"Best in Service"- What do consumers really want?


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Rolf Iten, Managing Director - Inrate - Switzerland

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"Best in Service"- What do consumers really want?

  1. 1. Triple Bottom Line Investing Conference 2005 Frankfurt November 2-3-4 „ Best in Service“ – What do consumers really want? INrate AG, Switzerland www.inrate.ch
  2. 2. <ul><li>Role of SRI </li></ul><ul><li>Approach: „Best in Service“ </li></ul><ul><li>Sustainability universe </li></ul><ul><li>Investment products </li></ul><ul><li>Conclusions </li></ul>Content
  3. 3. <ul><li>Achieving a sustainable society by </li></ul><ul><ul><li>improving intra- and intergenerational fairness, </li></ul></ul><ul><ul><li>reducing the ecological foot print, primarily in industrialised countries. </li></ul></ul>Role of SRI: The Aim Sustainability = Improved eco-efficiency and social fairness of production and consumption
  4. 4. <ul><li>Saving energy or consuming energy: Insulation instead of heating. </li></ul><ul><li>Improving a standard technology or developing intelligent system solutions: combustion engines versus mobility management. </li></ul><ul><li>Prevention versus healing and rehabilitation: Promotion of good food and fitness activities versus expensive medical equipment. </li></ul><ul><li>Responding to upcoming ecological and social problems or waiting until regulations will come into effect. </li></ul>There is always the choice between…
  5. 5. <ul><li>Consumers predominantly ask for services, such as nutrition, clothing, housing, mobility, communication, entertainment, etc. </li></ul><ul><li>Consumers (should) prefer eco- and socio-efficient alternatives - if they are cost-efficient. </li></ul><ul><li>Eco- and socio-efficient - sustainable - alternatives of services are available, e.g.: </li></ul><ul><ul><li>Power and heat from renewable energies, eco-efficient building materials, eco-efficient means of transportation. </li></ul></ul>Role of consumers
  6. 6. <ul><li>Firms are considered a means to an end. </li></ul><ul><li>They are supposed to offer eco- and socio-efficient services, good jobs and good investment opportunities. </li></ul><ul><li>There are firms offering sustainable alternatives, e.g.: </li></ul><ul><ul><li>Power: Solarworld </li></ul></ul><ul><ul><li>Construction/thermal insulation: Sarna (SIKA) </li></ul></ul><ul><ul><li>Rail Carrier: Deutsche Bahn </li></ul></ul>Role of firms
  7. 7. <ul><li>SRI means investing in firms offering the most socio- and eco-efficient alternatives to consumers, and in doing so: </li></ul><ul><ul><li>raising the economic value of sustainable firms, </li></ul></ul><ul><ul><li>increasing incentives of firms towards sustainable activities, </li></ul></ul><ul><ul><li>fostering sustainability. </li></ul></ul><ul><li>Development towards sustainability implicates incorporating social costs and newly structuring relative pricing. Firms with social awareness - SRI firms - are ready for this development. </li></ul>Role of SRI: Quintessence
  8. 8. <ul><li>Focus on…. </li></ul><ul><li>… ecological and social efficiency: </li></ul><ul><ul><li>On demand are the most eco- and socio-efficient solutions satisfying consumer needs. firms which offer such solutions are called „best in service“. </li></ul></ul><ul><li>… life cycle analysis: </li></ul><ul><ul><li>Analysis of the role of firms within economy and society as a whole: Up-stream and down-stream effects of products and services are systematically taken into account. </li></ul></ul>Best in Service: Two core elements
  9. 9. <ul><li>Sustainable Development calls for a fundamental structure change towards improved ecological and social efficiency. </li></ul><ul><li>Therefore a new approach is inevitable, starting with consumer needs. The key question is: </li></ul>Best in service: Key notes (I) How do we satisfy consumer needs so that they will be compatible with ecological and social goals?
  10. 10. <ul><li>The focus has to be on services and not on products. </li></ul><ul><li>The potential of more eco- and socio efficient solutions can be enlarged drastically by exploiting the innovative scope arising from the focus on services. </li></ul>Best in service: Key notes (II)
  11. 11. Focus on service oriented innovations Source: Minsch et al. 1996 policy / market incentives for firms ecological discharge potential process innovations product innovations functional innovations service oriented innovations
  12. 12. <ul><li>Ecological and social impacts per service unit are compared: </li></ul>Best in service: Key notes (III) <ul><li>Comparison of all firms offering the same service. The comparative setting is enlarged, and the barrier for passing the check mark is set significantly higher compared to the usual best-in class-approach. </li></ul>
  13. 13. Which services are considered? Safety Infotainment Disposal Recovery Sanitation Education Power Health Heat Nutrition Mobility Clothing Communication <ul><ul><li>Housing </li></ul></ul>
  14. 14. <ul><li>Mobility as a service offer: Transportation of people and goods </li></ul><ul><li>Providers of mobility from car manufacturer, rail, navigation and air carriers to bike manufacturers are being compared with regard to ecological and social efficiency. </li></ul><ul><li>Due to the assessment across different industries, no car manufacturers and air carriers are represented in the INrate investment universe. </li></ul>Example: Service sector mobility Outcome of the INrate approach of ‚best in service‘ Critical industries such as cars or oil refineries are excluded. Long-term sustainable industries are reinforced.
  15. 15. <ul><li>Non-sustainable industries such as oil, tobacco or nuclear power are not represented. </li></ul><ul><li>Strong significance of future oriented technologies such as renewable energies or sustainable forest utilisation. </li></ul><ul><li>Compared to conventional business classification – used in benchmark indices such as the SPI or the MSCI – there are sector over- and under-representations. </li></ul>The INrate sustainability universe INrate investment universes differ significantly from reference indices. They meet the claim of implementing the sustainability principle in a self-contained and persistent way.
  16. 16. The INrate sustainability universe <ul><li>Classification matters: </li></ul> 
  17. 17. <ul><li>Futura Fund Swiss Stock vs. Swiss Performance Index </li></ul><ul><li>Futura Fund Global Stock vs. MSCI World </li></ul><ul><li>Source for CO2-intensity: NAMEA (national accounting matrix including environmental accounts), EBP/INFRAS 2005 </li></ul>INrate Sustainability Universe – Illustration of sustainability characteristics: CO2-Intensity
  18. 18. Futura Fund Swiss Stock: Sector Weights (as at August 05)
  19. 19. Futura Funds Swiss Stock: CO2-Intensity
  20. 20. Futura Funds Swiss Stock: Reduced CO2-Intensity
  21. 21. Futura Funds Global Stock: Sector Weights (as at August 05)
  22. 22. Futura Funds Global Stock: CO2-Intensity
  23. 23. Futura Funds Global Stock: Reduced CO2-Intensity
  24. 24. <ul><li>CO2-Intensity of INrate investment products is significantly reduced compared to regular market indices </li></ul><ul><li>Futura Swiss Stock (per 08/05) shows a CO2-intensity which is 25% lower than the benchmark. </li></ul><ul><li>Futura Global Stock (per 08/05) shows a CO2-intensity which is 35% lower than the benchmark. </li></ul>CO2-Intensity: Conclusions
  25. 25. The INrate sustainability universe: Illustration of Performance characteristics <ul><li>Futura Fund Global Stock vs. MSCI World </li></ul><ul><li>Futura Fund Swiss Stock vs. Swiss Performance Index </li></ul>
  26. 26. Performance characteristics: MSCI World
  27. 27. Futura Global Stock
  28. 28. Performance characteristics: Swiss Performance Index
  29. 29. Futura Swiss Stock
  30. 30. Performance characteristics: Conclusions <ul><li>Global level: same return, less risk – due to exclusion of energy (= oil companies). Correlation to global benchmark (MSCI) remains very high. </li></ul><ul><li>Swiss level: Higher return, higher risk. Correlation not perfect and tracking error not low (typical level for actively managed portfolios – also due to poorly diversified benchmark SPI). </li></ul><ul><li>Performance characteristics of sustainable portfolios are attributed to properties of the sustainability universe and to stiles and skills of the portfolio management (benchmarking, selection, etc.). </li></ul>
  31. 31. <ul><li>“ Best in service”-approach is a consistent screening of sustainability. </li></ul><ul><li>The approach fosters structural change towards a sustainable society in an efficient manner. </li></ul><ul><li>At the same time, sustainable investment opportunities with regular performance characteristics are generated. </li></ul><ul><li>The resulting investment opportunities are of interest for “principle guided” investors as well as for “neutral” investors. </li></ul>Conclusions
  32. 32. <ul><li>Independent Swiss-based agency for sustainability rating </li></ul><ul><li>Founded in 2001 by Nest pension fund and INFRAS Research and Consulting Group </li></ul><ul><li>INrate prepares sustainability ratings for the group of funds „Futura“ offered by Swiss Raiffeisen Banks. </li></ul><ul><li>Self-contained methodological approach „best in service“. </li></ul><ul><li>Consistent definition of exclusion criteria. </li></ul><ul><li>External committee of experts reviews each rating. </li></ul><ul><li>Access to top specific know how through partnerships, e.g. to INFRAS. </li></ul><ul><li>P.O. 454 8037 Zürich Switzerland +41 44 274 15 80 info@inrate.ch </li></ul>INrate AG