduce global For those seeking to incorporate climate
emissions, ultimately to net zero. change directly into their investment
objectives, we propose a new variant
model of Global Alpha.
1
– Global Alpha Paris-Aligned 2
2021
PROPOSAL
Global Alpha Paris-Aligned will be consistent time. At the time of writing, Global Alpha has
with the objectives of the Paris Agreement. The a carbon footprint that is 60 per cent lower than
portfolio will be a variant of the core Global the MSCI ACWI. Global Alpha Paris-Aligned
Alpha strategy. It will be managed by the same will go further. We will use a more progressive
team and with the same investment philosophy measure, the MSCI ACWI EU Paris Aligned
and performance objective. However, there will Requirements Index, that is consistent with the
be an additional process to screen out carbon carbon reduction requirements needed to achieve
intensive companies that do not or will not play the objectives of the Paris Agreement. Global
a major role in our energy transition. This variant Alpha Paris-Aligned will commit to having a
currently has an overlap of more than 90 per cent weighted average greenhouse gas intensity lower
with the core strategy and is expected to closely than that of the MSCI ACWI EU Paris Aligned
track the performance of the main model over Requirements Index.
GLOBAL ALPHA
PARIS-ALIGNED
OBJECTIVE INDEX
The objective of Global Alpha Paris-Aligned is We will track our greenhouse gas emissions
to outperform the MSCI ACWI by 2–3 per cent* against the more progressive MSCI ACWI
per annum over rolling five-year periods (gross EU Paris Aligned Requirements Index. This
of fees). In addition, and as stated above, we will starts with a carbon intensity that is 50 per
commit to having a weighted average greenhouse cent lower than that of the standard ACWI.
gas intensity lower than that of the MSCI ACWI Furthermore, it incorporates a year-on-year
EU Paris Aligned Requirements Index. decarbonisation rate of 7 per cent, consistent
with a trajectory for a 1.5-degree warming
scenario outlined in the 2018
Intergovernmental Panel on Climate Change
report.
3
*Before management fees. The performance target stated is in no way guaranteed, nor is it intended to be precise. We believe it to be a
reasonable estimate of the amount by which we can outperform the relevant benchmark in the long term through the consistent application
of our investment process, taking into account the opportunity set and the characteristics of the markets in which the strategy invests.
Factors that may lead to Baillie Gifford failing to meet our investment performance objectives in future include a significant change in market
characteristics such that our growth investment style is unrewarded for a period of time; or misjudgement of the prospects for long-term
earnings growth for a significant number of individual stocks in which we invest.
Annual decarbonisation rate of 7% took effect from 1 June 2021 (base date).– Global Alpha Paris-Aligned
SCREENING PROCESS
Global Alpha Paris-Aligned is an exclusions-based variant of the core Global Alpha portfolio. We will apply two screens
to exclude high-emission companies that do not or will not have an important role to play in the economic transition to a
low-carbon future.
Companies that generate more Companies that generate more
than 10 per cent of revenues than 50 per cent of revenues
from the extraction and production from services provided to coal,
of coal, oil and gas. oil and gas extraction and production.
In addition to the above, the highest emission companies will be subject to a proprietary framework designed to assess
the risks they face in our low-carbon transition. This consists of three dimensions:
1. Does this company provide an essential 3. Is the company part of the problem or the solution?
product/service?
If question 2 is about a company’s ability to mitigate,
This question captures the idea of a carbon budget. We question 3 is about its willingness. Is there a desire and
accept that not all emissions are equal. Some high emission preparedness for a low-carbon transition? Here we assess
industries produce products and services that are essential company policy, emissions reporting and future targets.
(e.g. agriculture), while others deliver products and We consider how the company’s carbon performance now
services that are discretionary or only benefit a small group and in future might compare to others in the sector, as well
of people (e.g. aviation). Companies in the latter category as to the commitments made under the Paris Agreement.
are more exposed to climate risk. We seek evidence that carbon management is a part of
the corporate culture, integrated into decision making.
2. Can emissions be mitigated in an economically We use frameworks such as the Financial Stability Board
viable way? (FSB) Taskforce on Climate-related Financial Disclosures
(TCFD) and the Transition Pathway Initiative (TPI) to
This question addresses whether products and services assist our assessment. Companies which score highly
can be delivered in a better manner – specifically, if are those that take a leadership role in the low-carbon
there are technologies which can significantly reduce transition. They can help accelerate the transition for the
the carbon intensity of a business in an economically whole industry.
viable way. Examples might include the use of renewable
inputs (e.g. fuel and feedstock), improved product design
(e.g. extending the life of products), the use of carbon
capture techniques, or the adoption of radically different
technology. Companies where green alternatives are
4 readily available, feasible and economic are most at risk.2021
Are there technologies
which can significantly
reduce the carbon
intensity of a business
in an economically
viable way?
The highest emission companies are
scored against this framework on a
Red/Amber/Green basis. Those that
fall beneath a set threshold (Red) are
excluded from the portfolio, with the
capital reallocated pro rata among the
remaining (ex-Amber) holdings.
While it would be far easier to have
a simple list of sector exclusions,
such a blunt approach risks excluding
many high emission companies that
are solution providers and which will
play a pivotal role in our low-carbon
transition. For example, wind is one of
the cleanest sources of energy with a
very low carbon footprint over its full
lifecycle. However, the manufacturing
and installation of wind turbines
are carbon intensive processes that
rely on steel, concrete and advanced
plastics, and consequently wind
turbine manufacturers have high levels
of emissions. Excluding companies
based on their emissions alone risks
advancing carbon reduction pathways
that are inequitable or simply unviable.
We believe that what this framework
5
lacks in ease it makes up in thought.– Global Alpha Paris-Aligned
COMPARISON BETWEEN
GLOBAL ALPHA VARIANTS
We have examined the portfolio characteristics and carbon The main difference lies in the carbon analysis,
analysis of Global Alpha Paris-Aligned and compared it where the Paris-Aligned variant scores better.
with the core Global Alpha model, and the MSCI ACWI
– see tables below. The overlap between the Paris-Aligned Given the high degree of overlap between Global Alpha
variant and the core model is currently around 96 per cent, Paris-Aligned and the core model, we do not expect
and the portfolio characteristics are closely matched in terms significant divergence in performance over time.
of growth tilt and predicted risk.
Weighted Average Greenhouse Gas Intensity
GA Paris- Global MSCI
Aligned Alpha ACWI
Risk
42
Number of companies 94 101 2893
90 Predicted Absolute Volatility (%) 19.8 19.5 16.0
Predicted Tracking Error 6.7 6.0 –
(vs. MSCI ACWI) (%)
92
Predicted Beta (vs. MSCI ACWI) 1.2 1.2 –
Active Share (%) 86.5 85.4 –
180
Growth Tilt
0 40 80 120 160 200 Leading PE 30.3 28.9 19.8
Weighted Average Greenhouse Gas Intensity Yield (%) 0.8 0.9 2.1
(tCO2e/$m EV*)
Price/Book 4.5 4.3 2.8
Global Alpha Paris-Aligned MSCI ACWI Paris Aligned
EV/EBIT 26.6 25.3 18.4
Global Alpha Fund MSCI ACWI Index
Historic Earnings Growth (%) 11.5 10.0 3.1
Source: MSCI. As at 31 December 2020. *Includes cash. 1yr Forecast Return on Equity (%) 14.9 15.0 14.2
Debt/Equity Ratio 14.6 19.9 52.0
Average Market Cap ($billion) 225.7 214.9 305.1
Source: UBS, MSCI. As at 31 December 2020.
*Excluded companies: Albemarle, Orica, BHP, EOG, Reliance, Ryanair and
Brilliance Automotive.
62021
7– Global Alpha Paris-Aligned
CONCLUSION
We recognise that clients have different
preferences, objectives, and time horizons.
While our transition to a low-carbon future
is well underway, it will take decades to fully
wean our economy off fossil fuels. Many clients
will continue to prefer our core product. Our
duty is to manage your money in a manner that
is consistent with your preferences. The choice
is yours. We are grateful for your support over
the years and remain eager to hear your
thoughts on how we can continue to improve.
For those that are interested in learning more
about Global Alpha Paris-Aligned, we look
forward to discussing this with you in the
months ahead.
82021
9– Global Alpha Paris-Aligned
IMPORTANT INFORMATION
Baillie Gifford & Co (BG & Co), Baillie Gifford & Similarly, it has established Baillie Gifford Investment
Co Limited (BG & Co Ltd), Baillie Gifford Overseas Management (Europe) Limited (Amsterdam Branch) to
Limited (BGO) and Mitsubishi UFJ Baillie Gifford Asset market its investment management and advisory services
Management Limited (MUBGAM) are authorised and and distribute Baillie Gifford Worldwide Funds plc in The
regulated by the FCA in the UK. BG & Co Ltd is an Netherlands. BGE also has a representative office in
Authorised Corporate Director of OEICs. Zurich, Switzerland pursuant to Art. 58 of the Federal Act
on Financial Institutions (“FinIA”). It does not constitute a
Baillie Gifford Investment Management (Europe) branch and therefore does not have authority to commit
Limited (BGE), Baillie Gifford Asia (Hong Kong) Limited BGE. It is the intention to ask for the authorisation by the
柏基亞洲(香港)有限公司 (BGA) and Baillie Gifford Swiss Financial Market Supervisory Authority (FINMA)
International LLC (BGI) are wholly owned by BGO. to maintain this representative office of a foreign asset
BGO and BG & Co Ltd are wholly owned by BG & Co. manager of collective assets in Switzerland pursuant to
the applicable transitional provisions of FinIA.
BGI and BGO are registered with the SEC in the United
States of America. BGA holds a Type 1 and a Type 2 licence from the
Securities and Futures Commission of Hong Kong to
BG & Co claims compliance with the Global Investment
market and distribute Baillie Gifford’s range of collective
Performance Standards (GIPS®). All performance data
investment schemes to professional investors in Hong
presented is supplementary to an appropriate compliant
Kong. BGA can be contacted at Suites 2713–2715,
composite presentation. An example of a compliant
Two International Finance Centre, 8 Finance Street,
composite presentation and a complete list of the Firm’s
Central, Hong Kong. Telephone +852 3756 5700.
composites and performance results are available on request.
BGO provides investment management and advisory Important Information Japan
services to non-UK Professional/Institutional clients only.
MUBGAM is a joint venture company between Mitsubishi
Persons resident or domiciled outside the UK should UFJ Trust & Banking Corporation and BGO.
consult with their professional advisers as to whether they
require any governmental or other consents in order to
enable them to invest, and with their tax advisers for advice Important Information Australia
relevant to their own particular circumstances.
This material is provided on the basis that you are
This presentation contains information on investments a wholesale client as defined within s761G of the
which does not constitute independent research. Corporations Act 2001 (Cth). BGO (ARBN 118 567 178)
Accordingly, it is not subject to the protections afforded to is registered as a foreign company under the Corporations
independent research and Baillie Gifford and its staff may Act 2001 (Cth). It is exempt from the requirement to hold
have dealt in the investments concerned. an Australian Financial Services License under the
Corporations Act 2001 (Cth) in respect of these financial
BGE provides investment management and advisory services provided to Australian wholesale clients. BGO is
services to European (excluding UK) clients. It was authorised and regulated by the FCA under UK laws which
incorporated in Ireland in May 2018 and is authorised differ from those applicable in Australia.
by the Central Bank of Ireland. Through its MiFID
passport, it has established Baillie Gifford Investment
Important Information South Korea
10
Management (Europe) Limited (Frankfurt Branch) to
market its investment management and advisory services BGO is licensed with the Financial Services Commission
and distribute Baillie Gifford Worldwide Funds plc in in South Korea as a cross border Discretionary Investment
Germany. Manager and Non-discretionary Investment Adviser.2021
Important Information North America Important Information Qatar
BGI was formed in Delaware in 2005. It is the legal entity The strategy is only being offered to a limited number
through which BGO provides client service and marketing of investors who are willing and able to conduct an
functions in North America. independent investigation of the risks involved. This
document does not constitute an offer to the public and is
The Manager is not resident in Canada, its head office and for the use only of the named addressee and should not be
principal place of business is in Edinburgh, Scotland. BGO given or shown to any other person (other than employees,
is regulated in Canada as a portfolio manager and exempt agents or consultants in connection with the addressee’s
market dealer with the Ontario Securities Commission consideration thereof) BGO has not been and will not be
(‘OSC’). Its portfolio manager licence is currently registered with the Qatar Central Bank or under any laws
passported into Alberta, Quebec, Saskatchewan, Manitoba of the State of Qatar. No transaction will be concluded in
and Newfoundland & Labrador whereas the exempt market your jurisdiction and any inquiries regarding the strategy
dealer licence is passported across all Canadian provinces should be made to Baillie Gifford.
and territories. BGI is regulated by the OSC as an exempt
market and its licence is passported across all Canadian
provinces and territories. BGE relies on the International Important Information Oman
Investment Fund Manager Exemption in the provinces of
BGO neither has a registered business presence nor a
Ontario and Quebec.
representative office in Oman and does not undertake
banking business or provide financial services in Oman.
Important Information South Africa Consequently, BGO is not regulated by either the Central
Bank of Oman or Oman’s Capital Market Authority.
BGO is licensed with the Financial Sector Conduct No authorization, licence or approval has been received
Authority in South Africa as a Financial Services Provider from the Capital Market Authority of Oman or any other
(FSP No 44870) in terms of section 8 of the Financial regulatory authority in Oman, to provide such advice or
Advisory and Intermediary Services Act, 2002. This service within Oman. BGO does not solicit business in
licence authorises BGO to carry on financial intermediary Oman and does not market, offer, sell or distribute any
services business on behalf of South African clients. BGO financial or investment products or services in Oman and
is also approved under section 13b(1) of the Pension Funds no subscription to any securities, products or financial
Act number 24 of 1956, as amended, and is authorised to services may or will be consummated within Oman. The
administer investments on behalf of pension funds. recipient of this document represents that it is a financial
institution or a sophisticated investor (as described in
Important Information Israel Article 139 of the Executive Regulations of the Capital
Market Law) and that its officers/employees have such
BGO is not licensed under Israel’s Regulation of experience in business and financial matters that they are
Investment Advising, Investment Marketing and Portfolio capable of evaluating the merits and risks of investments.
Management Law, 5755–1995 (the “Advice Law”) and
does not carry insurance pursuant to the Advice Law.
This presentation is only intended for those categories of
Israeli residents who are qualified clients listed on the First
Addendum to the Advice Law.
11CURIOUS
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