Sustainable Investing with OLZ – Latest developments

What was still a niche market five years ago has developed into a broad customer need and a growing market. In the beginning, institutional investors with a clear sustainability focus (e.g. ecological or social foundations) were mainly interested in ESG (Environment, Social, Governance) products, but over time the circle of interested parties has become larger and broader. In the meantime, hardly any pension fund, insurance company or government institution can ignore the topic of sustainability, and sustainable investments are also finding increasing favor with private investors. The trend clearly does not end with organically grown vegetables on the plate, an electric car in the garage, or solar panels on the roof: sustainability is increasingly being viewed in a more comprehensive and holistic way.

In 2017, OLZ supplemented its risk-optimized investment approach with clear and binding ESG rules for all in-house products. We were thus among the pioneers in what was then still a young market. Since then, not only the market but also our sustainability policy has evolved. In the coming months, we would like to introduce you to the evolution of our ESG criteria and their integration into the OLZ equity strategies in a new blog series «Sustainable Investing with OLZ»:

• Latest developments

• Stricter exclusion criteria and their backgrounds

• More sustainability thanks to portfolio optimization

• Introduction of Proxy Voting

Situation 2017 – ESG 1.0

For five years now, our proven investment concept based on diversification and risk minimization has also included the aspect of sustainability. This is done at two levels of the investment process: in the selection of the investment universe and in portfolio optimization.

Selection of the investment universe

When defining the investment universe, we apply clear exclusion rules for all companies. This means that companies that fail to meet fundamental sustainability criteria never find their way into our portfolio. We use the sustainability ratings of MSCI, a leading global data provider in the field of sustainability. We also follow the exclusion recommendations of the Swiss Association for Responsible Investment (SVVK-ASIR) and exclude companies that do not meet the criteria of the UN Global Compact.

ESG Portfolio Optimisation

As part of portfolio optimization, our model takes into account not only investment risks but also the sustainability of companies. This is measured with the MSCI ESG Scores. The ESG Score evaluates the sustainability of an individual company in the three dimensions of environmental, social and corporate governance. Companies with comparatively better scores are given preference in portfolio optimization, so that the OLZ portfolio is aggregately more sustainable than the respective market index.

With time came the possibilities

Since then, as demand from customers has increased, a lot has also happened in the field of sustainability research. Data availability and coverage, which were relatively low in some markets just a few years ago, have greatly improved. Data is also now much more in-depth. With broader and deeper data availability, new opportunities are now available. This also makes it clear that our ESG integration into the investment process is not a static concept, but one that is subject to constant further development.

Latest developments – ESG 2.0

The further development of our ESG integration took place on several levels and improves the sustainability profile of our equity funds. The essential characteristic of our investment strategy, minimum risk, remains unchanged.

As part of the selection of the investment universe, we have supplemented the previous exclusion criteria and now additionally exclude companies that ...

• violate the minimum standards of the «International Labour Organization» (Core Criteria) and the Guiding Principles on Business and Human Rights

• produce nuclear or controversial weapons (e.g. cluster bombs)

• generate significant sales of civilian firearms

• generate more than 10% of their sales with power plant coal and/or oil sands

We also tightened sustainability requirements in the portfolio optimization process. For the OLZ portfolio, we are now aiming for a higher weighted ESG score than in the benchmark. The level of the deviation is based on the ESG rating of the benchmark: The worse the benchmark performs, the higher the relative increase in our ESG score must be.

But it is not only the ESG score that has improved compared to the benchmark. We are now also taking into account the CO₂ emissions of the companies in our equity funds and are aiming for a 30% lower CO₂ footprint compared to the market index.

Sustainability as a holistic approach also means that our efforts do not end with the revision of our product range. Since January 2022, OLZ has been an official signatory to the «UN Principles for Responsible Investment», demonstrating its commitment to a sustainable orientation in its investment policy and business. As part of this signing, OLZ is developing its own sustainability strategy at the corporate level and is preparing to exercise active voting rights at general meetings at the product level.