Ethical Performance
inside intelligence for responsible business
 

investment

attracting the interest of institutional investors

January 2008

A long track record of assessing companies on sustainability criteria has enabled Swiss bank ZKB to win new institutional business, Robert Hauser tells Mike Scott


SRI and Swiss banks do not, at first glance, seem like natural bedfellows - but sustainability is gaining traction, according to ZKB, the bank of the Canton of Zurich, which has one of the largest SRI research teams in Switzerland.

ZKB, the biggest cantonal bank, has about SFr50billion ($43bn, £21.5bn) of funds under management, about SFr1bn of which is in SRI assets. It is also a shareholder of Swisscanto, the Swiss Cantonal banks' joint venture for investment funds and pension services that manages more than SFr60bn and has a number of SRI funds.

ZKB's sustainability research department, one of the oldest in the business, dates back to 1996, when it started assigning ratings to equities and bonds according to ecological and social criteria, says sustainability research team head Robert Hauser. 'We started with a focus on retail investors, but it is now becoming more interesting for institutional clients - they have a long-term focus so they have to look at these issues,' says Hauser. The bank's municipal ownership helps legitimize the research because the canton has mandated ZKB to behave in a sustainable manner.

There has also been a change of attitude in the investment community. 'If they are not at least considering sustainability issues, [institutional investors] are neglecting their fiduciary duty, but this attitude has only taken hold in the last year.' Many institutions remain focused only on performance and think that exclusions, for example, are too risky. Nonetheless, the bank has been able to capitalize on the change in sentiment by launching new investment products and in 2007 the volume of all the assets covered by its sustainability research doubled to SFr4bn. That this is also a long term issue is supported by the fact that over the last nine years, the Swisscanto IF Eco Invest has outperformed the MSCI World Index by almost 40 per cent.

ZKB excludes companies involved in arms, tobacco, nuclear power, exploration and production of fossil fuels, automobile makers, airlines, genetic engineering and non-sustainable forestry. 'I think our environmental exclusions are stricter than in the UK or US markets,' says Hauser. 'Climate change is the biggest concern for Swiss people.'

The bank also takes a positive approach, seeking out industry leaders and innovators and investing in smaller firms whose 'products or services offer a marked ecological or social improvement over conventional ones'. They are found in such diverse areas as renewable energies (eg Vestas, Gamesa), water treatment (Kurita, BWT), energy efficiency (Techem) or food retailing (Whole Food Markets), and can rely both on their innovations and also on favourable legal or social conditions. 'One of the secrets of our success is the inclusion of innovators - they grow strongly. If you exclude a lot of companies, you need something else to provide growth', Hauser says.

The sustainability funds have a global focus but tend to favour Europe and Asia 'because there are not enough best-in-class companies in the US', says Hauser. 'We are always underweight in the US. There are lots of good companies in Japan, but Australia is difficult and China more difficult still.'





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