When the PGIM Jennison Carbon Solutions Equity Fund was still in the planning stages, its investment management team noticed a common theme in most traditional decarbonisation strategies: a narrow focus on ‘green’ industries such as electric vehicles, batteries and renewable energy. Yet this limited approach, as Jennison Client Portfolio Manager Raj Shant and his colleagues realised, falls far short of what is needed to meet society’s goal of reaching a low-carbon economy while maintaining or improving today’s standard of living. So, the Fund adopted a much broader approach by focusing on the diverse array of companies and industries contributing to the decarbonisation journey, including those that are helping avoid emissions in the first place.
Shant acknowledged that these avoided emissions, referred to as Scope 4, are often very difficult to quantify. How do you measure emissions that were never released because a company figured out a process that significantly reduces or eliminates pollution? Understanding the Scope 4 aspect of potential investments requires a deep, company-by-company analysis of prospective holdings, Shant said; and most environmental, social and governance (ESG) data vendors are not equipped for that kind of intense, granular, fundamental research. In Shant’s view, emissions analysis is incomplete unless it accounts for avoided emissions, which is a key part of the Fund’s framework.
Taking a broad-based approach offers investors another potential benefit: diversification. While most traditional decarbonisation portfolios hold the typical stocks from ‘green” industries, broad-based carbon-reduction portfolios may hold stocks from the consulting industry or even a clean-burning natural gas company from the energy industry. In Shant’s view, the decarbonisation transition is not an event: it’s a journey that will progress over time. It’s critical for investors to maintain an open mind and look at the bigger picture that includes a vast array of exciting investment opportunities.
The views expressed in this commentary are of PGIM as of 31 May 2024 and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or as an offer to sell or a solicitation to buy any securities mentioned herein. Any projections or forecasts presented herein are subject to change. This commentary does not purport to provide any legal, tax or accounting advice. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
For compliance use only 3661630