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Magyar balazs

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TBLI CONFERENCE™ EUROPE 2011- London - United Kingdom …

TBLI CONFERENCE™ EUROPE 2011- London - United Kingdom

TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.

Published in: Economy & Finance, Business
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  • 1. Sustainable Fulfilment of Sovereign ObligationsSustainability and performance of sovereign bondsBalazs Magyar, Bank SarasinTBLI Conference™ EuropeNovember 2011Sustainable Swiss Private Banking since 1841.
  • 2. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 2
  • 3. Sustainable Investment at Bank Sarasin & Co. Ltd  Leading Swiss private bank – founded in 1841  Investment advice and asset management for private and institutional clients as our core business  Majority shareholder Rabobank has a triple-A credit rating*  Represented at more than 20 locations around the world, in Switzerland, Europe, the Middle East and Asia *Standard & Poors issues credit ratings of corporations: AAA is the best rating and denominates reliable and stable borrowers 3
  • 4. Sustainable Investment at Bank Sarasin – Significant Resources & Experience Sustainability research since 1989 Continuous build-up of staff Very low fluctuation Responsible for CHF 13,7 billion / EUR 11,2 billion assetsNumber of employees working in sustainable investment The team:60  54 employees50  30 portfolio manager40  10 sustainability analysts30 On average:20  39 years of age10  14 years of work experience 0Source: Bank Sarasin, as at 30.06.2011 4
  • 5. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 5
  • 6. Sovereign BondsDebt repayment requires sustainable tax revenues one-off payment government spending today Economic Investor Government Activities interest and principal payments tax revenue in the future 6
  • 7. Economic ActivitiesSustainable tax revenues require sustainable economic activities Transformation efficiency (Limited) Economic Quality Resources system of life Process efficiency 7
  • 8. Sustainability Rating of Sovereign Bonds 2010Assessment of emerging and developed countries for the first time on the basis of the same indicators: Over 150 countries About 50 indicators in the fields of: – Environment – Economy – Social Focus of analysis: – Availability of resources • mainly natural resources • but also human and financial res. – Efficiency • in transforming resources into quality of life • of the economic, political and social processes 8
  • 9. Sustainability-MatrixSarasin Sustainability-Matrix® for sovereign bonds high Investment universe Resource efficiency low low high Availability of resources 9
  • 10. Availability of Resources – Horizontal AxisEnvironment high Biocapacity (absolute and relative to Resource efficiency the Ecological Footprint of production) Nuclear power not covered directly by Water scarcity the Ecological Footprint Biodiversity low Climate change risks low high (extreme weather events, agriculture, sea level rise) Availability of resourcesSociety & economy Demography Wealth (tangible and intangible capital) Public debt Net foreign assets 10
  • 11. Natural Resources Are Being OverusedHumanity actually requires c1.5 planets Most of the developed countriesto support its lifestyles have an ecological deficit* Reserve97.5 1.5 15 Ecological deficit Built-up land 10 Biocapacity Forest landNumber of Earths South Africa 1.0 Netherlands Switzerland Germany Fishing grounds 5 Greece Global hectares per person Poland Japan China Qatar Grazing land USA UK Cropland 0 0.5 Carbon footprint Brazil Suriname Australia Sweden Russia Biocapacity -5 0.0 -10 2001 1961 1966 1971 1976 1981 1986 1991 1996 2006 -15 Source: Global Footprint Network Deficit * Biocapacity minus Ecological Footprint 11
  • 12. Financial and Human Resources Are Also Often Limited Over-indebtedness Over-ageing 200 2008 Zimbabwe 110 2050 2050 100 90 Germany Age (5-year groups) Japan Japan Public debt (gross, % of GDP) 80 70 Poland 150 USA 60 50 Jamaica 40 Italy 30 100 Singapore Greece 20 10 Optimum Germany USA 0 Portugal Norway Netherlands 0% 2% 4% 6% 8% 10% 50 UK Poland 2050 Switzerland Sweden Brazil Spain 110 Share of population Mongolia 100 South Africa China 90 Age (5-year groups) Australia Bulgaria Qatar Russia Estonia 80 0 Brazil 70 -150 -100 -50 0 50 100 150 60 China 50 Foreign debt (net, % of GDP) 40 30 20 Optimum Uganda 10 South Africa 0 0% 5% 10% 15% 20% Share of populationSource: IMF, OECD, CIA, Sarasin Source: United Nations, Sarasin 12
  • 13. Resource Efficiency – Vertical AxisTransformation efficiency Resource efficiency high Quality of life – Material well-being (GDP) – Education deviation from the norm – Health Resource consumption – Ecological Footprint of consumption low – Nuclear power low high Availability of resources – Water consumptionProcess efficiency Economic structure (industrial heterogeneity, inflation, adj. savings, etc.) Governance (political stability, corruption, etc.) Social conditions (income equality, gender empowerment, etc.) 13
  • 14. Transformation Efficiency high middle 100% Netherlands Switzerland USA Sweden Japan Germany UK Australia 80% Greece low Cyprus Portugal Quality of life 60% Poland Brazil Peru Russia China 40% South Africa 20% Sudan Congo (Dem.) Niger 0% 0% 20% 40% 60% 80% 100% Resource consumption Source: Sarasin (as of 2006) 14
  • 15. Corruption Perceptions Index 0 2 4 6 8 10 Burma Russia China Brazil middle to high Greece corruption South Africa Poland USA UK Corruption Japan Source: Transparency International (as of 2009) Germany Process Efficiency – Australia Sample Indicators Netherlands Switzerland Sweden New Zealand Gini coefficient 0.0 0.2 0.4 0.6 0.8 1.0 Namibia South Africa Brazil China USA unequal distribution Russia UK Australia Poland Greece Income distribution Switzerland Netherlands Germany Sweden Japan Denmark Source: World Bank (latest year available)15
  • 16. In % of the highest rating 0% 20% 40% 60% 80% 100% Social Denmark Sweden Switzerland Netherlands Process Efficiency Governmental Germany Australia Japan UK Economic USA Poland Greece Brazil China South Africa Russia Zimbabwe16 Source: Sarasin (as of 2007)
  • 17. Final Sustainability Ratings in Comparison to Credit Ratings high Netherlands Sweden Japan Germany Switzerland Credit rating* : Resource efficiency UK Peru Australia AAA Poland AA Brazil China A Spain BBB Greece BB and lower South Africa USA risk of credit downgrades Russia in the low long run low high Availability of resources* Lowest assessment of the rating agencies Moody’s, Standard & Poors and Fitch for long-term foreign-currency bonds as of March 18, 2010. 17
  • 18. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 18
  • 19. Sustainability and Performance – Sovereign Bonds of Developed MarketsCitigroup World Government Bond Index Sustainable countries nearly 20% higher15 sustainable and 10 non-sustainable countries …mainly since the start of the sovereign debt crisis high Netherlands 160 Sweden Total return (indexed in USD) Switzerland 140 Resource efficiency Australia 120 Portugal Greece 100 USA 80 12/ 05 12/ 06 12/ 07 12/ 08 12/ 09 12/ 10 low sustainable non-sustainable WGBI low Availability of resources highSource: Datastream, Sarasin
  • 20. Sustainability and Performance – Sovereign Bonds of Emerging MarketsJPMorgan Government Bond Index-EM Sustainable countries over 70% higher9 sustainable and 11 non-sustainable countries …despite the slump during the subprime crisis high 220 200 Total return (indexed in USD) Chile 180 Resource efficiency Poland 160 Brazil China 140 120 South Africa 100 80 Russia 12/ 05 12/ 06 12/ 07 12/ 08 12/ 09 12/ 10 low sustainable non-sustainable GBI-EM low Availability of resources highSource: Datastream, Sarasin
  • 21. Sustainability Ratings as an Indication for Changes to Credit Ratings?Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 30.06.2011
  • 22. Important InformationThis publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) forinformation purposes only. It contains selected information and does not purport to be complete. Thisdocument is based on publicly available information and data (“the Information”) believed to becorrect, accurate and complete. BSC has not verified and is unable to guarantee the accuracy andcompleteness of the Information contained herein. Possible errors or incompleteness of the Information donot constitute legal grounds (contractual or tacit) for liability, either with regard to direct, indirect orconsequential damages. In particular, neither BSC nor its shareholders and employees shall be liable forthe opinions, estimations and strategies contained in this document. The opinions expressed in thisdocument, along with the quoted figures, data and forecasts, are subject to change without notice. Apositive historical performance or simulation does not constitute any guarantee for a positive performancein the future. Discrepancies may emerge in respect of our own financial research or other publications ofthe Sarasin Group relating to the same financial instruments or issuers. It is impossible to rule out thepossibility that a business connection may exist between a company which is the subject of research and acompany within the Sarasin Group, from which a potential conflict of interest could result.This document does not constitute either a request or offer, solicitation or recommendation to buy or sellinvestments or other specific financial instruments, products or services. It should not be considered as asubstitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor.This document is intended for persons working in countries where the Sarasin Group has a businesspresence. BSC does not accept any liability whatsoever for losses arising from the use of the Information(or parts thereof) contained in this document.© 2011 Copyright Bank Sarasin & Co. Ltd. All rights reserved. 22
  • 23. For further information please contact usSustainable Swiss Private Banking since 1841.

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