Sustainable development: A good investment strategy
“If you have certain convictions in your personal life, you also apply them to your professional life.”—Ivan Pictet
Ivan Pictet Senior Managing Partner, Pictet & Cie
Sustainable development is no longer just an idea or a marketing ploy. For many, it’s a viable way to invest their money. For Ivan Pictet, it’s the way.
In a recent article written for The Guardian, Klaus Schwab wrote: “There is a real danger that the financial and economic crisis will develop into a social crisis. Difficult times lie ahead. If we want to keep society together, a sense of community and solidarity are more important now than ever before.”
As readers of Swiss Style know, Schwab is the founder and executive chairman of the World Economic Forum. But this isn’t the only thing he’s known for. About 40 years ago, Schwab developed the “stakeholder” theory for businesses. Ring a bell?
According to his theory, the management of a business ought to act on behalf and in the interests of all stakeholders and not just the company’s shareholders. According to Schwab, the theory is based on the idea that each individual is embedded in societal communities in which the common good (and the success of a business, for that matter) can only be promoted through the interaction of all participants. In his article, Schwab attributes part of the economic recession to what he calls an erosion of the communitarian spirit. “Instead of a communitarian sense of duty,” he writes, “there is a rise of individualistic profit-seeking behaviour in which society plays only a secondary role.”
In line with the theme of this year’s World Economic Forum Annual Meeting – “Rethink, Redesign and Rebuild” – Schwab’s article is a call for a fundamental shift in how we develop our morals, our ethical norms and the regulatory mechanisms that underpin the economy, politics and global interconnectedness.
Answering the call
One man answering Schwab’s call is Ivan Pictet, senior managing partner at Pictet & Cie, one of Switzerland’s largest private banks. Pictet is also, among other things, a member of the Foundation Board of the World Economic Forum and the vice-chairman of the Global Humanitarian Forum. He also chairs the Geneva Financial Center Foundation.
Like Schwab, Pictet is wary of implementing policies that focus on the short-term in the hope of maximizing profits and shareholder value.
“As long-term stewards of our clients’ capital,” he says, “we cannot afford to take short-term views or to ignore the eventual consequences of our actions, whether financial or personal.”
In view of this, Pictet Asset Management began looking at broadly diversified sustainable investment in 1997. In 1999, they launched a Swiss Sustainable Equities fund and, shortly afterwards, a European Sustainable Equities fund. In late 2005, they partnered with Ethos, a Swiss socially responsible investments (SRI) foundation that promotes SRI investment and corporate governance services, to manage socially responsible investment for institutional investors. Today, Pictet Asset Management manages over EUR 1.7 billion in global SRI assets, on top of some EUR 7 billion in environmental-related theme funds. This is less than 3% of the total assets managed by the Group.
“So far, everything that relates to the environment or to sustainable development has been looked at as a constraint which reduces the return on investment,” Pictet says. “I think that the short-sightedness of business, which has been flagrant in this recent crisis, is going to move more and more toward management being more sensitive to the long-term advantages of sustainable development.”
The sustainability approach
Pictet & Cie define sustainability as economic activity that meets the needs of the present generation without compromising the ability of future generations to meet their own. Their SRI portfolios are aimed at meeting their client’s financial needs, as well as their concerns about social, environmental and governance issues.
Pictet & Cie’s approach to managing SRI portfolios is a “best-in-class” one. Rather than make global exclusions or apply negative screenings, they prefer to do positive screenings by selecting companies with high sustainability ratings.
“Among the public institutions, apart from the Dutch and some of the Scandinavian pension funds, very few apply a sustainability approach,” Pictet says.
“At Pictet, we offer our clients the possibility to have a degree of sustainability in their portfolio. In his tailor-made portfolio, the client chooses himself the exact level of SRI constraints he is willing to accept.”
Pictet & Cie says they do not claim that investing in sustainable development leads to better performance. What they do say is that they are, through SRI, able to create portfolios that achieve a high sustainability rating by providing their clients with portfolios that incorporate the maximum sustainability for a given level of risk relative to the client’s benchmark.
Having said this, Pictet believes private banking is more sensitive to the issue of sustainability than institutional investors because their clients are often more willing to sacrifice some of their profit for the long term and for the greater good. But, Pictet stresses, at the end of the day, it’s still the client’s decision to invest in sustainability or not. “I think the critical issue is that you cannot force a vision,” he says. “You can just try to make people more sensitive to it.”
Supporting the cause
Pictet & Cie, together with The Financial Times, developed and sponsors Prix Pictet, an annual photography competition that focuses on social and environmental issues. “The competition not only gives photography expression,” Pictet says, “but more importantly, through pictures you can make people much more sensitive to the issues.” In 2008, Benoit Aquin, a Canadian, was awarded the first Prix Pictet; the 2009 prize winner was Nadav Kander, an Israeli photographer.
In addition to the competition, each year one of the shortlisted nominees is offered the Prix Pictet Commission to photograph a sustainability project supported by Pictet & Cie.
In 2008, the competition’s inaugural year, Pictet supported the Chittagong Hill Tracts Water Project in Bangladesh, which is managed by UK-based charity, WaterAid. The project seeks to provide water, sanitation and hygiene education to communities in the area.
In 2009, the bank supported eco-charity, Azafady, and their work in Madagascar. The charity works with communities in the country to improve their living standards and quality of life while at the same time raising awareness of and respect for the fragile local environment.
As a further example of the bank’s commitment to sustainability, their head office in Geneva has been designed to optimize environmental, social and working conditions. The CO2 emission per employee does not exceed 1.8 t/year and if, after an annual audit, Pictet’s total CO2 emissions are higher than their target, they compensate by purchasing CO2 certificates. In addition, financial incentives exist to encourage employees to use public transport rather than their own cars whenever possible. At Pictet & Cie, it appears, everyone walks the talk. Literally.
For Ivan Pictet, it doesn’t make sense to focus on the short-term as it could have disastrous consequences for the global economy (which, of course, it has!). Rather, like Schwab, he believes the focus should be on the long-term and that sustainable development – by promoting a more stable and sustainable overall economy for companies, investors and societies alike – not only makes sense on a normative level, but it’s a good investment strategy.
Article by Alinka Brutsch
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