Lars Kalbreier
The feel good factor must be correlated with the performance in the long run. Otherwise we would be a charity
Andreas Knoerzer
Doing well by doing good. That would be the perfect world.
Regarding the whole performance question, this is a question that we are currently discussing for large clients. Does it naturally bring an underperformance or an out performance? I always have two slides when I give a talk, and I call that the multi-million dollar question. And the only thing I do is write down all the links to all the studies available published over the last couple of years. And then I say, ‘Okay, that is the work of the smart people in the universities, and now, let us talk about the real experience.’ At the end of the day, what we have to do is provide evidence that the real performance is okay. Therefore, I am a fan of start doing things. Just do it, start to build up the track record. There is even a chance of having a strong outperformance in my believe.
Lars Kalbreier
I think targeted thematic funds do well and tend to, in some cases, outperform the benchmark. So, instead of having to invest in the whole investment universe, you can really focus on and target much juicier bits. In fact, at Credit Suisse we have a core satellite approach, where in the core part, the focus is close to the benchmark and general markets. In the satellite part, the juicier bits are very much in the targeted thematic approach. Now, if you look at SRI as a whole, and if you just base yourself on sustainability criteria all of our back listings have shown that it is very difficult, from a statistically significant level, to show that high scores from an SRI perspective lead to outperformance – in 2006, we started doing a partnership with Innovest, a large sustainability ratings agency which rates more than 3,000 stocks on sustainability criteria. If you look at the t statistics and the tests you have, it is very difficult to make that argument. So, if you are talking in terms of the general market and you only invested around sustainability criteria without having this targeted thematic overlay, then it would be very difficult to make that case. That is why if you are really after alpha, you cannot invest using only sustainability criteria. You need to marry that with other approaches, which are more targeted.
Viktor Andersson
The Goldman Sachs Sustain approach basically proved that if you are in the top quartile on sustainability then you have higher sustained profits than if you are in the other quartiles.
Lars Kalbreier
Well, the interesting thing is, in the discussions that I had with them over many years, there was no suggestion of robustness in the back testing, implying that there was a significant outperformance.
Carlos Joly
My experience over 20 years, having initiated and implemented various approaches to integrating environmental, social and governance factors in investment management is that a mistake that is repeatedly made in the discussion as to whether there is outperformance or not, is to start with the assumption that there is an asset class in itself that guarantees outperformance, an asset class that is somehow defined by sustainability criteria. But that is no more true than the proposition that doing value investing will outperform or doing income investing is going to outperform. So much has to do with the quality of the investment process and so much has to do with the talent of the asset manager. A lot has to do with the geographic distribution and a lot has to do with currency, nowadays. You might find that the currency factor is very important to the performance, so simply to say that, ‘Does sustainability approach perform or outperform, per se?’ Is a false positing of the issue. I think what one can safely say is that in the hands of a competent asset manager, there is no reason why a sustainability approach should underperform. Consequently, the outperformance that using such an approach can create is based on the quality of the research, the quality of the portfolio manager and the quality of the investment process.
Elisa Trovato
How do you implement the integration of ESG factors into the investment process? What are the factors that you look at when you screen the stocks? For example, there is a concern the universe of investable stocks become too restricted when screened against sustainability criteria, so that would impact performance.
Viktor Andersson
If you create a plain vanilla SRI fund, you want to limit the universe. You want to differentiate it, based on ESG factors, from the non-SRI universe. That is the whole purpose. You need to separate SRI from ESG integration though, with ESG integration being much more interesting, where you try to find the key three or four value drivers per industry, and make the portfolio manager have ownership of them and then integrate it properly into investment decisions. Changing the way the investment managers look at their holdings is integration, not screening out certain companies or industries, albeit across all portfolios.
