In 2023, global CO2 emissions (from fossil fuels and land use) will have returned to their pre-Covid peak in 2019, at 40.9 Gt. While the downward trend of the last decade continues in Europe and the United States, with reductions of -7.4% and -3.0% in 2023 respectively, the global trajectory remains very worrying. This is mainly driven by China (+4.0% in 2023) and India (+8.2% in 2023). The scientists at the Global Carbon Project1 reminded us that the planet has a carbon budget of around 275 Gt left before global warming exceeds 1.5°C permanently. If the current trend is not reversed, this 1.5°C threshold will be reached by 2030. After briefly outlining the expected consequences of this scenario, we will delve into an analysis of climate risks and opportunities (based on MSCI's Climate VaR model) for the ODDO BHF Green Planet fund.

TOWARDS THE MATERIALISATION OF PHYSICAL RISKS

In February 2024, for the first time since the pre- industrial era, the world's climate warmed by 1.5°C over a sliding 12-month period, as a direct result of the El Niño phenomenon (increased temperatures at the surface of the Pacific Ocean accentuating warm currents in the atmosphere) which has been in effect since June 2023. This overshoot will only be temporary, as La Niña (an inverse phenomenon with abnormally low temperatures at the surface of equatorial Pacific waters) is expected to return in the summer of 2024. Nevertheless, it is a serious warning that should prompt major countries to accelerate their transition efforts rather than dither over the urgency of the measures to be taken.

Rising global temperatures are disrupting natural ecosystems (the water cycle, rising and acidifying seas and oceans, deforestation), leading to an increase in the frequency and intensity of several physical hazards. A distinction is made between chronic risks (heat waves, extreme cold, wind, snow, precipitation) and severe risks (tropical cyclones, flooding, drying up of rivers, forest fires). It is important to note that the increasing materialisation of these risks also impacts the absorption capacity of forests and oceans, the planet's main carbon storage sources (they currently absorb 31% and 26% of CO2 emissions each year respectively), accelerating the rate of global warming.

According to a study conducted by the University of Delaware and published in November 2023 at the opening of COP 28, climate change caused an economic loss of 1.8% of global GDP in 2022, totalling around $1,500 billion.

ODDO BHF GREEN PLANET: MEASURING THE RISKS AND OPPORTUNITIES ASSOCIATED WITH GLOBAL WARMING

In 2020, our extra-financial data provider, MSCI ESG Research, launched a methodology for analysing climate risks applied to an investment portfolio (Climate VaR2). This methodology distinguishes between physical risks and transition risks, potentially offset by opportunities linked to mitigation technologies, to produce an aggregated VaR at the level of each company covered.

• Physical risks

The analysis is based on the IPCC's Representative Concentration Pathways (RCP) for the year 2100, which represent the trajectories of changes in the concentration of greenhouse gases in the atmosphere. This is applied to the geographical location of the companies' assets (an average of 50 sites per company for the 9,000 companies included in the Climate VaR analysis). The analysis considers both the exposure of companies to potential direct losses (property damage) and indirect losses (contingent business interruptions).

As of 29 April 2024, the aggregate Value at Risk (VaR) of the physical risks of the ODDO BHF Green Planet fund in a 1.5°C warming scenario was -6.6% of its asset value, compared with -19.3% for its benchmark index (MSCI ACWI).

The analysis shows that the primary risks for the fund are heat waves, drying rivers and coastal flooding. In comparison to the MSCI ACWI, the fund is notably less exposed to all of these risks, except for the drying up of rivers due to the fund's overweighting of the Utilities sector.

The stocks in the portfolio that pose the greatest physical risks are Honda (heat waves in Malaysia), SSE Plc (coastal flood risk in the UK), and Aurubis (coastal flood risk in the US).

• Transition risks

The analysis is primarily based on the costs associated with regulations aimed at aligning each company's business model with a 1.5°C warming scenario (reduction of CO2 emissions in production processes, transition to a low-carbon energy supply, reduction of the impact over the entire life cycle of a product, etc.). In some cases, these costs can be offset by the development of technological solutions that contribute positively to global warming mitigation. For example, in calculating its Value at Risk, a group involved in renewable energies will benefit from discounted green revenue streams, offsetting any negative impact from regulatory costs.

As of 29/04/2024, the aggregate Value at Risk (VaR) for transition risks of the ODDO BHF Green Planet fund in a 1.5°C warming scenario was +11.2% of its asset value, compared to -22.2% for its benchmark index (MSCI ACWI). The fund’s high exposure to green solutions is beneficial, with a VaR related to technological opportunities at +30.2% compared to just +8.5% for the benchmark index.

By investing in four sub-themes that comprehensively cover business sectors and technologies that make a positive and significant contribution to the ecological transition (clean energy, energy efficiency, sustainable mobility, preservation of natural resources), the ODDO BHF Green Planet fund demonstrates a climate risk profile that is significantly more virtuous than the market as a whole.