Geographic Focus: The German Experience with SRI.

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Eckhard Plinke, Head of Research - Bank Sarasin & Cie AG - Switzerland

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  • Breite Angebotspalette: von Anleihen über Aktien bis hin zu Private Equity
  • Breite Angebotspalette: von Anleihen über Aktien bis hin zu Private Equity
  • Umwelt: Strategie: „second generation“ environmental strategy based upon a product-related life cycle approach EMS: (ISO 14000) is nearly completed Produkte: In 1999 a programme was started to compile environmental declarations for all key products based on Life Cycle Assessments Sozial: Employees: -: Cost reduction programmes and shift to Asia with a large number of job-cuts ; +:  ocial benefits above average (e.g. social institutions, financial participation) ; multi- cultural corporate culture Öffentlichkeit: Participation in large scale hydropower projects ; problems with bribery Competitors: number of anti-trust investigations in recent years (esp. on heating pipes, components for hydropower stations, heavy duty cables, transformers )
  • Umwelt: Strategie: „second generation“ environmental strategy based upon a product-related life cycle approach EMS: (ISO 14000) is nearly completed Produkte: In 1999 a programme was started to compile environmental declarations for all key products based on Life Cycle Assessments Sozial: Employees: -: Cost reduction programmes and shift to Asia with a large number of job-cuts ; +:  ocial benefits above average (e.g. social institutions, financial participation) ; multi- cultural corporate culture Öffentlichkeit: Participation in large scale hydropower projects ; problems with bribery Competitors: number of anti-trust investigations in recent years (esp. on heating pipes, components for hydropower stations, heavy duty cables, transformers )
  • Breite Angebotspalette: von Anleihen über Aktien bis hin zu Private Equity
  • Geographic Focus: The German Experience with SRI.

    1. 1. Socially Responsible Bond Investment TBLI Conference, Frankfurt, Nov. 2–4, 2005 Eckhard Plinke Bank Sarasin & Co Ltd.
    2. 2. Socially Responsible Bond Investment TBLI Conference, Frankfurt, Nov. 2–4, 2005 Eckhard Plinke Bank Sarasin & Co Ltd.
    3. 3. Agenda <ul><li>Bank Sarasin & Co. Ltd </li></ul><ul><li>Investment Style in Germany – Fixed Income is important </li></ul><ul><li>Socially Responsible Bond Research at Sarasin </li></ul><ul><li>Summary </li></ul>
    4. 4. 1. Bank Sarasin & C o. Ltd 1. Bank Sarasin & Co Ltd.
    5. 5. Bank Sarasin & Co. Ltd <ul><li>Swiss Private Bank, founded in 1841 </li></ul><ul><li>Specialised in asset management, private banking and trading </li></ul><ul><li>Approx. € 35bn assets-under-management </li></ul><ul><li>More than 1,140 employees </li></ul><ul><li>Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Luxemburg, Munich, Paris and Singapore. </li></ul>Asset Management, Products & Sales Trading & Logistics Private & Institutional Clients
    6. 6. Bank Sarasin & Co. Ltd: Your „Center of Competence“ for Sustainability <ul><li>More than EUR 1.6bn sustainable assets-under-management. </li></ul><ul><li>One of the largest managers in continental Europe </li></ul><ul><li>Independent </li></ul><ul><li>More than 15 years of expertise in sustainability research and asset management with a stable team </li></ul><ul><li>17 international and interdisciplinary professionals with an average of 13 years of job experience </li></ul><ul><li>Broad product range </li></ul><ul><li>Proprietary database and rating system with information about around 900 companies and 170 additional bond issuers </li></ul>
    7. 7. 1. Bank Sarasin & C o. Ltd 2. Investment Style in Germany – Fixed Income is important
    8. 8. Asset Allocation in Germany: Bonds most important 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) Source: BVI 2005 *) excluding Real Estate Funds
    9. 9. SRI Funds: Focus on Equities (traditionally) Source: Bloomberg Retail SRI Funds Germany 2005 ( 98 funds) Source: BVI 2005 Retail Funds Germany 2005 ( 2392 funds)
    10. 10. 1. Bank Sarasin & C o. Ltd 3. Socially Responsible Bond Research at Sarasin
    11. 11. Bonds – Variety of Issuers Traditional Focus of SRI Sarasin SRI Research Bonds „ Pfandbrief“ Ratings Asset Backed Bonds Institution Ratings Institution Bonds Country Ratings Government Bonds Company Ratings Corporate Bonds
    12. 12. Sarasin Sustainability Matrix ® : Common Frame
    13. 13. Company Rating: Example Unilever Sustainability Assessment: Companies
    14. 14. Country Rating: Philosophy Sustainability Efficiency Sustainability Level <ul><li>e.g.: </li></ul><ul><li>per capita CO 2 emissions </li></ul><ul><li>unemployment rate </li></ul>Low impact High impact Low High <ul><li>e.g.: </li></ul><ul><li>$ GDP per MJ energy consumed </li></ul><ul><li>Public health per $ of health care expenses </li></ul>Industrialisation Dematerialisation Developing Countries Industrialised Countries “ Sustainable” Countries Road to Sustainability = Efficiency Increases: <ul><li>Environment: Decoupling material welfare – environmental impact </li></ul><ul><li>Society: Decoupling quality of life - material welfare </li></ul>
    15. 15. Country Rating: Coverage and Grouping Grouping according to credit rating: 46 21 Rated Eligible for SRI Group 15 Emerging Countries 13 Core OECD Countries (high credit ratings)
    16. 16. Country Rating: Example Sweden Sustainability Level 0.0 1.0 2.0 3.0 4.0 5.0 Biodiversity Air / Climate Water Soil Energy Waste Personal Stress Marginalisation Human Rights Sustainability Level Sustainability Efficiency low high low high Sarasin Sustainability-Matrix ® Sweden Average of analysed countries Sustainability Assessment: Countries Sustainability Efficiency Air / Climate Water Energy Waste Institutional Frame Health Education Cohesion Income Public Debt Foreign Affairs
    17. 17. Country Rating: Example PR of China PR of China Average of analysed countries Sarasin Sustainability-Matrix ® Sustainability Efficiency Sustainability Level Sustainability Efficiency low high 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 Sustainability Level
    18. 18. Public Financial Institution Rating: Principle high low Sustainability Level (Environmental and social compatibility of the institution’s mandate) high low Sustainability Efficiency (Sustainability of the institution in performing its mandate) Sarasin Sustainability- Matrix ®
    19. 19. Institution Rating: Example KfW Bankengruppe Sustainability Level Sustainability Efficiency
    20. 20. „ Pfandbrief“ Ratings: Principles Basic Principle: Rating of the collateral (“where the money goes”) Mortgage/ Real Estate Government Bonds Collateral Rating Approach Type of „Pfandbrief“ Rating of the banking group behind Mortgage (Hypotheken-Pfandbrief) Average country rating of the government bonds in collateral stock Public (Öffentlicher Pfandbrief)
    21. 21. Rating of Public Covered Bonds: Example Germany 60% Austria 4% Japan 1% USA 3% Spain 8% Italy 10% Belgium 14% <ul><li>Rating: Average rating (“center of gravity”) within the area of the Sarasin Sustainability-Matrix ® eligible for investment </li></ul><ul><li>Exclusion Criteria: USA (3%) und Japan (1%) are excluded (limit: 10%) </li></ul><ul><li> this public covered bond would be eligible for investment </li></ul>Collateral
    22. 22. Sustainability Assessment of Mortgage Covered Bonds <ul><li>Rating of the banking group which the issuer of the bond belongs to (e.g. Eurohypo > average of Deutsche Bank, Commerzbank, Allianz ) </li></ul><ul><li>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 </li></ul><ul><li>Special conditions for an environmentally friendly construction etc. are taken positively into account </li></ul>
    23. 23. 1. Bank Sarasin & C o. Ltd 4. Summary
    24. 24. Summary <ul><li>Fixed Income is the most important asset class for German institutional investors, while SRI has focussed on equity investment </li></ul><ul><li>Variety of bonds requires variety of SRI assessment approaches (rating methods) > quite sophisticated and extensive SRI research </li></ul><ul><li>What is SRI in bonds good for?: </li></ul><ul><ul><li>Contribution to Sustainable Development (can have a more direct impact than equity investment, e.g. development agencies) </li></ul></ul><ul><ul><li>Reduction of financially relevant risks (e.g. link between social imbalances, indebtedness of countries and default risks of government bonds) </li></ul></ul>

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