"We want to make a difference."
Responsible investing. Sustainability in financial investments has long ceased to be a niche issue. As demand grows, so does the demand from investors for implementation. Pictet Bank's Wealth Management has therefore developed a system that enables it to meet the individual values of its clients.
"Sustainability is much more firmly anchored in investors' minds today than it was ten or 20 years ago," says Armin Eiche. "I hear more and more: My capital should only be invested where the companies act in accordance with my own convictions. They must not harm society. But to bring the world forward.'"
The CEO bei Pictet Wealth Management in Germany continues to explain that wealthy customers often have very concrete ideas. "The great art is to really do justice to these individual requirements in consulting."
The statistics of the Global Sustainable Investment Alliance (GSIA) underline that this sector has meanwhile become a genuine growth market. According to the study, socially responsible investments (SRI) totalled almost 23 trillion dollars by the end of 2016. Every year, this market grows by almost twelve percent.
This topic is particularly important for younger people. A recent study by the private bank US Trust shows that 28 percent of the Millennium Generation born between 1980 and 2000 already have investments that are geared to sustainability criteria. A further 57 per cent show strong interest in it. "Eiche is convinced that the generational change will further promote this investment trend.
Particularly in view of the perceptible consequences of climate change, investors are increasingly interested in the role von Aktiengesellschaften plays in environmental and climate protection. "But aspects such as child labour, management remuneration or gender equality are also questioned", erläutert Eiche.
An important driver of this trend is also the now widespread recognition that sustainability does not mean a disadvantage in terms of return on investment. On the contrary. In a recent study, Morningstar, an analyst firm, examined the results of various meta-studies, which in turn compiled all the facts on the subject. Ergebnis: Those who invest according to common ESG criteria - Environment, Social, Governance - perform just as well in the long term as with comparable indices without a sustainability touch. The risks in the form of price setbacks can even be significantly reduced.
"Siller, Head of Portfolio Management at Pictet Wealth Management in Germany: "Investors who base their investment approach on sustainability criteria perform better in the long term when risk-adjusted."
This result can also be justified logically. "On ersten Blick it may not seem so important whether a company treats and pays men and women equally," explains the expert. "But in the fight for talent and skilled workers, which is already being fought out very intensively in certain areas today, this point can be decisive. The better a company deals with its employees, the greater the chance of getting the best employees. And that, in turn, can have a positive effect on business in the long term."
Such interrelationships are now present among many investors. However, as their interest grows, so do the demands placed on consulting. "Sustainability is a very broad field. Behind this are the unterschiedlichsten Zielvorstellungen, which then each require a completely different strategy," explains Eiche.
One requirement could be, for example, to bring capital investments in line with the customer's values. "Then it's all about the exclusion of certain companies - no armaments, weapons, animal experiments, pornography - and behaviors - discrimination, corruption, working conditions," Siller explains.
Those, on the other hand, who aim above all for higher risk-adjusted performance will regard sustainability research as an integral part of corporate analysis - on an equal footing with the conventional facets of financial analysis. "It is then a matter of filtering out all those companies that are not only convincing in terms of turnover and profit prospects. But also behave responsibly with regard to the environment, society and their business practices. Thus the risk can be reduced that it comes for example to reputation-damaging scandals, which could impair again conversion and profit negatively , erklärt der Portfolio manager.
A third motivation could be to change the world. Investors then want to use their capital to make a targeted positive impact on society or the environment. "This can be achieved by investing in stocks with special technologies. Or - even better, because it is diversified - by investing in corresponding theme funds. A third way are so-called Impact Investments, which offer beside finanziellem Ertrag also still another social net yield , summarize Achim Siller. These include microfinance investments and green bonds, which allow investors to invest directly in projects that have a positive impact on the climate.
This requires special qualities from a bank advisor. "In order to be able to grasp the goal of a customer exactly and to be a adäquater Sparringspartner, it must be deep im Thema . He must be able to listen well and take a lot of time", erläutert Eiche. "Ultimately, it's about a whole new direction in wealth management," adds Siller. "Because in order to be able to implement the specifications optimally, a profound systematic analysis approach is required."
Bankhaus Pictet has a great advantage in this: "We have been dealing with this topic for a very long time." In 1999, for example, the Pictet-Ethos Swiss Sustainable Equities fund was launched on the market. Ein Year later the Pictet-Water Fund followed. "This has enabled us to build up enormous in-house expertise that can now also be used in wealth management," Eiche makes clear.
The consulting approach is based on integrating the sustainability analysis into the entire research process. To assess the three areas of environment, social affairs and governance, Pictet's experts draw on data from external providers. "On this basis, we then create an overall sustainability scoring for each company and arrive at a sustainability ranking for all companies in an index or investment universe," explains Siller. The higher up a company is in the ranking, the more sustainable and attractive the stock is.
This sustainability analysis is carried out in parallel with the financial analysis, which deals with criteria such as earnings prospects or balance sheet quality. "This enables us to sort out very early on all companies from the investment universe that do not meet our quality standards - either in terms of financial ratios or ESG analysis. And we have a perfect tool to explain to the customer why the title in question fits his or her objective - or not," continues Siller.
It's an elaborate process. In total, Pictet Wealth Management's experts observe a universe of 400 shares. "But it's worth it."
Even this does not have to be the end of the process. "We can also exert pressure directly on individual companies", erläutert Siller. The theme of activism has long been present in the Bank's funds. There the management appears at the Annual General Meeting or is in constant dialogue with the company bosses in small groups. And work on getting companies to improve on the various sustainability criteria as part of a commitment process.
Implementing similar measures in wealth management is still difficult today, as voting rights are assigned to individual clients. "However, it would be attractive to be able to move even more by bundling the voting rights. We'll think about it," promises Armin Eiche. After all, it is the express wish of customers to achieve something positive with their capital investment. "So we should use the power of the capital entrusted to us accordingly."
Investors solve problems - the example of nutrition.
"In 2050, around nine billion people will live on earth, almost 30 percent more than today," recalls Achim Siller, Head of Portfolio Management for German Clients at Pictet Wealth Management, and asks: "Where can we get 30 Prozent more food from? Without sustainability in the production, transport and processing of food, we will hardly be able to do this."
Nutrition is obviously a growth segment that can also be interesting for investors who want to make their investments sustainable. According to a United Nations study, US citizens consume about 75 percent less vegetables than the World Health Organization (WHO) recommends, but about 70 percent too much sugar. This poor diet is leading to affluent diseases such as obesity and diabetes in the industrialized countries and increasingly also in the emerging markets. The effect on the economy: According to estimates by the McKinsey Global Institute, these diseases are likely to reduce growth prospects by 18 percent in OECD countries alone by 2035.
At the same time, the cultivation of food today is extremely resource-intensive. Agriculture accounts for about 70 percent of global water consumption. At the same time, it is responsible for 30 percent of global greenhouse gases, including methane, a climate-changing gas produced by cattle and cows during digestion.
In addition, there is an inefficient supply chain, which means that about 31 percent of the food or 1.3 billion tons are lost or rotted during transport and do not end up on the plate.
"Reinventing agriculture is an exciting task for the future. Companies that offer innovations in these areas should face a significantly increasing demand for their products, technologies and services in the future," says Siller, explaining the investment idea.
In view of the diverse challenges, the spectrum of investment opportunities is naturally also very broad. A profiteer, überlegt Siller, could be Trimble Navigation, world leader in precision agriculture. The company's technology enables crops to be grown with greater resource efficiency than conventional methods and could help reduce water consumption.
Another example is the company Chr. Hansen, worldwide market leader in the production of milk product enzymes, cultures and natural colour solutions. "The idea is that producing healthier foods could help us tackle the growing problem of obesity," erklärt Siller.
Sometimes the expert comes across companies in his research that have nothing to do with nutrition until zweiten Blick. One such is Rational, the manufacturer of professional kitchen equipment. "The use of Rational equipment in canteen kitchens reduces the waste of food in food preparation.
These are just three examples out of many. However, they show how broad and diverse the debate on the subject of nutrition alone can be," concludes Siller. "In our database we still have at least 150 companies that could also be interesting. So a well diversified and promising portfolio module can already be put together. Investing in these companies helps to solve the problems of a growing world population through a more unhealthy diet. So capital can make a real difference."
Pictet & Cie (Europe) S.A.
Neue Mainzer Strasse 1, 60311 Frankfurt, Germany
group.pictet; Tel.: 069/7950090