FAMA Investimentos: Net-zero emissions

Describe how you identify positive and negative sustainability outcomes related to your investments.

FAMA Investimentos (a certified B Corp) has committed to achieve net-zero emissions by 2050 or sooner. It recognises that climate change is not just as a financially material issue for its portfolio, but also a systemic one for society and the environment.

Our commitment, which covers 100% of our assets under management, is in line with the Paris Agreement and contributes to the 13th Sustainable Development Goal (SDG) to take urgent action to combat climate change and its impacts.

To understand our main outcomes, we annually carry out an assessment on the carbon footprint of our operations, including Scopes 1, 2 and 3, the latter being our most significant source of emissions, currently assessed under the PCAF methodology. We were the first Brazilian asset manager to measure and publish a Carbon Footprint Report.

Our most recent assessment employed a vertical and horizontal analysis by measuring the carbon footprint of our portfolio against different benchmarks, while also including a temporal evolution of CO₂ emissions. The analysis found that the intensity of our portfolio gross CO₂ emissions was much lower than the benchmarks: 83% lower than Ibovespa (main “Brazilian stock exchange – B3” index), 63% lower than ISE (B3 Corporate Sustainability Index), and 67% lower than ICO2 (B3 Climate Transparency Index).

In 2020, we saw a 55% drop in our portfolio’s gross carbon footprint, compared to 2018. This was achieved either through a reduction in emissions among some of our investee companies as well as through asset allocation and portfolio construction strategies. Our net portfolio carbon footprint is negative, which means it absorbs more CO₂ than it emits (since 2018).

We have also performed forward-looking climate scenario analysis to explore the alternatives that may significantly impact our outcomes, especially given the uncertainty regarding a regulated carbon market for Brazil and any possible impact derived from regulated carbon markets in other regions.

The analysis complements our investment analysis process, which feeds our decision making, including asset allocation, as well as our stewardship and advocacy strategy and plans. Based on the outcomes, we can set clear engagement plans with specific objectives and deadlines. These target companies that contribute most to our carbon footprint, as well as those that have not yet started to measure their carbon exposures. We also aim to understand which collaborative investor initiatives are best to support us in achieving our objectives, and we engage with the public sphere.

Even though our challenges are relatively small if compared to other asset managers (mainly due to our size and investment strategy, which is single asset and geography, and with no investment in coal or any other fossil fuel), we are fully committed to support the transition to a low-carbon economy and to work in collaboration with other actors.

 

Give an overview of your sustainability outcome policies and/or targets, explaining the methodology for establishing them.

The basis of our climate transition plan is reflected in our Stewardship Code, which outlines our views on climate change and how we are addressing the risks and opportunities alongside our investee companies.

Its main pillar is reflected in our public commitment to achieve net-zero emissions by 2050 or sooner, as one of the founding members of the Net Zero Asset Managers Initiative (NZAM) - and the only one based in Latin America.

Our starting point was to set intermediate targets following the recommendations of the initiative and with the support of The Investor Agenda partner organisations, such as CDP and the PRI. Among the three main methodologies supported by the initiative, we chose the “Science-based Targets (SBT) Portfolio Coverage methodology” and established an intermediate target to achieve 28.6% of our listed equity portfolio (100% of our assets) by invested value with established science-based targets by 2025, reaching 100% by 2040. That was from a baseline of zero in 2019. Every five years, we will review our target to monitor progress and adjust our decarbonisation strategy.

We chose this methodology as we understand the SBT Portfolio Coverage methodology offers us reassurance that each of our investee companies is setting targets tailored to their structures, and that they are sufficiently ambitious to drive real-economy emissions reductions.

We are aware that climate change does not equally impact all our investee companies. However, given its characteristics, mainly the limited time we have to avoid the worst consequences, as well as the progress made in measurement and reporting, we believe considering the issue as material for all of them is the right thing to do.

We engage with our investee companies and encourage them to establish a robust and transparent decarbonisation plan with clear emissions reduction targets based on science, as well as to focus on emissions reductions through innovation. We see carbon offsetting as only suitable for those emissions that are not plausible to reduce. We prefer carbon offsetting projects that are within the relevant company’s value chain.

By establishing our commitment and engaging companies to establish their own commitments, we envisage a resilient future with sufficient resources to strive for value creation for all stakeholders.

 

Explain how you have sought to increase positive and decrease negative sustainability outcomes.

Our close relationship with our investees makes engagement our primary and best stewardship tool. Voting is also relevant, but its scope and impact can be limited as we are a relatively small investor. Most Brazilian companies have a controlling shareholder, which limits new proposals being heard or implemented.

For each of our investees, we create a tailored ESG engagement plan focused on the topics we deem most material. The plan contains clear objectives, timeframes, named individuals, and escalation methods. The plan is essential for the efficient use of resources, detailed monitoring, and concrete results, and serves as an important input in an iterative process of investment analysis and decision making.

Sometimes we lead or support collaborative investor engagements through institutions such as CDP or IPC (Brazilian Investor Initiative on Climate). We carefully analyse which issues would be best tackled on an individual or a collective basis.

Even though we prefer individual engagements, we recognise the benefits of collective engagements. Currently, we are leading the CDP Non-Disclosure Campaign 2022, whereby we encourage all our investee companies to provide information to CDP. We also support the CDP SBTi Campaign, which encourages the world’s most carbon intensive companies to commit to science-based targets aligned with 1.5°C pathways.

We have supported local and international statements aimed at Brazilian policy makers demanding greater climate ambition, adoption of carbon pricing mechanisms, and a regulated carbon market. We also support a stronger environmental enforcement structure to eliminate deforestation and commit to mandatory climate risk disclosure.

Most of these concerns and calls are mirrored in the following statements:

• The Global Investor Statement to Governments on the Climate Crisis (2019, 2021 and currently 2022) – only us from Brazil
• The Brazilian Business Sector Statement – only 5 Brazilian investors
• The Investor Statement in support of resilient, low-carbon transition policies – only 20 Brazilian investors.

Finally, given the ongoing construction of the sustainability ecosystem, we believe it is important to contribute to the creation and development of initiatives such as The Taskforce on Nature Related Financial Disclosures (TNFD), which we supported as part of the initial Working Group. Other initiatives include the aforementioned Net Zero Asset Managers, and the Aligned Accountability project led by Global Canopy, which aims to build a deforestation dataset for financial institutions. We also work with FAMA, and are the only Latin American asset manager feeding into the working group.

We support organisations such as the PRI, CDP, UNGC, TCFD, and PCAF and continuously advocate for ESG investing, be it through participation in interviews and events or by collaborating on articles and news programmes. Fabio Alperowitch, our co-founder and portfolio manager, is a board member of WWF, Conscious Capitalism and LIFE Institute.

 

Describe how you are tracking performance against your sustainability outcomes targets and/or policies (qualitative and quantitative).

Every year, as a signatory of the PRI (since 2011) and UN Global Compact (since 2020), we report on our investment activities, including on how we are incorporating the six principles of the PRI and contributing to the ten principles on human rights, labour, environment, and anti-corruption of the UN Global Compact.

In our 2020 PRI report, we earned an A+ score for the modules “Strategy & Governance” and “Listed Equity – Incorporation”. Since 2021, our PRI report also represents a transparency tool for our net-zero commitment. Especially through its Climate Change module, we can track our progress and report on our climate transition plan.

Every year we also report voluntarily on our Portfolio Carbon Footprint, lately under the PCAF methodology, which is also supported by GHG Protocol, CDP and SBTi. Quarterly, we publish a Stewardship Report with a summary of our engagements, votes, internal initiatives, and updates, as well as advocacy efforts.

The details of our climate agenda are summarised in a case study by The Investor Agenda. It is based on the Investor Climate Action Plans (ICAPs) Expectations Ladder, which sets out initiatives to support the transition to a net-zero economy by 2050 or earlier. The initiatives are specifically related to governance and four interlocking areas: investment, corporate engagement, policy advocacy and disclosure. We were the only Latin American asset manager to be among the first wave of case studies published in January 2022.

As well as offering transparency to our stakeholders, all these reports are key to assessing our performance and identifying opportunities for improvement. In recent years, we have made great strides with our investee companies, and have seen many improve their measurement and transparency practices, make bold emissions reductions commitments, and even lead climate engagement initiatives. For example, since 2018, most of our investee companies have reduced their carbon intensity per million reals of revenue (see our Carbon Footprint report) and four companies - MRV, Arezzo, Lojas Renner and Klabin - are among the 39 Brazilian companies (June 2022) that support the Science-Based Targets initiative (SBTi).