A decade on, sustainable funds are flourishingOctober 2008
Bank Sarasin has put sustainability close to the heart of its investment approach. The Swiss private bank is using the investment theme in a effort to differentiate itself from the competition, says Mike Scott
‘Sustainability goes through everything we do’, says Eckhard Plinke, head of sustainability research at Bank Sarasin, the Swiss private bank founded in 1841. ‘Sustainable investment not only makes sense from a social and ecological perspective, but can be financially rewarding as well.’
The bank, which believes that ‘sustainability differentiates it most effectively from the competition’, has an active investment approach based on its own research and a rating system that classifies different companies and sectors according to environmental and social criteria. These ratings do not preclude it from investing in high impact sectors, but the thresholds companies must surpass to be considered are higher in ‘the most problematic sectors’.
The net result, Plinke says, is that the bank’s sustainable funds are underweight in sectors such as cars, chemicals, metals and utilities and overweight in sectors that provide solutions such as renewable energy.
The company says it has been researching sustainability issues with regard to the companies it invests in since 1989. ‘The bank first became interested in this area because of the Chernobyl disaster and a big pollution spill in Basel that happened at about the same time’, Plinke says.
‘Lots of clients were invested in the company involved and asked us about the spill’s impact on their shares. That was the trigger for us to take an interest in these topics.’
Since 1994, Sarasin has run funds based on the concept of ‘eco-efficiency’. Today, it manages client assets of SFr7.8billion ($7.2bn, €4.9bn, £3.9bn) in accordance with sustainability principles – a 16 per cent rise on last year – looked after by a dedicated business unit, Sarasin Sustainable Investment. The 25–strong team, including eight dedicated sustainability analysts and eight portfolio managers, focuses on research rather than engagement, but ‘we have contact with companies during our assessment process, so we have the opportunity to raise issues that are important to us’, Plinke says.
The group is integrating the equities team with the asset management department of its sustainable finance unit. ‘The reason for this is to bring the bulk of the assets managed by the equities team in Switzerland into line with our sustainable investment concept’, Sarasin says.
The investment process starts with the range of industries that are excluded. Along with commonly applied exclusions such as nuclear power, armaments, tobacco and pornography, Sarasin also rejects companies involved in the manufacture of chlorine and agrochemicals, as well as genetically modified organisms. Companies are rejected if any of the exclusion criteria make up more than five per cent of their business.
In addition, it excludes from its sustainable bond funds countries that enforce the death penalty or that have atomic, biological or chemical weapons with no disarmament plans.
It has introduced, with Deutsche Borse, two sustainability indexes – the DAXglobal Sarasin Sustainability Germany Index, which replicates the performance of sustainable companies domiciled in Germany, and the DAXglobal Sarasin Sustainability Switzerland Index, consisting of the shares of companies in Switzerland. The group also has a range of ‘classic’ sustainable products that invest in companies which meet the criteria of eco-efficiency and take into account the interests of their stakeholders.
However, thematic investment is likely to become more important in years to come, Plinke says. The bank has funds based on water, renewable energy and energy efficiency and it may introduce further products based on sustainability themes. It launched its fund themed on energy efficiency in 1994. Plinke says that thematic funds offer the potential for better performance, but are also higher risk than conventional investments.
The sustainable finance unit is a key focus for Sarasin, Plinke says. ‘One of the oldest sustainable investment units in Europe, it is growing faster than the rest of the bank and is important for our whole strategy. We want to develop it further.
‘Clearly there have been major market upheavals recently, but in this situation, individual companies will shine. Our socially responsible investment rating should identify those companies best-placed to benefit from drivers such as climate change, the high price of oil, globalization, outsourcing and restricted availability of natural resources.’
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