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"Investors have a lot of leverage"

February 5, 2020

reading time: 8 minutes

by Sidi Staub, LGT

Andrea Ferch, expert for sustainable investments at LGT Private Banking.

Andrea Ferch is responsible for sustainable investments at LGT Private Banking. She explains how investors can support the social and environmental transformation of the economy.

Ms. Ferch, can investors help prevent climate change and perhaps even save the world?

Andrea Ferch: They certainly can't do it alone. But every investor can make a contribution by making their assets more climate-friendly. If, for example, I stop investing in companies that mine coal and instead invest in companies that promote the development of renewable energy sources, I’m already making an important contribution. And if a lot of investors do the same, including big institutional investors, that can make a significant contribution to the very important transition to renewable energy. Investing money gives you a lot of leverage and can make a big difference, including making the economy more sustainable. Many investors aren’t fully aware of this.

Some climate activists are demanding that banks and investors withdraw from oil, gas and coal immediately. Is this realistic?
We have a similar position at LGT as far as coal is concerned: since February, we have been excluding companies that mine coal or generate energy from coal from our investments. We do this because coal is the most CO2-intensive source of energy. At the same time, I think that realistically, we can’t completely do without fossil fuels yet because the world's energy needs cannot currently be met by renewable sources alone. That's why, in my view, it doesn't make sense to abandon oil and gas immediately and exclude investments in companies that are active in that business. As I mentioned earlier, we should instead invest selectively in companies in this sector that are leading the way in the switch to alternative energy sources and have therefore heralded the fundamental transition to renewable energy. As investors, we can support that change.

Sustainability-oriented companies are very often innovative companies that operate in seminal and therefore profitable sectors.

Apart from the desire to help make the world a better place, are there other reasons that investors should take a sustainable approach?

Yes, if you invest more sustainably, you’re not only doing something positive for the environment and for future generations, but also for your assets. By investing sustainably, you can avoid certain risks. Here’s just one of many examples: if a CO2 tax is introduced in Europe, the profits and therefore the share prices of sustainability-oriented companies – i.e. companies that have already reduced their energy requirements and switched to renewable energies – will be far less affected. The same naturally applies for an equity portfolio that has been structured according to this premise. In addition, sustainability-oriented companies are very often innovative companies that operate in seminal and therefore profitable sectors.

But many investors worry that they will generate a poorer return with sustainable investments. What does the research say about that?

Analyses and studies have been done on this topic for decades now. They usually compare broadly diversified equity portfolios, with one group investing only in the best companies within a sector in terms of sustainability, while the other group does not use sustainability as a criterion. Most studies have shown that the sustainable portfolios perform at least as well as the traditional portfolios. In a number of cases the sustainable portfolios even came out on top. I think that this trend will probably gain even more momentum in view of the increasing environmental risks and the political reactions to those risks – for example, the introduction of a CO2 tax. But we need to differentiate: if an investor takes a strict approach and excludes many sectors and invests very selectively in smaller companies that, say, are developing innovative technologies to solve water shortages or reduce waste, this can have a positive environmental impact, but their portfolio will also carry a significantly higher investment risk compared to a traditional, broadly diversified portfolio. Our recently launched sustainability-oriented portfolio management solution definitely includes companies that provide innovative solutions, but as ancillary investments. We pursue a strategy of broad diversification in terms of regions and asset classes, but naturally, when we select investments, we are looking for good sustainability quality.

According to most studies sustainable portfolios perform at least as well as traditional portfolios.
According to most studies sustainable portfolios perform at least as well as traditional portfolios.

What are LGT’s goals in the sustainable investment space?
Our primary goal is to significantly increase the share of sustainable investments in our Private Banking clients’ portfolios and in doing so, support the more sustainable allocation of capital. We are convinced that this can contribute to resolving the major environmental and social challenges of our time.

How do you plan to achieve these goals?
We have to convince our clients and relationship managers of the benefits and inspire them to invest sustainably. That’s the only way to get them on board. The first thing we’ve done has therefore been to create more transparency. With our sustainability rating, we are now able to show our clients in a very straightforward way where their portfolio stands in terms of sustainability. We will continue to develop this rating systematically and will also expand our range of attractive sustainable investment solutions.

LGT recently launched new portfolio management solutions with a focus on sustainability. What are the next steps in this area?
The extremely positive response we’ve gotten shows us that there is a real desire on the part of investors to take a sustainable approach to all of their investments and not just integrate individual sustainable investment products into their existing portfolio. We therefore intend to launch a corresponding advisory offering for our advisory clients in the near future. We also want to evaluate funds that enable our clients to focus on various areas of sustainability, for example smart mobility or nutrition.

Pictures: Nadia Schaerli

Committed to sustainability

Andrea Ferch has been working at LGT since 2007 and is head of the Sustainable Investing team. Before joining LGT, she was responsible for the development and lifecycle management of investment funds at the Swedish company SEB Asset Management AG in Frankfurt for a number of years. She is highly committed to sustainability and sustainable investing. She has been working in this area since the end of the 1990s and has built significant expertise over the past two decades. A nature lover and an enthusiastic gardener, Andrea Ferch works to preserve biodiversity through her active engagement in a communal garden in Zurich.

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