The volatility of recent months has not called the fundamentals of sustainable investing into question. The decarbonisation of the economy, the energy transition or the growing need for drinking water do not depend on central banks’ monetary policy but on long-term trends. The case for investing in them is not undermined by short-term volatility. I would go as far as to say that ESG funds, which focus on better assessing, understanding and leveraging more robust corporate governance, should benefit from difficult market phases.
According to our analysis, the stock market performance of family-owned companies is very favourable in the long run because they have a longer-term vision than many others, so much so that in 2020 we launched an investment strategy along these lines.
The company of tomorrow must consider employees, customers, the environment and civil society.
We have therefore included additional criteria in our ESG analysis of companies. For example, we know that employee turnover varies across economic cycles and business areas, and we seek to avoid companies where it is unusually high. Companies with an employee turnover over 15% are renewing their human capital every six years. This results in a hidden but very significant cost.
The ‘shareholder’ model, focusing on the interests of the shareholder, is flawed. The company of tomorrow must consider employees, customers, the environment and civil society. ESG analysis seeks to include these complementary aspects.
Pictet’s roots in ESG management go back more than 20 years with funds investing in water and sustainable European equities. This range has continued to expand into other asset classes. The diversification of the offering has accelerated in recent years with the European SFDR classification. A year ago, we had converted 50% of our funds to meet the standards in Article 8 and Article 9. We are now at 75%.
Investor demand is very broad and heterogeneous, both in Switzerland and elsewhere. To meet this demand, we have developed investment strategies that favour securities that are not the best rated but have significant potential for ESG improvement. We engage with them actively to encourage them to transform. A good example is the German company RWE. Five years ago it was the nemesis of all ESG investors because it was Europe’s largest CO2 emitter.
If we wait until a company is 100% green, we may lose the opportunity to participate in a virtuous change dynamic
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