Money vs. morality? Uniting financial and personal values
An assessment from our investment expert Lars Kalbreier
People who invest sustainably can set the agenda. Not only in terms of ideals, but also risks. That’s because up to now, "non-sustainability" has been ignored in traditional financial analyses. At the same time, investment opportunities lie hidden in companies that do act sustainably.
Lars Kalbreier is the Chief Investment Officer of Vontobel Wealth Management and member of the Vontobel Sustainability Committee.
We can observe two major motivations why investors are interested in sustainable investing: On the one hand, they do so out of conviction, i.e. they would like to reinforce their personal values with financial clout. Here, their ethical, social, and environmental principles play a crucial role. A second motivation is monetary. This is because companies that operate sustainably face smaller environmental, social, and economic risks and tend to develop sustainable products. This makes them attractive to consumers, which in turn promises revenue growth.
No matter which reason predominates for any individual investor, overall the so-called ESG criteria (Environmental, Social, and Governance Standards) are now an indispensable orientation. They help make it possible to judge a company based on its environmental, social, and management standards – and thus to identify investments.
"Shareholders have the power to make a lasting impact on corporate decisions."
If an investor’s motivation for sustainable investing is mainly to align with his values, the best approach is to follow either an exclusion strategy or an impact investing strategy:
- The former avoids companies operating in ethically questionable areas, typically the weapons, tobacco, or alcohol industries.
- The impact investing strategy on the other hand, seeks to selectively promote products and services that advance society and / or help the environment. Think of renewable energy or infrastructure funds.
"Sustainability also makes financial sense today."
Sustainable investments offer the advantage of improving the risk-return ratio. Depending on the perspective, the ESG criteria can be used to draw a line between sustainable and less sustainable companies.
- The best-in-class approach asks which firms can outdo their competitors with environmental or social achievements or in terms of corporate governance.
- The ESG integration approach has similar objectives but combines the ESG criteria with traditional financial analysis tools.
- Thematic investments finally target the global resource situation, technological, political or social trends in order to generate competitive advantages over the long term. Particularly interesting here are companies in the field of "clean technology", energy or water, but also education and healthcare.
"A sustainability strategy is also a risk avoidance strategy."
Investors who are guided by sustainability criteria assess their investments from a perspective that offers more than just being in harmony with “the spirit of the times". It reveals both opportunities and risks that do not appear on the radar of traditional financial analysts. The ESG criteria must be an integral part of a robust investment process, not least because they do not turn potential returns into the pawn of social, environmental or corporate controversies.
About Lars Kalbreier
Lars Kalbreier has been the Chief Investment Officer of Vontobel Wealth Management since 2017. Prior to Vontobel, he served various management positions within Credit Suisse, as Member of the Global Investment Committee, as Global Head of Equities, Thematic & Alternatives Research for Asset and Wealth Management and Global Head of Investment Funds & ETFs. Prior to that he worked for JP Morgan in London and New York as Global Investment Strategist and Portfolio Manager.
Lars Kalbreier has a Master of Science in Finance and Management from the University of Lausanne (HEC) and an MBA from Cambridge University, and is a CFA Charterholder.
Sustainable innovations at Vontobel
Our thematic investments and funds focus Vontobel's know-how on selected investment strategies, e.g. on the ecosystems supporting innovative food companies or resource-saving technologies.
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