As a systematic asset manager that recognizes its responsibility towards its stakeholders, the environment and society, and implements this in its behavior and investment approach, we decided in 2017 to systematically integrate sustainability into the investment process.
Our risk-based portfolio optimization and the inclusion of sustainability criteria are the two essential components of our investment concept. While the characteristics of our investment style remain, the sustainability profile of the portfolios improves. Sustainability also reduces transition risks in the transition to a low-carbon economy and strengthens the quality of the portfolio.
Why is sustainable investing important for us?
Investing in sustainable companies is no longer a passing trend these days. We are convinced that it is important to pay attention to sustainability criteria when investing. In this way, we can contribute to a sustainable economy and create good living conditions for future generations.
Sustainability criteria can be integrated into our investment process without compromising returns. We have analyzed this topic in our research note «Minimum variance and sustainable investments: a harmonious relationship».
How does the integration of sustainability criteria in our investment process work?
We have integrated sustainability at two levels of our equity investment process. In the first step of our investment process, companies that violate basic norms and minimum ESG standards are excluded. In the subsequent portfolio optimization, companies with better sustainability ratings and a better carbon footprint tend to be preferred. We use data from MSCI ESG Research, a global leader in sustainability, as the data basis for this.
What does sustainability according to ESG entail?
ESG is an acronym made up of the English terms Environment, Social and Governance. These three aspects provide the framework for the consistent assessment of companies.
Environment
Climate change: CO2 emissions, ecological footprint
Natural capital: biodiversity, resource depletion
Pollution and waste: toxic emissions, waste related to products
Environmental opportunities: renewable energy, sustainable construct
Social
Human capital: development, management, health and safety
Product responsibility: safety, quality, data protection
Dealing with stakeholders: controversial extraction of raw materials, relationship with population
Social opportunities: access to finance, health care or communication channels
Governance
Corporate Governance: independence of the board of directors, transparency on compensation and ownership.
Corporate conduct: Business ethics, tax transparency
Which sustainability guidelines are implemented?
When selecting the investment universe
In a first step, we filter out companies that violate basic standards. Based on recommendation lists from external organizations, we therefore exclude companies that
do not comply with the UN Global Compact Principles,
are recommended for exclusion by SVVK-ASIR (Swiss Association for Responsible Investment),
are involved in serious controversies according to MSCI ESG (MSCI Controversy «Red Flag»),
violate the minimum standards of the «International Labour Organization» (core criteria),
violate the «Guiding Principles on Business and Human Rights».
In addition to normative criteria, exclusions are based on rating or business activity. These include companies that
have an MSCI ESG rating of «CCC» (lowest rating),
produce nuclear or controversial weapons (e.g. cluster munitions, anti-personnel mines),
generate a significant proportion of their sales from firearms ("significant" means more than 5% for producers and 10% for retailers),
generate more than 10% of their sales from thermal coal and/or oil sands (if sales are less than 10%, the company may not exceed five times the benchmark weight).