On behalf of RS Group, we looked at different ways in which financial markets and investors can contribute to reducing the destruction of tropical forests and the unsustainable use of land and oceans, while helping to mitigate climate change and to provide a livelihood to local communities for them to become stewards of local ecosystems. Given our economic system does not allocate a value to natural capital, it is almost impossible to design investment structures that will be financially attractive for commercial investors, unless concessionary capital or grants are used to de-risk or enhance returns. This is exactly what blended finance structures (e.g. structured funds, bonds and other vehicles) aim for.
Together with RS Group we found that more innovation is needed in the field and on 11 November 2019 RS Group and Convergence (a think-tank specialised in the field) launched a US$3 million design funding window for innovative and catalytic blended finance solutions focused on natural capital in Asia. By supporting the design of new blended finance structures, the window will draw new investors into this critical, but underfunded development area. Asia’s enormous economic growth in the last few decades has come at a high cost to its environment, leading to deterioration of land, freshwater, and marine ecosystems and exacerbating water and food insecurity and climate vulnerability. Globally, it is estimated that there is a US$200-300 billion gap per year to preserve the world’s last healthy ecosystems.
Switzerland was in the 1990ies an early mover in the field of sustainable investing. Examples include some of the first environmentally focussed funds, the birth of microfinance investment managers, large banks integrating ESG criteria in their credit risk assessment, the advent of the first sustainable stock market indices and, with the Ethos Foundation, the launch of one of the first collaborative stewardship initiatives in Europe. A lack of leadership by the majority of asset owners in the country has slowed down this development until recently. But now, a new dynamism can be observed: sustainable assets under management are rapidly rising, with Swiss Sustainable Finance the sector has gained a strong voice and leading trade organisations including SwissBanking, Swiss Fund & Asset Management Association and Swiss Insurance Association now recognize that Sustainable Finance will be a key competitive advantage for the Swiss finance sector. This is well described in a recently published report by Swiss Sustainable Finance. It mentions onValues as one of the leading investment consultancies supporting the growth of the sector by advising asset owners in their implementation of investment policies and processes.
We are honoured to provide strategic support to the PeaceNexus Foundation through our founder’s role as trustee of the foundation. PeaceNexus provides key actors such as multilateral organisations, governments, non-profit organisations and business actors with expertise and advice on how they can make best use of their peacebuilding role and capacity to help stabilise and reconcile conflict-affected societies. Geographically it focuses on four regions – the Balkans, Central Asia, South East Asia and West Africa/the Sahel – where it supports both international and local peacebuilding organisations with strategy and organisational development advice. It also helps companies active in fragile states integrate a conflict-sensitive approach in their operations and in dealing with local stakeholders.
PeaceNexus is one of the few privately funded foundations fully dedicated to implementing the Sustainable Development Goal #16 aimed at “promoting peaceful and inclusive societies for sustainable development, providing access to justice for all and building effective, accountable and inclusive institutions at all levels”. It recently explored ways to use its capital in support of the mission and seeded a new investment fund aimed at positive peace outcomes through engagement with the companies it invests in. With this total portfolio approach, PeaceNexus is able to increase its impact in the field and to use synergies between the grant-making and investment side of the foundation.
For the second time, WWF Switzerland has released a detailed rating survey of Swiss pension funds’ policies and practices in the field of responsible investing. The analysis focuses on the 20 largest pension funds in Switzerland. Ivo Knoepfel of onValues was part of the panel of experts that provided guidance for developing the rating methodology.
The Swiss second-pillar pension system, representing around CHF 910 billion under management, or 133% of Swiss gross domestic product, carries enormous weight in further shaping the future of our economy. The rating survey is meant to encourage and promote dialogue with respect to pension funds’ fiduciary responsibility for taking into account environmental, social and governance issues in their investment decisions.
The rating was carried out by Inrate and its Managing Partner Beat Zaugg (also member of the Advisory Board of onValues) said: “Every investment also has indirect environmental and social effects. These do not always have financial consequences in the short term, for example in the area of air traffic, where the external costs of global warming are borne not by the producer but by the general public. However, if these costs are internalized in future, pension funds that invest in these sectors will be exposed to investment and reputational risks”.
Few people know that today’s widely used ESG (Environmental, Social, Governance) acronym was created by onValues back in June 2004. On behalf of a partnership between the Global Compact and leading financial institutions, we then produced the “Who Cares Wins” report which summarised recommendations by the financial industry to better integrate ESG issues in analysis, asset management and securities brokerage. In the report, we chose to be specific about the issues addressed and not use broader terms such as sustainable or responsible investing. For purely practical reasons, we introduced the acronym ESG instead of having to spell out “environmental, social and governance” multiple times in the report.
The Institutional Money magazine has recently interviewed our founder Ivo Knoepfel and published an article (only available in German) that looks back at the birth of ESG and how its use has evolved over time.
In two recent Forbes articles, Georg Kell, former head of the Global Compact, discusses the rise and future challenges of ESG investing. In the first article, he looks at the forces that have shaped ESG investing over the past 15 years. Since the acronym was first introduced in 2005 (in the landmark “Who Cares Wins” report authored by onValues), ESG investing has rapidly grown and today is estimated at over $20 trillion in AUM or around a quarter of all professionally managed assets globally.
In a further article, Kell asks if the case for corporate responsibility and ESG investing still holds in the face of rising populism and protectionism and a changing environment, where the assumptions of a fair level playing field based on rules and trust in public institutions may no longer hold. He argues that the forces that propel corporate sustainability forward are largely independent of policymaking and driven more by technology, transparency and resource scarcity which lead to financial drivers. “But only up to a point. Should the destruction of the international rule-based system become the new dominant way of policymaking, then all bets are off”, he adds. Kell concludes with an appeal to responsible business leaders to speak up and to use their influence to defend and strengthen the rule-based market system and the values that hold markets and humanity together.
It’s Spring and we feel more than ever motivated to contribute to initiatives aimed at aligning private wealth and financial markets to our society’s sustainable development goals! On top of what we can contribute through our consulting work, we therefore engage in collaborative initiatives and fora aimed at innovating, growing and mainstreaming sustainable approaches. New engagements include the active role of Ivo Knoepfel in the Advisory Board of the Center for Sustainable Finance and Private Wealth at the University of Zürich and his role as speaker and moderator at this year’s pymwymic Impact Days, a gathering of leading European wealthholders engaged in investing for positive impact. Ivo Knoepfel has also recently become a trustee of the PeaceNexus Foundation , whose aim it is to strengthen organisations committed to preventing conflict and building peace, and continues to act as an advisor to WWF Switzerland in relation to their benchmarking of Swiss pension funds’ responsible investment commitments.
Investing in sectors and companies with a high impact on the global climate is “dangerous for your portfolio’s health”, if we express it in similar terms as health warnings on cigarette packs. It is not only governments’ policies aimed at maintaining global warming within the 2°C mark, but also the rise of the shared economy, on-demand transportation and the new price competitiveness of renewable energies that will lead to tectonic shifts in the power, automobile, oil and other sectors. onValues helps clients align their wealth to the challenges ahead by focusing on investments that are part of the solution and not part of the climate change problem. We believe that it is not enough to avoid high-risk companies and to lower the portfolio’s carbon footprint (current emissions of portfolio companies). The main focus should be on investing in winning companies providing break-through products and services needed for a low-carbon future. Long-term investors will be able to generate superior financial returns and contribute to a better world.
On behalf of our clients, onValues has recently assessed the role of gold as part of a long-term investment strategy. Results of our analysis using price data for the last 20 years indicate that gold (measured in US-Dollars) did not outperform other ‘safe haven’ assets such as high quality government bonds in periods of pronounced stock market volatility. For non-US investors a volatile and generally weakening US-Dollar introduced exchange rate risks, frequently wiping out the occasional gains of gold holdings. We therefore cannot validate the common belief that gold is a good portfolio insurance based on recent history – especially for European investors. Moreover, the environmental and social impact of the gold industry needs to be taken into account. In extreme crisis situations, such as a global war or the collapse of global financial systems, gold could play a role as a store of value. For clients attaching a high likelihood to such events it could make sense to hold significant amounts of gold, but this would require a well thought through implementation plan, factoring in choices like physical denomination (coins, bars, jewellery), storage location (bank, external storage, at home) and security aspects when accessing and using the gold during crisis times.