Achieving Sustainability - Heatwaves hitting around the globe, climate transformation is imminent

19/09/2022

Summary

This summer has seen ‘super heatwaves’ around the world! In the Northern Hemisphere hot weather records were broken in the US, Europe and some parts of China. As for Hong Kong, the city experienced the hottest July on record, according to the Hong Kong Observatory. Temperatures of 35 degrees or above were recorded on 10 days, setting a new monthly record and breaking the annual record. With global warming, these record-breaking extremely hot weather events are expected to continue to reach new heights.

Unmeasurable economic loss

Climate change not only brings about hotter summers, but also more frequent extreme weather events - droughts, strong winds and floods and many more natural disasters. Super typhoons like Mangkhut, which smashed Hong Kong in 2018, could become more common as a consequence of climate change. Moreover, extreme weather could cause huge economic losses. According to the data, climate change may lead to a loss of 4% in global annual economic output by 2050. The World Meteorological Organization even identified that over the past 50 years, extreme weather disasters in different parts of the world have caused more than 100 deaths and economic losses of USD$202 million every day.

These economic losses will stem from various causes. First, governments have to spend extra money to handle the consequences of extreme weather, such as post-disaster reconstruction. Second is the costs associated with “climate refugees”, a term coined by the United Nations Environment Programme in 1985. Climate refugees are people who are forced to leave their homes due to extreme weather, water and food shortages. According to estimates, climate refugee numbers worldwide may reach 1.2 billion by 2050. At that time, countries will have to pool more resources to accommodate the increasing number of refugees, resulting in a heavy financial burden. The third cause of loss is food supply costs. As agriculture is highly dependent on nature, extreme weather inevitably leads to crop failures and increased animal diseases, which will then stimulate surges in food prices and inflation.

Investment industry offers suggestions and solutions

As investors, what can we do to help prevent and mitigate the impact of climate change, in addition to reducing energy waste in daily life? Sustainable investing could be one of the answers. At present, fossil fuels such as coal account for more than 75% of global greenhouse gas emissions, the biggest cause of global climate warming. Therefore, when choosing investment products, investors may wish to pay more attention to the investment themes related to sustainable development, such as climate or energy transformation. These themes are internationally recognised and can contribute to addressing causes of extreme weather.

There is also a lot of work for us to do at the fund industry level. In recent years, climate-related asset management organisations have been established one after another, striving to solve and prevent extreme weather. For example, the Net Zero Asset Managers Initiative set up in 2020 has attracted more than 270 members to join in just two years, and all participants have pledged to achieve net zero emissions by 2050.

Specifically, many fund companies have introduced an exclusion policy, that is, funds under their management will not invest in companies that are harmful to the environment like the coal sector. In addition, the fund industry can also make good use of its influence, such as by shareholders voting, communicating with the management and encouraging enterprises to accelerate climate transformation. Last year, we have engaged with 203 companies through the above ways to motivate them to reduce carbon emissions.

As countries tighten regulations, the progress of carbon reduction in the financial industry is becoming more transparent. More and more fund companies are taking the initiative to disclose the carbon emissions of their funds for public reference. Furthermore, many companies are now releasing Task Force on Climate-related Financial Disclosure reports, using scenario analysis to predict the changes in extreme weather and prepare for the future.

As long as we work together continuously, the damages brought by extreme weather can be eased and investors can also discover unique long-term investment opportunities.

How China can achieve its ambitious decarbonisation plan

20/09/2022

Summary

China’s pledge to achieve net-zero by 2060 appears ambitious, but it is central to the country’s broader strategic interests and the pathway to realising its goal could provide new opportunities for investors.

Key takeaways

  • China’s long-term strategic interests are driving its ambition to be carbon neutral by 2060, but its push towards decarbonisation will be balanced with economic stability and energy security
  • Nationwide coordination is key to China’s decarbonisation and is creating investment opportunities across different sectors beyond the ‘traditional’ areas of renewable energy and electric vehicles
  • There remains significant room for improvement among corporates, especially when it comes to setting quantitative decarbonisation carbon targets and roadmaps

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  • Allianz Global Investors Fund (“AGIF”)

    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

    • All sub-funds (“Sub-Funds”) may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV. 

    • Some Sub-Funds as part of their investments may invest in any one or a combination of the instruments such as fixed income securities, emerging market securities, and/or mortgage-backed securities, asset-backed securities, property-backed securities (especially REITs) and/or structured products and/or FDI, exposing to various potential risks (including leverage, counterparty, liquidity, valuation, volatility, market, fluctuations in the value of and the rental income received in respect of the underlying property, and over the counter transaction risks). 

    • Some Sub-Funds may invest in single countries or industry sectors (in particular small/mid cap companies) which may reduce risk diversification. Some Sub-Funds are exposed to significant risks which include investment/general market, country and region, emerging market (such as Mainland China), creditworthiness/credit rating/downgrading, default, asset allocation, interest rate, volatility and liquidity, counterparty, sovereign debt, valuation, credit rating agency, company-specific, currency  (in particular RMB), RMB debt securities and Mainland China tax risks. 

    • Some Sub-Funds may invest in convertible bonds, high-yield, non-investment grade investments and unrated securities that may subject to higher risks (include volatility, loss of principal and interest, creditworthiness and downgrading, default, interest rate, general market and liquidity risks) and therefore may adversely impact the net asset value of the Sub-Funds. Convertibles will be exposed prepayment risk, equity movement and greater volatility than straight bond investments.

    • Some Sub-Funds may invest a significant portion of the assets in interest-bearing securities issued or guaranteed by a non-investment grade sovereign issuer (e.g. Philippines) and is subject to higher risks of liquidity, credit, concentration and default of the sovereign issuer as well as greater volatility and higher risk profile that may result in significant losses to the investors. 

    • Some Sub-Funds may invest in European countries. The economic and financial difficulties in Europe may get worse and adversely affect the Sub-Funds (such as increased volatility, liquidity and currency risks associated with investments in Europe).

    • Some Sub-Funds may invest in the China A-Shares market, China B-Shares market and/or debt securities directly  via the Stock Connect or the China Interbank Bond Market or Bond Connect and or other foreign access regimes and/or other permitted means and/or indirectly through all eligible instruments the qualified foreign institutional investor program regime and thus is subject to the associated risks (including quota limitations, change in rule and regulations, repatriation of the Fund’s monies, trade restrictions, clearing and settlement, China market volatility and uncertainty, China market volatility and uncertainty, potential clearing and/or settlement difficulties and, change in economic, social and political policy in the PRC and taxation Mainland China tax risks).  Investing in RMB share classes is also exposed to RMB currency risks and adverse impact on the share classes due to currency depreciation.

    • Some Sub-Funds may adopt the following strategies, Sustainable and Responsible Investment Strategy, SDG-Aligned Strategy, Sustainability Key Performance Indicator Strategy (Relative), Green Bond Strategy, Multi Asset Sustainable Strategy, Sustainability Key Performance Indicator Strategy (Absolute Threshold), Environment, Social and Governance (“ESG”) Score Strategy, and Sustainability Key Performance Indicator Strategy (Absolute). The Sub-Funds may be exposed to sustainable investment risks relating to the strategies (such as foregoing opportunities to buy certain securities when it might otherwise be advantageous to do so, selling securities when it might be disadvantageous to do so, and/or relying on information and data from third party ESG research data providers and internal analyses which may be subjective, incomplete, inaccurate or unavailable and/or reducing risk diversifications compared to broadly based funds) which may result in the Sub-Fund being more volatile and have adverse impact on the performance of the Sub-Fund and consequently adversely affect an investor’s investment in the Sub-Fund. Also, some Sub-Funds may be particularly focusing on the GHG efficiency of the investee companies rather than their financial performance which may have an adverse impact on the Fund’s performance.

    • Some Sub-Funds may invest in share class with fixed distribution percentage (Class AMf). Investors should note that fixed distribution percentage is not guaranteed. The share class is not an alternative to fixed interest paying investment. The percentage of distributions paid by these share classes is unrelated to expected or past income or returns of these share classes or the Sub-Funds. Distribution will continue even the Sub-Fund has negative returns and may adversely impact the net asset value of the Sub-Fund.  Positive distribution yield does not imply positive return.

    • Investment involves risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this [website/material].

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s capital or effectively out of the Sub-Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per share and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the respective Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi/AQ Dis (Annually/Monthly/Quarterly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.


    Allianz Global Investors Asia Fund

    • Allianz Global Investors Asia Fund (the “Trust”) is an umbrella unit trust constituted under the laws of Hong Kong pursuant to the Trust Deed. Allianz Thematic Income and Allianz Selection Income and Growth and Allianz Yield Plus Fund are the sub-funds of the Trust (each a “Sub-Fund”) investing in fixed income securities, equities and derivative instrument, each with a different investment objective and/or risk profile.

    • Some Sub-Funds are exposed to significant risks which include investment/general market, company-specific, emerging market, creditworthiness/credit rating/downgrading, default, volatility and liquidity, valuation, sovereign debt, thematic concentration, thematic-based investment strategy, counterparty, interest rate changes, country and region, asset allocation risks and currency (such as exchange controls, in particular RMB), and the adverse impact on RMB share classes due to currency depreciation.  

    • Some Sub-Funds may invest in other underlying collective schemes and exchange traded funds. Investing in exchange traded funds may expose to additional risks such as passive investment, tracking error, underlying index, trading and termination. While investing in other underlying collective schemes (“CIS”) may subject to the risks associated to such CIS. 

    • Some Sub-Funds may invest in high-yield (non-investment grade and unrated) investments and/or convertible bonds which may subject to higher risks, such as volatility, creditworthiness, default, interest rate changes, general market and liquidity risks and therefore may  adversely impact the net asset value of the Fund. Convertibles may also expose to risks such as prepayment, equity movement, and greater volatility than straight bond investments.

    • All Sub-Funds may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks.  The use of derivatives may result in losses to the Sub-Funds which are greater than the amount originally invested. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV.

    • These investments may involve risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this website.

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s income and/or capital which in the latter case represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per distribution unit and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi Dis (Annually/Monthly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     

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