Marcus pratsch


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Marcus pratsch

  1. 1. Honouring the value of ESG Research <br />for the professional investment community<br />(TBLI Conference Europe 2010)<br />Nachhaltigkeitsgütesiegel des DZ BANK Research <br />Marcus Pratsch, Head of Institutional Sustainable Investment Research, DZ BANK AG<br />
  2. 2. Not too long ago…<br />
  3. 3. … ESG researchers were considered as aliens among <br /> the analysts.<br />Source: Universal Pictures<br />
  4. 4. The past<br /><ul><li>Sustainability criteria were largely ignored in equity </li></ul> analysis.<br /><ul><li> Investors paid little attention to sustainable share </li></ul> investment, considering it as a niche sector and an <br /> investment vehicle that would generally be <br /> associated with a reduced return.<br />
  5. 5. BUT: The situation has changed<br /><ul><li>Sustainability is becoming ever more a strategic </li></ul> competitive factor for corporations operating on a <br /> global scale.<br /><ul><li>“Non-financial” capital plays an ever more key role in </li></ul> the success of a company.<br /><ul><li>Investors with a long term-perspective will hardly be </li></ul> able to ignore the issue of sustainability.<br />
  6. 6. The market for sustainable investment products is significantly growing<br />Source: Eurosif (2010)<br />
  7. 7. The performance excuse does not prove true in the long term<br />
  8. 8. The growing importance of ESG research<br /><ul><li>The inclusion of sustainability factors in the evaluation </li></ul> of companies is a qualitative enhancement of the <br /> analysis process.<br /><ul><li>It helps to provide information to investors in their bid </li></ul> to allocate capital to companies with good prospects <br /> for the future.<br /><ul><li>This should also influence their willingness to pay for </li></ul> such information. <br />
  9. 9. Our thesis<br /><ul><li> Creation of in-house sustainable investment research </li></ul> will pay off for brokers as demand from both <br /> institutional and retail investors is growing. <br />
  10. 10. Why investors are paying for ESG research<br /><ul><li> Regulatory requirements for pension funds throughout Europe in </li></ul> respect of sustainable criteria are tightening<br /><ul><li>Sustainable quota
  11. 11. Fund managers must take a “wider” view (more criteria)
  12. 12. Extraction of information must be extended beyond pure balance sheet analysis
  13. 13. “Quantitative” fundamental analysis must be complemented by sustainable research aspects > only in this way can a complete picture of companies be obtained</li></li></ul><li>Why investors are paying for ESG research<br /><ul><li> Helping pension fund managers, fund managers and asset </li></ul> managers to handle the information overload in terms of <br /> sustainability<br /><ul><li>Sustainability is no rigid construct – it is a dynamic process
  14. 14. Sustainability criteria have to be reviewed regularly
  15. 15. Sustainability is complex - it has many facets
  16. 16. Sustainability is more than ecology</li></li></ul><li>Why investors are paying for ESG research<br /><ul><li> Pension fund managers, fund managers and asset managers </li></ul> cannot limit themselves to discussions with companies:<br /><ul><li>Not realistic in terms of time
  17. 17. Sending out questionnaires often fails due to low return rate
  18. 18. Green washing by companies </li></li></ul><li>ESG research will be also honoured from inside the own organisation <br /><ul><li> However, maintaining an independent sustainable research unit can </li></ul> also strengthen the position of research within the organisation.<br /><ul><li>Turning a pure cost centre into an internal profit centre
  19. 19. Implementation of investment ideas by means of design and sale of products with a sustainability view
  20. 20. Possible acquisition of new investor groups (institutional and private)
  21. 21. Creation of specially tailored products for specific customer groups (churches , NGOs)
  22. 22. Internal participation in the proceeds (x% of the volume placed)</li></li></ul><li>Internal survey <br /><ul><li> We have conducted a survey after the publication of our latest </li></ul> Sustainable Investment Research study revealing how commission <br /> was created and hence showing how institutional clients value ESG <br /> research. <br />
  23. 23. Internal survey – Distribution of ESG research <br />
  24. 24. Internal survey – Split of institutional investors <br />
  25. 25. Internal survey – Commission by pure ESG investors <br />
  26. 26. Internal survey – Commission by non-pure ESG investors <br />
  27. 27. The challenge<br /><ul><li>In Germany for example there are still very few </li></ul> sustainable research teams.<br /><ul><li>”Shortfall in ESG research supply” offers numerous </li></ul> opportunities:<br /><ul><li>First-mover effects
  28. 28. Build-up of reputation
  29. 29. Inclusion of sustainable research criteria in “conventional valuation models”</li></li></ul><li>The price for fading out sustainability criteria<br /><ul><li>Pressure on analysts from investors will grow
  30. 30. Business only if sustainable research criteria have been taken into account
  31. 31. (Temporary) deletion from the broker list
  32. 32. Major effects on placing orders and hence allocating commissions
  33. 33. Motto: “Challenge (sustainable research) and promote (orders, </li></ul> unbundling)”<br />
  34. 34. very much for your attention!<br />
  35. 35. DZ BANK Sustainable Investment Research<br />Marcus Pratsch<br />Head of Institutional Sustainable Investment Research <br /><br />+49-69-7447-1582<br />If you have any further questions please do not hesitate to contact me!<br />