Asset Management

Simulation
GLOBAL ESG RESEARCH
SIMULATION STRUCTURE - 80 MINUTES

Rebalancing
Construct Portfolio
Period
10 Minutes
10 Minutes

Quarter 1 + Quarter 2 Quarter 3 + Quarter 4

30 mins 30 mins

- Breaking News - Breaking News

- Price Movement - Price Movement
- Trade/Manage Risk - Trade/Manage Risk

CLIENT & OBJECTIVE OVERVIEW

Your client is a former CEO. She is looking for a place to invest her wealth
accumulated over the years. Having been a CEO for over 25 years, she has
accumulated not only a great salary but substantial shares within her firm which
she has now released to pursue other endeavours.

She is open for you to take risks as long as the risks fall within the parameters of
her mandate. In your investable universe, you will have 13 assets from which to
construct a portfolio. Your client would like a higher percentage of the portfolio
to be composed of assets that are ESG-friendly.

She is happy for you to make larger-scale investments in companies with

upcoming major economic events or any news that may positively impact the
ESG outlook of a company. It is important to note that a major news
announcement may have a positive impact on the share price of a company, but
it may not be beneficial for their ESG rating. If so, your allocation to that
particular company should not increase. Your client also expects there to be a
reduction in investment exposure to a company in the event of news that
negatively impacts their ESG rating.

The benchmark is an equally weighted portfolio consisting of 12 companies plus

the 1 commodity in your investable universe. Although one of your objectives is to
beat the benchmark, this is secondary to the client’s demand of ESG focussed
investing.
SIMULATION OUTLINE
● Investment Strategy: Long Only, 12 Stocks from various sectors and one
commodity.

● Starting Capital: $20million.

● Time Horizon: Manage a portfolio through a 12-month period split into 4

quarters.

● Constraint 1: Must be at least 90% invested at the start of each quarter.

● Constraint 2: No more than $5m exposure to any one sub sector.

● Constraint 3: Do not lose more than $500k in any one position.

● Constraint 4: No short positions.

PERFORMANCE MEASURES

● Risk Appetite: A measure of your ability to get your client’s cash invested.
Lack of decision making and not investing in your trade ideas will result in
a lower Risk Appetite score.

● Buy Side Risk Management: A measure of your ability to stay within your
stop loss limits. You should not lose more than $500k in any one position -
Constraint 3. This metric also measures your risk adjusted returns, that is
your Sharpe Ratio.

● Return on Investment: A measure of your ability to generate ESG

compliant returns by identifying market trends and understanding how
macro and micro economic news impacts prices and ESG ratings.
Optimising asset allocation and rebalancing will yield higher returns. Your
return on investment will also be compared to the overall benchmark’s
return.

It is important to note the trade-off between superior returns and having

an ESG compliant portfolio. Investing into assets that generate abnormal
returns may lead to your portfolio becoming less ESG compliant and vice
versa.

As an asset manager tasked with managing an ESG compliant portfolio,

you need to make sure that this mandate is adhered to throughout the
simulation, as ultimately this is what your client demands.
ENERGY
All charts are indicative of the returns
in the last 12 months.

British Petroleum - BP
Since the easing of the COVID 19
Pandemic, BP has erased the
losses it endured due to low oil
demand.

The share price is now back to pre-

pandemic levels. However,
investors are worried about the
clash between BP and climate
activists calling for greater action
on climate change.

Exxon Mobil - XOM

Similar to BP, Exxon Mobil has

also bounced back from its
losses as the pandemic has
eased.

As activist pressure has grown

on major oil companies,
analysts expect Exxon Mobil
to join the Scottish Carbon
Capture Project.

Royal Dutch Shell - RDS

Royal Dutch Shell is also
expected to join the Scottish
Carbon Capture Project
alongside Exxon Mobil.

The company is set to

announce its energy transition
plan to shareholders, which
would also meet the demands
of climate activists, following
growing pressure on oil giants
to transition to ESG compliant
practices.

There are also expectations

that Shell will support electric
vehicle usage in the United
Kingdom.
 All charts are indicative of the returns
in the last 12 months.

Gazprom - GAZP
Gazprom is a majority state-
owned multinational energy
corporation. As opposed to the
other oil giants, Gazprom has not
faced any pressure from its home
nation with regards to
sustainability.

It has been reported that the Nord

Stream 2 Pipeline is nearly
complete, although there have
been concerns with its
construction as it would make
Europe more reliant on Russian
Gas.

Furthermore, Gazprom will be

releasing their earnings early in
the first quarter.

Electricite de France - EDF

EDF manages 8 of the UK’s
nuclear reactors. They have
recently announced that they
plan to invest a further £1.3 billion
in the UK’s five generating nuclear
power stations over 2024-26,
taking the total invested in UK
nuclear reactors to nearly £9
billion since 2009.

There are further announcements

to be made in Q1 with regards to
the UK’s Sizewell C Nuclear
Station.
Siemens - SIE
All charts are indicative of the returns
Siemens Gamesa (Siemens’s wind in the last 12 months.
power division) offers an extensive
range of onshore wind turbine
technologies to cover all wind
classes and site conditions and
operates in 90 countries.

As the world pivots to sustainable

energy, demand for wind farms
has soared. However, recent
supply chain disruption has sent
raw material costs sharply higher
presenting a major challenge for
turbine makers to supply this
increase in demand.

AUTOMOTIVE

Volkswagen - VW
Volkswagen is the world’s second
largest carmaker. As with the
other companies in your
investable universe, share prices
have rebounded after the easing
of the pandemic.

In Q1 VW will be releasing its

earnings report. Analysts suggest
that the possible chip shortage
fears due to supply chain issues
may have an impact on future
sales as VW looks to catch up to
Tesla in the EV revolution.

Tesla - TSLA
Similar to VW, Tesla is also facing
problems due to potential
disruptions in supply chains.
However, analysts are reporting
that Tesla is near to a major deal
that will reduce reliance on China.

Although the Tesla share price

has increased in the previous year,
investors are concerned about
corporate governance due to the
erratic behaviour of CEO Elon
Musk and have questioned
whether Tesla is an ESG
compliant company.
DEFENSE MILITARY All charts are indicative of the returns
in the last 12 months.

Lockheed Martin - LMT

Lockheed Martin is an aerospace,
arms and defense corporation.
They have reported that due to
their “Go Green Goals”, they have
reduced Scope 1 & Scope 2 Carbon
emissions by 36%.

For the year ahead LMT have

updated their goals to accelerate
their waste and carbon reduction.

BAE Systems - BAE

BAE Systems is a British
multinational arms, security and
aerospace company. In their latest
annual report, they have
announced that their
sustainability agenda influences 13
of the 17 sustainable development
goals set by the UN.

They have also set an ambitious

goal of achieving net zero
greenhouse gas emissions by
2030.
TECHNOLOGY
All charts are indicative of the returns
in the last 12 months.

Amazon - AMZN
In the previous year, Amazon has
become the world’s largest
corporate purchaser of renewable
energy, and it is expected that
they will power their global
operations with 100% renewable
energy by 2025.

In addition to this they have also

announced the creation of the
Climate Pledge Fund, a $2 billion
investment to support
development of technologies and
services that reduce carbon
emissions.

However, Amazon have been

facing investigations in the EU &
the US with regards to factory
conditions as well as pay for
factory workers.

Nvidia - NVDA
Nvidia has achieved all previously
set ESG goals and implemented
methods to reduce their carbon
emissions, achieving 100 percent
RMAP*-compliant processing
facilities. Nvidia has also ranked
their active suppliers for their
compliance with the Responsible
Business Alliance Code of Conduct.

However, Nvidia has been under

fire from regulators worldwide due
to their ongoing deal to take over
UK chip designer Arm Holdings.

*RMAP = Responsible Minerals Assurance Process

COMMODITY

Lithium - LTH
Lithium is a silvery metal used most frequently in making rechargeable batteries for mobile
phones, laptops, digital cameras & electric vehicles (EVs). As demand for EVs has increased,
so has demand for lithium.

Lithium must be mined, and all resource extraction leads to some degree of harm to the
environment. There are growing ESG concerns around lithium mining.

There are also social impacts to consider such as worker employment conditions and
disruption to local communities. Furthermore, less than 5% of batteries are being recycled
due to a combination of technical constraints, logistical issues and regulatory gaps.

Partnering with lithium supply chain participants who lack precise data on various
environmental, social, and governance (ESG) issues could prove risky, and it might be
advisable for public companies to reduce their involvement with such entities as a means
of managing risks.

Businesses within the lithium supply chain that fail to share their environmental, social, and
governance (ESG) metrics may increasingly encounter pressure to become transparent or
risk exclusion from an expanding array of commercial and supplier networks. Such a trend
is welcome given the numerous environmental and social challenges associated with the
lifecycle of lithium extraction, processing, and disposal.

Although a very important resource in driving companies forward to achieve their ESG
goals, the metal itself does pose ESG risks for investors.
All charts are indicative of the returns
in the last 12 months.