A foundation funded by Ikea, the Swedish furniture store empire, has pledged $250m to seed a renewable equity fund established by Osmosis, a specialist investment boutique.
The allocation by Imas, an €11bn foundation that invests on behalf of Ikea, is the second major contract that Osmosis has been awarded.
The new Osmosis resource-efficient ex-fossil fuel fund seeks to surpass the MSCI World index by investing in environmentally sustainable businesses. The new Osmosis approach has removed about 170 components of the MSCI World index, which holds around 1,430 companies. As a result, the exposure of the portfolio to both carbon emissions and water use, compared to the MSCI index, is lowered by two-thirds and waste production by almost half.
The strategy would achieve higher risk-adjusted returns by specifically taking into account the environmental costs arising from carbon emissions, water use, and waste generation, Henrik Lundin, chief investment officer at Imas, said.
“The Osmosis strategy is a clever source of alpha. It should ultimately deliver outperformance over the MSCI World index,” Lundin added.
As seed capital for a sister Osmosis resource-efficient fund, Imas generated $270 million in 2017, which also prioritizes investments in businesses with a solid record of greenhouse emissions, water use, and waste. That fund produced 54 per cent total net returns (after fees) compared to the MSCI World's 50 per cent return.
“It is important when divesting from fossil fuels that cuts are also made to water consumption and waste creation, which are also environmental risks,” said Ben Dear, who co-founded Osmosis in 2009.
Clean water is a precious resource that needs energy for purification, while vast volumes of plastic waste wind up in oceans or contaminated landfills, contributing harm to the natural environment.
Although a rebound in oil prices from their depressed levels was possible as the global economy recovers from the pandemic, the longer-term outlook “looks bleak for companies involved in the carbon-based energy sector,” said Dear.
Osmosis, which lists the endowment of Oxford University as both a shareholder and an investor, now oversees $2 billion in assets. After obtaining a mandate from the A$50bn Commonwealth Superannuation Corporation, it secured its first Australian pension client in November.
Last year, climate change themed funds were among Europe's top sellers, as buyers stepped up attempts to protect their investments from the threats of climate change.
European Sustainable Funds' assets rose by 52 percent from the previous year to reach €1.1tn in December. In 2020, flows of €233bn were almost twice those of 2019.