Good returns – and a clear conscience

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. 

Diffe­rent effects

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.’

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SFF Market Study

Swiss Foun­da­tion Code