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Impact Investing

IPE special report May 2018

Sections

Land of opportunity

“Companies addressing issues
such as global demographic
developments, rising consumption
of raw materials and energy
and the increasing environmental
impact and effects of these are acquiring
competitive advantage over those that
were not” says Andreas Knoerzer, head
of sustainable investments at Bank
Sarasin.
Sarasin has been involved in sustainability
research since 1989 and has been
part of the United Nations Environment
Programme (UNEP) since 1996.
“We managed our first mutual fund in
1994 and now manage £1.3bn
(€1.9bn) in assets,” says Knoerzer.
He continues: “There are immense
cost savings that could be made by
avoidance of environmental damage
and the benefits arising from the application
of care in the use of diminishing
resources. There are also opportunities
through the opening up of new markets
resulting from the development of ecologically
sound technologies. Investment
opportunities over the next five
years from a carefully selected portfolio
of companies likely to become beneficiaries
of these factors are clearly appealing.”
Sarasin has performed case studies
where it examined the financial performance
of better rated companies in
environmentally sensitive sectors such
as forestry, mining etc. “We found that
they outperformed the lower rated
ones,” Knoerzer says.
Sarasin’s so-called ‘sustainability
matrix’ is based on a measure of the sustainability
of the company in comparison
to other companies in the same sector
versus the sustainability of the
industry in terms of technology and
products.
The company covers 40 sectors. “It is
important to note that we don’t just
look at sustainable industries,” says
Knoerzer. “Some companies perform
better in certain sectors than others and
this unlocks the potential for portfolio
investors.”
Sarasin’s analysts include biologists,
geographers, physicists and engineers.
“So if we engage with companies and
raise questions we are more readily
accepted by companies because we
have worked in the industry,” Knoerzer
continues; “much more readily than a
junior from university who wants to do
good in the world.”
Sarasin’s sustainable investment
research team has identified themes for
the recently launched Sarasin OekoSar
Equity fund, a global equity fund
searching for companies likely to be
beneficiaries of these themes:
❑Clean energy and efficiency;
❑Health;
❑Water;
❑Sustainable consumption;
❑Sustainable mobility;
❑ Services (eg, environment and education);
❑Innovative management systems.
Knoerzer provides an example of a
stock that fits the Sarasin OekoSar
‘Clean energy and efficiency’ theme -
SolarWorld AG - which is active at all
levels of the value chain in photovoltaic
renewable energy, from the silicon raw
material to the finished solar power
installation. Between January 2005 and
the middle of February this year the
share price rose some 542%.
Over the same period another company,
Aguas de Barcelona supplying
15m people in Spain and 20m in South
America, has seen its share price
increase 46%. The company is also
engaged in desalination of water.
Sarasin invests in companies that have
little conflict with their stakeholders
thus are not driven in the first instance
by ethical issues. “We do offer negative
screening but we look at positive
screening,” Knoerzer explains. “For
example, in the case of Brent Spar it
doesn’t matter who is right – the damage
has been done, and people didn’t
use their petrol stations. So it is critical
that companies look at how their
actions will be perceived.”
He points out that the critical aspects
are social. “Under that heading reputational
risk is key – especially for companies
relying on the value of their brand
such as Nike, Adidas and Puma. With
the World Cup coming up and so much
publicity these companies will be scrutinised
carefully by NGOs.”
He points out that the increasing profile
of these issues has borne results: “As
a result of the scrutiny these companies
have substantially improved their supply
chain. It is much tougher to become
a supplier now than it used to be.”
One of the challenges for pharmaceutical
companies is in providing therapies
for poorer parts of the world, even if a
country cannot afford it as is the case
with HIV medication and Tamiflu.
“Investors are trying to address these
issues,” says Knoerzer. “Roche
responded by giving patents free to the
50 poorest countries and 50 at a discount
to the 50 next poorest, etc.”
In measuring environmental impact
Sarasin adopts the life cycle approach.

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