Small funds with changing constituents and growing AUM

I am looking for help on:

How do you appropriately set targets for a mutual fund that has been growing year-on-year in AUM and the constituents are changing?

For example, if we’re looking at a portfolio-level commitment, the fund in the baseline year was half the AUM size it is today.

Next, the constituents are changing in name and weights from the baseline year to today.

What are the proper scaling calculations to accurately allow for the changing characteristics of a single fund?

Hi @SarahA,

Welcome to the community.
This depends a little bit on what method you are using, but asset managers often use Temperature Rating (TR) and/or Portfolio Coverage (PC) and for these the scaling is “built in”. The financial institution (FI) may for instance have a PC of 10% or TR of 2.7C at the base year and have set a 5 year TR target of 2.3C and /or a PC target of 35%. These targets would still apply at the end of the 5 year period, regardless of AUM growth or changes in portfolio composition.

SBTi strongly encourages FIs to use engagement before divestment or portfolio shifting to achieve these targets. At the same time we recognize that FIs want to change portfolio composition due to other considerations than Paris alignment. Having said that, divesting e.g. all of your oil & gas assets should be the last resort.