100% ESG: Is it possible to integrate ESG across the entire portfolio for all asset classes?


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Ivo Knoepfel, Managing Director - onValues Ltd. - Switzerland

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100% ESG: Is it possible to integrate ESG across the entire portfolio for all asset classes?

  1. 1. 100% ESG: Is it possible to integrate ESG across the entire portfolio for all asset classes? TBLI Europe, 13 Nov. 2009 Dr. Ivo Knoepfel, Founder and Managing Director onValues Ltd. www.onValues.ch
  2. 2. ESG integration for different investors <ul><li>Larger, more sophisticated institutional investors </li></ul><ul><ul><li>Integration in in-house investment strategy and processes </li></ul></ul><ul><ul><li>Request external managers to integrate in their processes and services </li></ul></ul><ul><li>Smaller investors, family offices </li></ul><ul><ul><li>Implementation through investments in ESG funds </li></ul></ul><ul><ul><li>Some private banks willing to offer tailored mandates </li></ul></ul><ul><li>Is integration possible for all asset classes? </li></ul>
  3. 3. There is a clear path for institutional investors leading to ESG integration Source: 'Future Proof', Final report of the Who Cares Wins Initiative, Jan. 2009 <ul><li>A coordinator in charge of ESG integration efforts is in place </li></ul><ul><li>The initial focus is on listed equities, later it is expanded to other asset classes </li></ul><ul><li>Trustees and senior management have participated in a half-day strategy workshop on ESG issues and their importance for the fund's investments and have clarified the institution's position in the field </li></ul><ul><li>The fund has issued a policy stating that its goal is to integrate systematically all financially material ESG issues. </li></ul><ul><li>Investment consultants are asked to provide guidance in the area (e.g. to advise on how ESG issues are best included in asset allocation, manager selection, etc.) </li></ul><ul><li>Managers' capability to integrate material ESG issues is taken into account in manager selection processes </li></ul><ul><li>In interviews or annual reviews, managers are challenged to express their views on the materiality of emerging ESG issues (e.g. climate change) and how they are taken into account </li></ul><ul><li>[…] </li></ul>
  4. 4. … whereas smaller investors often have to rely on the existing fund offer <ul><li>Collective vehicles can have advantages: higher liquidity, governance, ‚economies of scale‘ </li></ul><ul><li>Costs for ESG funds are still high (often 0.5% p.a. higher than plain-vanilla funds) </li></ul><ul><li>Offer is often driven by retail demand, opportunistic providers, obsession with themes </li></ul><ul><li>Choice of ETFs has grown considerably in the past years, as well as the coverage of main asset classes </li></ul><ul><li>Are there enough skilled fund managers to reasonably cover an entire portfolio (all asset classes)? </li></ul>
  5. 5. Are enough skilled asset managers available for a pension fund allocation? Top-level asset allocation: European Inst. Asset Management Survey 2009; Number of managers from onValues database 54% 25% 10% 11%
  6. 6. Are enough skilled asset managers available for a family office allocation? Top-level asset allocation: World Wealth Report 2006, Capgemini/Merrill Lynch; Number of managers from onValues database 31% 21% 22% 15% 11%
  7. 7. Case-study 1: Mistra foundation (350 Meuro) <ul><li>Goal : Contribute to environmental sustainability, market returns </li></ul><ul><li>Solution : </li></ul><ul><li>100% implemented through ESG active funds </li></ul><ul><li>Approx. 55% fixed-income/cash, 8% Swedish equities, 9% other European equities, 6% US equities, 16% global equities, 5% other equities and alternatives </li></ul><ul><li>Considering investment in Clean-tech private equity fund-of-funds </li></ul>
  8. 8. Case-study 2: 55 Meuro family portfolio (incl. charitable foundation) <ul><li>Goal : Alignment to personal values and sustainability, market returns, allocation to high social impact investments (foundation) </li></ul><ul><li>Solution : </li></ul><ul><li>20% global ESG fixed income funds </li></ul><ul><li>20% fund tracking the Dow Jones Sustainability Index (world) </li></ul><ul><li>15% satellite equity funds (active ESG themes, emerging markets) </li></ul><ul><li>15% private equity funds </li></ul><ul><li>10% social impact funds (microfinance etc.) </li></ul>
  9. 9. Conclusions <ul><li>Implementation across the whole portfolio increasingly feasible for all investors </li></ul><ul><li>Better ESG integration approaches and more choice is needed especially in the fixed-income, real estate and alternatives asset classes </li></ul><ul><li>Institutional and more sophisticated private investors require tailored solutions, attractive conditions. ‚One-size-fits-all‘ funds are not an option. </li></ul>
  10. 10. Thank-you for your interest <ul><li>Ivo Knoepfel </li></ul><ul><li>Managing Director </li></ul><ul><li>onValues Ltd. </li></ul><ul><li>[email_address] </li></ul><ul><li>www.onValues.ch </li></ul>
  11. 11. Standardised solution for family offices and foundations: onValues SFPs <ul><li>Sustainable Fund Portfolios (SFPs) contain the best funds selected from onValues‘ universe </li></ul><ul><li>Available for three different risk levels, different currencies </li></ul><ul><li>Only liquid assets, funds registered in Europe </li></ul><ul><li>Regularly updated and rebalanced </li></ul><ul><li>Transparent methodology, state-of-the-art reporting </li></ul><ul><li>Entire onValues know-how (asset allocation, selection of managers and funds) in one solution </li></ul>
  12. 12. Integration is challenging… <ul><li>PRI signatories find integration of ESG into investment decision-making the hardest part of their commitment </li></ul>Source: UN PRI