Why shouldn't institutional investors go even further?
Schmitz-Esser: In the case of passive sustainable investments, there are various options to exclude companies who have a poor track record in sustainability. Certain concepts and products exclude up to 75% of the securities in an index. As a rule, this drives down diversification and increases the risk. An investment of this kind is a suitable addition to a portfolio or for philanthropic investors. Furthermore, the MSCI ESG Leaders indices also set the bar very high. Of 1,600 securities, they exclude 50% of market capitalization. This is already very strict for most institutional investors when it comes to their core portfolio.
Some may still accuse you of greenwashing.
Schmitz-Esser: Exclusion and best-in-class are proven methods that work in accordance with market economy models and do not just rely on bans. So they do have an impact. It's comparable to CO2 emissions trading: Carbon emissions are not directly prohibited. By forcing companies to pay for their emissions, there is an incentive for them to do business more sustainably.
Bodmer: I think the days of investors doing something just to get some peace and quiet are over. There is widespread urgency to take action. But the method chosen depends on the guidelines for the individual investors. For us, the ESG index funds are the right choice.
Fifty percent of companies are missing from the benchmark index. Aren't you worried this will have a negative impact on performance?
Bodmer: No. There are even studies proving that sustainable investments outperform in the longer term, because the companies have a lower cost of capital or because "green" products are generally more successful. Overall, we expect performance to be in line with the benchmark indices. In the long run, we feel certain that sustainability will pay off. By contrast, we cannot exclude too many stocks, because that's bad for diversification and drives up the risk.
Schmitz-Esser: Much research has been done on the correlation between ESG criteria and financial performance. For instance, a meta study comprising 2,200 studies concluded that, in 90% of cases, there was a neutral or even positive correlation between the sustainability practices of a company and its performance. So good performance and sustainable investing are not mutually exclusive. We have analyzed our products as well and found that in Europe, Japan, and especially in the emerging markets, we outperformed the benchmark indices with the ESG Leaders indices. Outperformance in the emerging markets was even 3%, which was due mainly to the companies' better corporate governance. The ESG indices lagged somewhat behind only in the US, where some technology stocks were excluded due to ESG issues.
Sustainable investments are a huge trend at the moment. What do you think about the higher market demand?
Schmitz-Esser: You can't avoid the topic any longer in Switzerland and Europe, whether you are an institutional or private investor. Everyone must deal with the sustainability issue. This is why demand is so high, including for ESG index funds.