Bank Sarasin has made its sustainable investment strategy the core programme for its private-banking clients because it has found performance has been superior to its traditional investment portfolio.
Andreas Knörzer, Basel-based managing director and head of sustainable investment, says this switch, in which investors need to 'opt out' of the sustainable investment portfolio rather than choose to use it, has become a cornerstone of the bank's business-development efforts among high-net-worth individuals as well as institutional investors.
It is an approach that works well in the bank's core European markets such as Switzerland and Germany. It requires more explanation in Asia, Knörzer acknowledges. But for the past several years, the sustainable portfolio has added 0.3-0.6% of additional return each month, on European and US equities.
The bank has two investment centres, one in London running traditional or 'classic' investment portfolios in equities and fixed income; and one in Basel for investments geared around themes of sustainability, which can include environmental and social factors.
Knörzer says in the case of equities, this is not just a matter of excluding certain types of companies from the investing universe, but embedding certain values in the whole process. "We want to make alpha because of a focus on sustainability, not despite it," he says.
The driver of performance remains active research to determine companies that are fit for future growth -- by having invested already in moves towards eco-friendly technologies or an era of higher regulation, and therefore don't need to expend current cashflow to catch up.
On the credit side this also means avoiding borrowers that aren't deemed fit, which is why Sarasin's sustainable investment team avoided the US auto sector, which it deemed was operating a flawed, short-term business model based on gas guzzlers and mediocre technology. Knörzer's point is that companies that address issues of sustainability are likely to be sharper and have a long-term vision, which translates into a competitive advantage.
This track record is now allowing Sarasin to launch new products such as one covering sustainable themes in real estate, which combines the knowledge of the London team's property analysts with the Basel team's ability to research sustainability themes. A convertible bond product may be next.
Knörzer says in Asia the bank has found it often needs to change the discussion from 'sustainability' to thematic ideas such as a water fund or an energy fund.
Like most private banks operating in Asia, Sarasin has found itself more often broking transactions than being mandated for long-term advice. Knörzer hopes to use its recent shift in investing to create a more attractive proposition for Asian clients.
Currently the bank manages SFr79.9 billion ($76.9 billion) as of June, of which SFr10 billion is in the area of sustainability. Of that, two-thirds is on behalf of institutional investors. The sustainability portfolio for private individuals is only SFr3.6 billion of the total -- but it has been rising quickly since Sarasin introduced its new strategy, from only SFr1.8 billion a mere six months ago. That gives the bank reason to hope this initiative can pay off in Asia as well as in Europe.