The Flags for the Earth project run by the design collective Postfossil is based on the 17 Sustainable Development Goals within the UN’s 2030 Agenda. Fifteen graphic artists from around the globe were invited to design a flag based on these environmental goals, with the project supported by the IKEA Foundation. Photo: Philipp Hänger

Good returns – and a clear conscience

Sustainability is becoming one of the key criteria that play a role in shaping investment strategies, with the amount of sustainably invested assets skyrocketing. According to a market study carried out by Swiss Sustainable Finance, 21 percent of assets in Switzerland are currently managed in line with sustainable principles.

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.’

SFF Market Study

Swiss Foun­da­tion Code

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