Socially Responsible Bond Investment TBLI Conference, Frankfurt, Nov. 2–4, 2005 Eckhard Plinke Bank Sarasin & Co Ltd.
May 21, 2015
Socially Responsible Bond Investment
TBLI Conference, Frankfurt, Nov. 2–4, 2005
Eckhard PlinkeBank Sarasin & Co Ltd.
September 2005Sustainable Investment 2
Socially Responsible Bond Investment
TBLI Conference, Frankfurt, Nov. 2–4, 2005
Eckhard PlinkeBank Sarasin & Co Ltd.
September 2005Sustainable Investment 3
Agenda
1. Bank Sarasin & Co. Ltd
2. Investment Style in Germany – Fixed Income is important
3. Socially Responsible Bond Research at Sarasin
4. Summary
September 2005Sustainable Investment 4
1. Bank Sarasin & Co. Ltd
1. Bank Sarasin & Co Ltd.
September 2005Sustainable Investment 5
• Swiss Private Bank, founded in 1841
• Specialised in asset management, private banking and trading
• Approx. € 35bn assets-under-management
• More than 1,140 employees
• Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Luxemburg, Munich, Paris and Singapore.
AssetManagement,
Products & Sales
Trading &Logistics
Private & Institutional
Clients
Bank Sarasin & Co. Ltd
September 2005Sustainable Investment 6
Bank Sarasin & Co. Ltd:Your „Center of Competence“ for Sustainability
• More than EUR 1.6bn sustainable assets-under-management.
• One of the largest managers in continental Europe
• Independent
• More than 15 years of expertise in sustainability research and asset management with a stable team
• 17 international and interdisciplinary professionals with an average of 13 years of job experience
• Broad product range
• Proprietary database and rating system with information about around 900 companies and 170 additional bond issuers
September 2005Sustainable Investment 7
1. Bank Sarasin & Co. Ltd
2. Investment Style in Germany – Fixed Income is important
September 2005Sustainable Investment 8
Asset Allocation in Germany: Bonds most important
Others6%
Bonds62%
Equities32%
Institutional Investors („Spezialfonds“) 2004
(analysed 427 bn EUR out of about 530 bn EUR)
Source: Handelsblatt, 9.12.2004
Retail Funds 2005*(418 bn EUR)
Equity Funds37%
Others18%
Bond Funds39%
Balanced Funds
6%Source: BVI 2005
*) excluding Real Estate Funds
September 2005Sustainable Investment 9
SRI Funds: Focus on Equities (traditionally)
Equity Funds71%
Bond Funds13%
Balanced Funds16%
Source: Bloomberg
Retail SRI Funds Germany 2005
(98 funds)
Equity Funds45%
Others8%
Bond Funds35%
Balanced Funds12%
Source: BVI 2005
Retail Funds Germany 2005
(2392 funds)
September 2005Sustainable Investment 10
1. Bank Sarasin & Co. Ltd
3. Socially Responsible Bond Research at Sarasin
September 2005Sustainable Investment 11
Bonds – Variety of Issuers
Bonds Sarasin SRI Research
Corporate Bonds Company Ratings
Government Bonds Country Ratings
Institution Bonds Institution Ratings
Asset Backed Bonds „Pfandbrief“ Ratings
Traditional Focus of SRI
September 2005Sustainable Investment 12
Sarasin Sustainability Matrix®: Common Frame
September 2005Sustainable Investment 13
Company Rating: Example Unilever
Sustainability Assessment: Companies
September 2005Sustainable Investment 14
Country Rating: Philosophy
Sustainability Efficiency
Sustainability Level
e.g.:• per capita CO2 emissions• unemployment rate
Low impactHigh impact
Low
High
e.g.:• $ GDP per MJ energy
consumed• Public health per $ of
health care expenses
Industrialisation
Dematerialisatio
n
Developing Countries
Industrialised Countries
“Sustainable”Countries
Road to Sustainability = Efficiency Increases:
• Environment: Decoupling material welfare – environmental impact
• Society: Decoupling quality of life - material welfare
September 2005Sustainable Investment 15
Country Rating: Coverage and Grouping
Group Rated Eligible for SRI
Core OECD Countries (high credit ratings)
21 13
Emerging Countries 46 15
Grouping according to credit rating:
September 2005Sustainable Investment 16
Su
sta
ina
bil
ity
Eff
icie
nc
y
Air / Climate
Water
Energy
Waste
Institutional Frame
Health
Education
Cohesion
Income
Public Debt
Foreign Affairs
Su
sta
ina
bil
ity
Le
ve
l
0.0 1.0 2.0 3.0 4.0 5.0
Biodiversity
Air / Climate
Water
Soil
Energy
Waste
Personal Stress
Marginalisation
Human Rights
Country Rating: Example Sweden
Sustainability LevelS
us
tain
ab
ilit
y E
ffic
ien
cy
low
hig
h
low high
Sarasin Sustainability-Matrix®
Sweden Average of analysed countries
Sustainability Assessment: Countries
September 2005Sustainable Investment 17
Country Rating: Example PR of China
PR of China Average of analysed countries
Sarasin Sustainability-Matrix®
Su
sta
ina
bil
ity
Eff
icie
nc
y
Sustainability LevelS
us
tain
ab
ilit
y E
ffic
ien
cy
low
hig
h
low high
Air / Climate
Water
Soil
Energy
Institutional Frame
Health
Education
Cohesion
Income
Public Debt
Foreign Affairs
Biodiversity
Air / Climate
Water
Soil
Energy
Personal Stress
Marginalisation
Human Rights
Su
sta
ina
bil
ity
Le
ve
l
September 2005Sustainable Investment 18
Public Financial Institution Rating: Principle
high
low
Sustainability Level(Environmental and social compatibility of the institution’s mandate)
highlow
Sustainability Efficiency(Sustainability of the institution in performing its mandate) Sarasin
Sustainability-Matrix®
September 2005Sustainable Investment 19
Institution Rating: Example KfW Bankengruppe
Sustainability Level
Su
sta
ina
bil
ity
Eff
icie
nc
y
September 2005Sustainable Investment 20
„Pfandbrief“ Ratings: Principles
Type of „Pfandbrief“ Collateral Rating Approach
Public (Öffentlicher Pfandbrief)
Government Bonds Average country rating of the government bonds in collateral stock
Mortgage (Hypotheken-Pfandbrief)
Mortgage/Real Estate
Rating of the banking group behind
Basic Principle: Rating of the collateral (“where the money goes”)
September 2005Sustainable Investment 21
Rating of Public Covered Bonds: Example
Germany60%
Austria4%
Japan1%
USA3%
Spain8%
Italy10%
Belgium14%
• Rating: Average rating (“center of gravity”) within the area of the Sarasin Sustainability-Matrix® eligible for investment
• Exclusion Criteria: USA (3%) und Japan (1%) are excluded (limit: 10%)
this public covered bond would be eligible for investment
Collateral
September 2005Sustainable Investment 22
Sustainability Assessment of Mortgage Covered Bonds
• Rating of the banking group which the issuer of the bond belongs to (e.g. Eurohypo > average of Deutsche Bank, Commerzbank, Allianz )
• Kind of real estate is taken into account: financing of residential real estate is principally regarded as being unproblematic; financing of real estate for critical businesses (e.g. defence) is taken negatively into account
• Special conditions for an environmentally friendly construction etc. are taken positively into account
September 2005Sustainable Investment 23
1. Bank Sarasin & Co. Ltd
4. Summary
September 2005Sustainable Investment 24
Summary
• Fixed Income is the most important asset class for German institutional investors, while SRI has focussed on equity investment
• Variety of bonds requires variety of SRI assessment approaches (rating methods) > quite sophisticated and extensive SRI research
• What is SRI in bonds good for?:- Contribution to Sustainable Development (can have a more direct
impact than equity investment, e.g. development agencies)
- Reduction of financially relevant risks (e.g. link between social imbalances, indebtedness of countries and default risks of government bonds)