The market study carried out in 2018 by Swiss Sustainable Finance (SSF) found that the Swiss market included 716 billion Swiss francs managed in line with sustainable principles. This figure is 83 percent higher than the previous year. ‘On the basis of this, I’m assuming that this trend will continue, with volumes increasing substantially,’ says Sabine Döbeli, CEO of SSF. ‘A large part of this growth is down to institutional investors who have only recently begun investing sustainably.’ Eighty-eight percent of the sustainable investments were made by institutional investors such as pension funds or insurers, while twelve percent were made by private individuals. In his discussions with customers, Gerhard Wagner has also noticed how the topic is gaining in importance. As Senior Portfolio Manager for Sustainable Investments at Zürcher Kantonalbank (ZKB), he is receiving considerably more enquiries from customers relating to sustainable investments. The interest shown by pension funds is particularly striking. ‘In my experience, things were very different even just a few years ago,’ he says. ZKG turned to this topic early in the game, starting its analyses in 1996 before offering sustainable investments two years later. With its ‘Responsible’ and ‘Sustainable’ product lines, ZKB pursues an explicitly sustainable approach and now manages eight billion Swiss francs.
To change or to exclude?
Nowadays, there are all kinds of approaches to creating a sustainable investment strategy. ‘We adopt a policy of “engagement” when it comes to our customers’ money,’ says Wagner. ‘This means that we remain aware of our responsibility and align our actions with it. If we think something needs to change within the company, we seek out dialogue with management.’ In addition, ZKB ensures all its actively managed funds, or, in other words, funds where a fund manager specifically selects shares, pay heed to ESG matters. ESG stands for ‘environmental, social and governance’, and in this approach, ESG criteria play a role when decisions are being made about investments. According to the SSF study, this is the most widespread strategy. However, Sabine Döbeli explains that it is not all that easy to put into practice, because it means that every analyst needs to make use of sustainability information – and have the training to do so. The benefit of this approach is that it can be easily integrated into existing investment strategies. ‘It doesn’t limit your horizons when you’re investing,’ says Sabine Döbeli. Despite the fact that the media pay particular attention to the environment, all three of these factors play an important role. ‘Good governance is often a prerequisite for improving environmental and social aspects in a targeted manner,’ says Sabine Döbeli.
Sabine Döbeli thinks it makes little sense to unify this array of approaches. ‘The various approaches focus on different objectives, and as a result, they suit different situations and different investors.’ The advantages associated with them are just as varied as the approaches themselves. An exclusionary approach is easier to communicate, with an investor not putting their money into particular companies or industries, such as the coal industry. Conversely, an engagement approach can be trickier to communicate. This is because people still invest in companies that, on the face of it, seem unlikely candidates to have a sustainability strategy in place. However, this approach aims to encourage companies to become more sustainable. At present, the engagement approach is the only approach that has a proven direct impact, as demonstrated by academic studies. There are indications that other strategies also have an effect, but it remains to be proven in quantitative terms. Sabine Döbeli says: ‘In general, it is hard to measure, and to prove, that investing in securities traded on the stock market has a direct impact on climate targets.’ The question of the effectiveness of sustainable investments also lies at the crux of the matter for ZKB. ‘There is no quantitative, sound figure that shows how much a company is doing to achieve sustainability targets,’ says Wagner. Within its Sustainable product line, ZKB creates corporate profiles that show what a company is doing to reach the UN’s 17 Sustainable Development Goals.
17 goals for a better world
The UN has drawn up 17 goals for sustainable development in terms of the economy, society and the environment, known as the Sustainable Development Goals or SDGs. Forma Futura, an independent asset manager focusing on responsible investing, is also guided by these goals. Preserving assets is at the heart of what they do: ‘It’s not just about the environment’, says their founding partner and Chief Financial Officer Christian Kobler. ‘The ultimate challenge lies in how we can peacefully co-exist on our planet and preserve the assets that permit social interaction. This is because the impact of climate change will also lead to major migratory movements, and they have cultural and social implications alike. As far as resources go, losing these assets provokes people to fight over how they are allocated.’ Forma Futura has been making sustainable investments since 2006, and they have also experienced increased demand. ‘We’ve noticed an influx of demanding customers, and our extensive experience in this field is important to them,’ says Kobler. Sustainable investing is in vogue at the moment, and this boom is sweeping along mainstream investors in its wake. Forma Futura uses a multi-stage selection procedure to ensure it does justice to the requirements of sustainable investments: the company opts for investments that support a sustainable quality of life and preserve it for generations to come. Of course, traditional financial analysis and professional portfolio management also play a key role. ‘The returns we generate are in line with the market,’ says Christian Kobler.
Virtue isn’t its own reward
The fact that virtue isn’t its own reward was also clear to Reto Ringger right from the off. ‘I’ve always been interested in sustainability,’ he says, explaining that the 1992 Rio Convention on Climate Change had a particular impact on him. In 1995, this led him to establish the world’s first asset manager for sustainable investments, aged 28: SAM Sustainable Asset Management. They got off to a flying start in terms of finding investment capital and employees alike, but the challenge they faced was convincing customers that sustainable investing was a good idea. ‘To be honest, we were too early to the party,’ says the founder and CEO today. ‘Back then, nobody understood our approach.’ As a result, he came up with the idea of developing the Dow Jones Sustainability Index. ‘We said that everyone in the financial sector knows about indexes,’ explains Reto Ringger. As a result, they hoped that the concept would be easier to explain. However, they approached Dow Jones with their idea time and again without success until, in 1999, they finally used the right argument to win the right person over. After SAM was successfully sold to Robeco in 2009, Reto Ringger founded Globalance Bank. Globalance’s concept is not based on one of the traditional practices like exclusion or best-in-class: it uses its own strategy. This strategy revolves around whether a company makes use of future-proof technology to create a positive impact for businesses, society and the environment.
An accepted topic
Reto Ringger illustrates this approach by talking about the automotive industry: ‘We don’t use the best-in-class approach, which would see us invest in the car manufacturer that tops the table for sustainability. We think about what mobility will look like in the future, what technologies and components it would need, and what companies are leading the pack on that front. And then we invest in those companies. For example, they might be manufacturers making batteries and sensors.’ The initial resistance against sustainable investing has now been overcome. Today, it’s an accepted topic; one could even go so far as to say it’s become popular. Sustainability is a key concern for the younger generation, in particular: they refuse to invest in portfolios that do not take these criteria into account. But for Reto Ringger, something else takes centre stage: ‘There are lots of opportunities. Our world is changing at an ever-increasing pace and there is no shortage of opportunities linked to technologies and services that will ensure we’re fit to face the future,’ he says, ‘and, of course, their returns are nothing to sneeze at, either.’
Sustainability generates returns
Everyone agrees that customers wouldn’t accept anything else. ‘Apart from a very small number of exceptions, our customers are not willing to sacrifice performance,’ says Gerhard Wagner from ZKB. ‘And they don’t have to.’ In his eyes, there is no doubt that competitive performance is fundamental to ensure that there is demand for sustainable investments. Sabine Döbeli makes reference to an array of academic and practical studies that confirm that taking ESG factors into account improves investments’ risk-return profiles across all kinds of asset classes and regions. According to Wagner, the underperformance of sustainable funds was caused by a lack of diversification. Previously, sustainable environmental funds were overweighted in environmental companies based in the German-speaking world, with differences becoming apparent when the US market outperformed them.
Charities bear responsibility
The topic is becoming ever more important for charities, too, observes Christian Kobler: ‘When we launched, we didn’t have a single charity as a customer. Now, they’re an important customer group for us: they want to exercise their responsibility for the assets given to them by their donors and benefactors.’ Sabine Döbeli recognises the potential here. For the first time, charities are responsible for one percent of the volume recorded by SSF’s market study. As society becomes more interested in contributing actively to meeting climate targets, the pressure on charitable foundations will also increase, Sabine Döbeli predicts: ‘As tax-exempt organisations, they bear particular responsibility when it comes to attaining societal goals.’ The Swiss Foundations Code says as much: ‘Everything a charity does needs to be seen as a whole. Their activities (both giving out funding and managing their money) all come together to exert an overall impact. As a result, a charity cannot just focus on maintaining its wealth and generating returns: it should aim to make an impact on other levels. Purposeful investments and sustainable investments are the primary ways to achieve this.’