“In the past, as long as our investments delivered a decent return we didn’t necessarily question how that had been achieved. Life is not like that anymore,” says Nicolas de Skowronski, Head of Advisory Solutions at Julius Baer. In his commentary, he takes a look at how our changing values are shaping the way we invest.
As a parent, my outlook on life is constantly changing; every day my wife and I are faced with making decisions not only for ourselves but on behalf of our family too, and the more these little people grow, the more they challenge me. My wife and I cannot just make decisions for them anymore – they demand that we explain our reasoning.
It seems to me that the way we invest is changing in the same way. In the past, as long as our investments delivered a decent return we didn’t necessarily question how that had been achieved. Life is not like that anymore. We now want to know precisely which businesses our money is invested in, and we want to ensure that our investments are in line with our personal convictions. They need to match our needs today, but they also need to meet the needs of the next generation too.
We now want to know precisely which businesses our money is invested in.
Change is happening
Every year, there is a news article in August or July announcing Earth Overshoot Day. This day marks the date when humanity’s demand for resources in a given year exceeds what the Earth can regenerate in that year – and each year, this day comes earlier.
Discussions about sustainability and responsibility have gained momentum in recent years – the volume is being turned up. It seems to me as if we have reached a tipping point in multiple areas and it is up to us to decide where we want to go from here.
Facts, not fiction
As a physicist, I am all about scientific facts and time and again the scientific facts prove that we humans are changing the world – we are heating up our planet. Greenhouse gases in the atmosphere have risen to record levels, the average global temperature continues to rise, and the world’s ice is melting. But numbers can only tell us so much – what is happening to our planet can be experienced by every single person living on it. Here in Switzerland, the first glacier was officially lost in September this year, and extreme weather phenomena are becoming more frequent globally.
The UN states that the impact of climate change is global in scope and unprecedented in scale. It is already affecting the current ‘operating model’ of the world and will soon have a significant impact on every single one of us. Without drastic action today, adapting to these impacts in the future will be more difficult and more costly.
A responsible agenda
Whether it is young people in Europe protesting against inadequate climate policies, the increasing number of initiatives to clean up our oceans, or companies cutting back on the use of plastic straws, one thing is clear: topics related to sustainability are regularly making headlines and challenging our existing habits and structures. While these topics have always been present, they are now becoming everyday issues, affecting everything from the food we eat to the way we travel and how we invest.
Recent waves of protests have triggered a shift in how people discuss social and environmental issues.
Society as a whole is changing and this is also reflected in politics. Recent waves of protests have triggered a shift in how people discuss social and environmental issues, forcing politicians to sit up and put these issues on their agendas.
A new business model
The topic of sustainability is also receiving, quite rightly, the attention of the business world. Back in 1962, Milton Friedman asked the question “what is the purpose of a company?” His conclusion was that a company had no social responsibility to the public or society, but only to its shareholders. After the financial crisis of 2008, the belief that free markets could solve any problem disappeared. Simultaneously, anger with the corporate and political elite grew. Many companies took a hit and started changing the way they saw their role in society. Just recently, over 180 American chief executives issued a collective “statement on the purpose of a corporation” that abandoned their long-held position of shareholder primacy. Instead, the group pledged “a fundamental commitment to all stakeholders”. Meanwhile, the role of employees has transformed too. Employees are actively starting to shape the companies they work for and contribute to the success of their organisations.
With the corporate world changing, and society and politics pushing for a more sustainable future, governments, regulators, and central banks are starting to address the subject more seriously. At the beginning of September, the new president of the ECB, Christine Lagarde, pledged to continue to keep green bonds in focus and to ascertain how the ECB can be an actor in this movement. In addition, new regulatory requirements such as the EU Sustainable Finance Action Plan, new guidelines such as the Principles for Responsible Banking, and new cross-border treaties such as the Paris Agreement, are ‘forcing’ even the most stubborn among us to change and to start considering environmental and social issues.
We believe that investing responsibly is not only a ‘feel good’ story, but that it pays off financially.
Investing in the future
So, if everything and everyone around you are changing, and you already lead a sustainable lifestyle by recycling or reducing your carbon footprint – why not go one step further and align your investments with your values?
We believe that investing responsibly is not only a ‘feel good’ story, but that it pays off financially – and this combination of emotional and monetary satisfaction is the ‘unique selling point’ of responsible investing. Responsible investing should not be viewed as something that will limit your return potential, it should be seen an investment in your family’s future.
Our responsible investment guidelines have become an integral part of Julius Baer’s investment process and go beyond just selecting investments based on ethical considerations. We believe that crunching cash flow and balance sheet numbers alone is not sufficient to properly asses a company’s opportunities and risks. Incorporating environmental, social, and governance factors into investment decision-making helps to reveal a company’s ability to manage the dynamic environment and uncover its strengths and weaknesses.
I started this article by talking about my children and I want to return to them again now. Children are our future and, like it or not, we all have a responsibility to make that future the best it can be. It is our duty to ensure that our finite resources are managed carefully and sustainably, leaving a healthy planet for future generations.
Julius Baer is a signatory of the UN Principles for Responsible Banking and we are committed to aligning our business strategy with the objectives of the UN Sustainable Development Goals and the 2015 Paris Climate Agreement. The financial industry has a key role to play in the transition to a more responsible world. It provides capital and can direct society towards sustainable solutions with a positive impact. So, for those who doubt that they can influence the direction the world is taking, forget your doubts. We can make a positive difference while at the same time addressing our and our family’s financial needs. Responsible investing is here to stay and we intend to make it easier for you.