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Bank Sarasin & Co.Andreas Knörzer, Head Sustainable Investment
3./4. September 2001
SUSTAINABILITY- A concept for
increasing enterprise valueFIDIC 2001 Conference
Bank Sarasin & Co.
• founded in 1841• independent Swiss Private Bank• specialized in investment advisory and asset management• 10 partners with unlimited personal liability• 800 employees• main office in Basel• offices in Zurich, Geneva, Lugano and London• Euro 1.7 billion (total assets about Euro 27 billion) are
managed according to sustainability criteria
Organization Chart Bank Sarasin & Co.
PrivateBanking
InstitutionalBanking
InvestmentFunds
Logistics
Board ofAdministration
CEO
Group Executive Board
CFO
Contents
1. Sarasin Sustainable Investment
2. Sustainablity Concepts
3. Research and Investment Process
4. Product Concepts
5. Products & Performance
6. Benefits of Sustainable Investments
1. Sarasin Sustainable Investment
Market leader in terms of quality• Dedicated Sustainability Research and Asset Management since 1989• 14 international and interdisciplinary professionals with an average of
7 years’ experience• Sophisticated and competent research & assessment process
Market leader in terms of quantity • € 1.7 billion (of total group assets of about € 27 billion) are
managed according to sustainability criteria (market leader in continental Europe)
• Biggest provider of sustainable products in Continental Europe in both absolute and relative terms
Market Leader in Sustainability
• 1994 launch of «OekoSar Portfolio», the first eco-efficent fund worldwide
• 1997 co-manager of ethos pension foundation, in cooperation with Lombard Odier
• 1998 fund manager of «OekoVision», the equity fund of Ökobank-Versiko with very strict criteria
• 1999 launch of «ValueSar», a purely sustainability fund for international equities
• 2000 launch of «New Energies Invest» (private equity for renewable energies)
• 2001 launch of Sarasin FairInvest Universale Fund (balanced, Euro based)
Innovative Products - successful realisation
Sarasin Institutional Banking – Organizational Chart
Institutional Clients
H. R. Hufschmid
Sustainable Investment
A. Knörzer
Research
F. K. von Meyenburg
Trading
Th. Schaad
Institutional Banking
F. K. von Meyenburg
Asset Management
H. R. HufschmidG. Monson
Corporate Finance
Ch. Lubicz
Sarasin Sustainable Investment: Interdisciplinary research team
Society
FinanceTechnics
Ecology
Economy
8 sustainability analysts with different backgrounds, focusing exclusively on sustainable investment
Currently 17 employees
2. Sustainability Concepts
Our understanding of sustainability
‘Sustainable development means a development that meets the needs of the present without compromising the ability of future
generations to meet their own needs.’
(Brundtland, 1987)
Society(social analysis)
Economy(financial analysis)
Ecology(environmental
analysis)
Concepts of SRI
Exclusion criteria (e.g. Tobacco, Alcohol)
Environmentalcriteria
Environmental and social criteria
«Absolute» Sustainability(sustainable products)
«Relative» Sustainability(sustainable management)
Ethical Investment (USA, UK)
Environmental technology Fund
Eco-efficiency Fund
Sustainability Fund Sustainability Fund
(Sarasin)
3. Research & Investment Process
Research and Investment Process- Overview
IInformation gathering
IIPre-screening
(exclusion criteria)
IIIFinancial Analysis
IVSustainability assessment
VQualitycontrol
VIPortfolio
construction & Investment Procedure
Headquarters of Bank Sarasin & Co.
I. Information gathering
• General company information• Monitoring of several hundreds of newspapers through news
services • Specialized electronic media and internet• Research reports (financial and non-financial)• Company visits and management contacts• Information from specialized Swiss and foreign research
institutions, NGO‘s• (Questionnaire with a total of 140 relevant industry-specific
questions)
II. Pre-Screening
Ecological/social exclusion criteria•Generally according to clients’ preferences•Sarasin standard products:
Production of nuclear energy, armaments, automobiles,chlorine and agrochemicals, pornography, tobacco.Genetic technology is decided upon on a case to casebasis
Financial exclusion criteria•Liquidity (limited tradability)
III. Financial Analysis
Company analysis• Quantitative: P/E (absolute and relative to the market and
sector), earnings growth, PEG, CFPS, dividend yield, enterprise value/sales, margins, profitability ratios, balance sheet ratios, interest coverage, free cash flow
• Qualitative rating: Management, product range, earnings visibility, acceptance in the market, sentiment, momentum
Economic scenarios• Definition of most likely economic scenario• Forecasting horizon 3 and 12 months• GDP, inflation, interest rates, currencies, equity markets
‚absolute‘ sustainability axis
‘absolute’ sustainability of the industry and its technologies
• Contribution to environmental & social risks
• Compared to other industry sectors
‚rela
tive‘
sus
tain
abili
ty a
xis
‘relative’ sustainability of a company within an industry
• Compared to its peers («Best-in-Class»)
• How well does a company manage its environmental and social risks?
IV. Sustainability Assessment: principle
Absolute Sustainability Assessment
• The absolute environmental impact of an industry sector is assessed according to the WBCSD-criteria: energy efficiency, material efficiency, toxicity, etc.
e.g. Airlines have a high energy consumption, therefore even an efficient airline gets a low absolute rating.
• The absolute social relevance of an industry sector is assessed according to the stakeholder approach: clients, suppliers, employees, investors, etc.
e.g. The tobacco and alcohol industries endanger the health of the consumers often at the expense of the general public. This leads to low absolute rating of the whole sector.
Example industry rating: Energy
Sarasin Sustainability Matrix
Industry Rating
Co
mp
any
Rat
ing
average
average
high
low
low high
• Financial industry classes vs. sustainability classes
• It is the nature of a company‘s core activities that is decisive
• Traditional energy companies have a much higher risk exposure than renewable energy companies
Vestas
ChevronBallard Power
BPAmoco
Environmental Assessment: Life Cycle Approach
Strategy
Pre-ProductionSourcing
ProductionProcesses
Products & Services
Environmental Management
System
Environmental Assessment MatrixTargeted accomplishments in % (fictional example)
*Targets of the WBCSD
Pre-Production Sourcing
Production Processes
Products & Services
Energy Intensity
Material Intensity
Less Toxicity
Revalorisation
More Renewables
Durability
More Service Intensity
6%
14%
80% 8%
4%
17% 28%
50% 46%
55%
38%
12%
65% 56%
25%
25%
12%
35%
35% 52% 40%
ElementsCriteria*
Strategy
Suppliers/Shareholders/General Public
EmployeesClients/
Competitors
StakeholderManagement
System
Social Assessment: Stakeholder Approach
Social Assessment MatrixTargeted accomplishments in % (fictional example)
10%
25%
25% 15%
15%
52% 15%
85% 49%
20%
17%
5%
80% 16%
20%
12%
66%
10%
Building-upof Relations
Cultivationof Relations
Terminationof Relations
Examined phases
Suppliers
General Public
Shareholders
Employees
Competitors
Clients
Stakeholder
Example company rating: Unilever (I)
Example company rating: Unilever (II)
• Environmental• mature environmental management systems with tough corporate
targets • focuses on three areas where it can make a real difference: fish,
water and agriculture• committed to buy fish only from sustainable stocks by 2005 and
cooperate with suppliers and NGO's (Marine Stewardship Council)
• Social• Various social and environmental projects in different regions of the
world are supported with 1.5% of its world wide earnings. • active in developing an understanding the need for responsible and
ethical corporate behaviour
Valuebuilder: Example
Sustainable bond research
It is also desirable to manage funds sustainably within the bond market.
• Government bonds -> Sustainable country analysis• Bonds of supranational institutions -> Sustainable institutional
analysis• Corporate bonds -> Sustainable company analysis
Sustainable country analysis
The management of natural and social resources as well as its stability affects the sustainable rating of a country
• Analysis of the quality of management of ecological, social and human resources
• Assessment of political and institutional structures
• Structure and efficient use of resources
• Absolute level of resources consumption
Example: country rating USA
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Energy
Air
Water
Soil
Biodiversity
Average of all OECD-countries USA
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Income
Health
Education
Cohesion
Foreign Affairs
Human Rights
Indebtedness
Environment
Social Average of all OECD-countries USA
Str
uc
ture
an
d e
ffic
ien
cy
of
res
so
urc
es
ine
ffic
ien
te
ffic
ien
t
high low
Absolute level of environmental and social resources consumption
Switzerland
USA Portugal
V. Quality Control
Company Feedback
Third Party Assessment
Quality check by external parties
Interdisciplinary Advisory Board
Internal controlling
Client Audits
4. Product Concepts
VI. Portfolio construction
Two principles of Sarasin Sustainable Investment
Index-based (tracking error)
Ecological/social criteria form basis
Weighted Sustainability portfolio
<Pure> Sustainability portfolio
Absolute «pure» Sustainability Portfolio
Analysed companies
X Companies with activitiesto be excluded
Excluded rating areas
Sarasin Fund Universe
X
X
X
Co
mp
an
y-R
ati
ng
(Su
stain
ab
ility
of
the C
om
pan
yw
ith
in t
he S
ect
or)
Industry-Rating(Sustainability of the Products and Services)
low high
average
low
high
Sarasin Sustainability-Matrix
Investment style for a fully sustainable portfolio
• Active sustainable investment style (40 – 60 titles)• Bottom up > top down• Industry- and asset allocation influenced by Sustainability
rating• Asset allocation solely out of the defined accepted investment
universe• Title weithting according to financial attractivity (sector,
company)
Investment style for a fully sustainable portfolio
• Monthly performance control with benchmark comparison • Findings of Sarasin‘s sector- and macro research as well as
of the investment committees in Basel and London are included
• Implementation of the decisions taken within 3 days (depending on volumina)
• Tactical freedom of the portfolio manager = +/- 1%-point
Risk control
• Daily monitoring
• Monthly performance review based on SPPS data (Swiss Performance Presentation Standards) incl. analysis of difference to the composite
• Regular check of compliance with requirements
Research-Universe – Country Overview
CountriesNumber of
Companies Market cap.* in %
MSCI
Euroland 179 2‚910 85%
Europe 320 5‚333 85%
North America 162 7‘443 69%
Japan 36 796 30%
* in bn Euro
Research-Universe – Sector- & Country Overview
Number of titles – All titles
Sectors Europe
EurozoneEuropeex Euro America Asia Total
Data networks&process. 0 0 7 0 7Construction 5 5 1 0 11Healthcare 6 8 3 0 17Telecommunication 9 4 5 2 20Material 3 7 5 0 15Food & beverage 7 7 14 2 30Pharma 7 6 9 0 22Energy 18 4 17 0 39Utilities 8 11 10 2 31Electrical eng. & electronics 9 8 7 6 30Chemicals 15 9 10 1 35Durable goods 11 8 15 9 43Machinery&engineering 16 16 6 3 41Business services 17 13 17 4 51Finance 33 17 12 4 66Consumer goods 14 15 21 2 52Tourism & Leisure 1 3 3 1 8Total 179 141 162 36 518
Limitations due to exclusion criteria
MSCI Europe Anlageuniversum
Automobilindustrie
Tabakhersteller
Rüstungsgüterhersteller
Chlor- und Agrochemie
Kernenergieproduktion
Glücksspiele
InvestierbaresUniversum93%
Investment Universe
Automobile
Tobacco
Armaments
Chlorine/Agrochemicals
Nuclear Energy
Lottery
Investable Universe 93%
Exclusion criteria does not penalise
2/8/01
1996 1997 1998 1999 2000 200160
80
100
120
140
160
180
200
220
240
260
280
MSCI WORLD U$ - PRICE INDEX (EURO – Net Daily Return)MSCI WORLD AUTOMOBILES $ - PRICE INDEX (EURO – Net Daily Return)MSCI WORLD TOBACCO $ - PRICE INDEX (EURO – Net Daily Return) Source: DATASTREAM
5. Products and Performance
Broad Product Range
• Devif/Special funds
(SSI)Sarasin Sustainable Investment(SSI)Sarasin Sustainable Investment
Own Label Funds
Own Label Funds
EthosEthos ManagedAccounts
ManagedAccounts
Private EquityPrivate EquitySarasin FundsSarasin Funds
• ÖkoVision• New Energy Fund
• Auxvita
• CH/EU/WW/NA• Equities(Int. and CHF)
• Bonds(Int. and CHF)
• Ethosfunds
• Equities CH• DJ Stoxx 50• Equities Int.• Balanced
• New Energies Invest Ltd.
• Sarasin OekoSar• Sarasin ValueSar• Sarasin FairInvest• SAST BVG Sustainability
OekoSar Portfolio - Characteristics
• Globally balanced:(End of July 2001: 44.3% Equities, 47.0% Bonds, 8.7% Cash)
• Ecological analysis is based on the life cycle concept (eco-efficiency)
• Social analysis follows stakeholder approach and judges the social sustainability
• Strictly applied negative criteria
• Interdisciplinary Advisory Board of five
• One of the leading Continental European funds, with assets of more than EUR 210m (as of 31 July 2001)
OekoSar Portfolio - Performance
• Risk/return profile in Euro•Since inception 67.91%
(March 1994 – July 2001)•Performance1999 15.07%•Performance 2000 19.18% •Performance since 01.01.2001 -6.17%•Return p.a. 7.24% •Risk p.a. 7.48%
OekoSar relative to Peers
Risk free rate: 3%
... Relative to balanced eco-funds
Total Return Sharpe Ratio Total Return Sharpe Ratio Total Return Sharpe Ratio
OekoSar Portfolio 19.18 1.79 39.36 0.88 87.11 1.17
Prime Value 3.84 0.12 39.74 1.11 62.14 0.98
Julius Baer MI-Fonds Eco A -2.07 -0.59 -- -- -- --
... Relative to traditional balanced funds (global, neutral AA)
Total Return Sharpe Ratio Total Return Sharpe Ratio Total Return Sharpe Ratio
OekoSar Portfolio No. 1 of 79 No. 1 of 79 No. 6 of 49 No. 3 of 49 No. 9 of 28 No. 2 of 28
Average -1.26 -0.42 29.1 0.57 78.14 0.89
31.12.99 – 31.12.00 31.12.97 – 31.12.00 31.12.95 – 31.12.00
31.12.99 – 31.12.00 31.12.97 – 31.12.00 31.12.95 – 31.12.00
Source: Micropal
ValueSar Equity - Characteristics
• Only equities, investing globally
• 2/3 in ecologically and socially sustainable blue chips
• 1/3 in mid-sized sustainable growth companies
• Focus on promising future sectors and technologies
• Sustainability criteria according to OekoSar Portfolio
• Asset allocation offers conservative investors an ideal risk/return ratio
• Benchmark: 50% MSCI Europe, 50% MSCI World ex. Europe
• Assets: about EUR 86m (as of 31 July 2001)
ValueSar Equity - Performance
• Performance Fund in Euro• Since inception (June 1999 - July 2001) 24.59%• Performance 2000 18.15%• Performance since 1.1.2001 -10.51%• Return p.a 10.68%• Volatility 16.27%
• Performance Benchmark• Since inception 7.37%• 2000 -6.76%• Since 1.1.2001 -7.57%• Return p.a 3.34%• Volatility 16.59%
Active Asset Management pays off(since inception of Dow Jones Sustainability Group Index)
* 50% MSCI World ex Europe and 50% MSCI Europe
80%
90%
100%
110%
120%
130%
140%
150%1
0/0
9/9
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Pe
rfo
rma
nc
e i
n E
UR
O (
ind
ex
ed
) ValueSar Equity
Benchmark
Dow Jones Global Sustainability Index
6. Benefits of Sustainable Investments
Sustainable Companies Outperform
Jensen-Alpha vs environmental rating of eco-relevant Industries
-0.15-0.1
-0.050
0.050.1
0.150.2
0.250.3
0.35
- - - + + +
Alpha
Environmental rating
Results from Sarasin Study October 1999
Performance of European SRI funds
Funds Performance as per 30.06.2001 in EURO a)
Blue Chip Funds international -1 Year -2 Years -3 YearsSarasin ValueSar Equity -0.81% 30.32UBS-Eco-Performance -5.67% 23.68% 39.07%Swissca Green Invest -11.18% 9.64%CS Global Sustainability -13.99% 2.14% 4.23%SAM Sustainability-Index Fonds b) -15.76%
MSCI Welt Aktien Index -9.75% 8.93% 32.38%
Mid / Small Cap Funds international (with large content of «classical» eco-stocks)ÖkoVision c) 12.23% 39.01% 34.60%Activest Lux Eco-Tech 0.93% 33.40% 33.47%SEB Invest Ökolux -6.63% 21.34% 20.81%KD Fonds Öko-Invest -13.80% 36.60% 55.09%Balanced Fund international (with significant bond content)Sarasin ÖkoSar Portfolio 1.02% 22.54% 24.10%Prime Value -0.45% 13.67% 25.47%MI-Fonds Eco -2.00% 5.09%
Source: Micropala) Ranked based on 1 year performance
b) Management: Bank Sarasin & Co
How sustainable is the food industry?
• Sarasin Study assessed 18 „conventional“ food companies and6 organic food producers from US, Europe and Japan
• Two different peer groups with specific environmental and social issues were identified
• The focus lay clearly on the pre-production level (i.e. agriculture), where most environmental and social concerns arise
• A backtracking found – for both groups – that the environmentally and socially most compatible companies strongly outperformed the benchmark (MSCI Food Beverage & Tobacco)
• To meet the ever increasing demands and environmental & social awareness of consumers will prove decisive for the future success of food companies
Food industry: Company ranking
80
100
120
140
160
180
200
25.07.96 25.01.97 25.07.97 25.01.98 25.07.98 25.01.99 25.07.99 25.01.00 25.07.00 25.01.01 25.07.01
MSCI World Food Beverage & Tobacco
Other conventional food companies
Most sustainable conventionalfood producers
Above average conventional companies are outperforming
Organic food companies are outperforming
0
50
100
150
200
250
300
350
400
450
02.07.98 02.01.99 02.07.99 02.01.00 02.07.00 02.01.01 02.07.01
Most sustainable organicfood producers
Other organicfood companies
MSCI World Food Beverage & Tobacco