Axel Schwarzer: «Need for a Closer Look»
Sustainable investing can only ever be truly sustainable if you apply an active portfolio management approach, writes Axel Schwarzer, head of Vontobel Asset Management, for finews.asia.
By Axel Schwarzer, Head of Vontobel Asset Management
Saturday marked the end of the UN Climate Change Conference, which this year was held in Katowice. Hundreds of politicians from around the globe and NGOs from more than 200 countries have spent the last two weeks struggling to find the best way to at least mitigate climate change.
Almost all countries now recognize the need to take action. And it has long been the case that environmental protection does not preclude employment, and vice versa. The same can be said of sustainable investing and returns – as evidenced by the constantly growing demand for sustainable investments.
Sustainability Stars That Meet Minimum Standards?
In fact, sustainable investments have long ceased to be a niche product. Even major fund companies have discovered this asset class and are now launching passive, index-based ESG products on the market.
The question is: just how sustainable can index-based investments really be when capital is invested equally in companies that are true sustainability stars and those that only meet the minimum standard?
Regular Dialogue With Management
If you want to separate the wheat from the chaff and really invest sustainably, you won’t be able to avoid taking a closer look at these companies – in the same way that actively managed funds do. Active funds can specifically select the real sustainability stars that have potential. And a characteristic of active portfolio managers is that they engage in regular dialogue with the management of the companies they invest in and verify their compliance with the applicable standards.
In the interests of good corporate governance, these portfolio managers exercise influence over the management teams of investee companies, for example, as well as through their voting behavior at annual general meetings. In addition, active managers are in a position to apply ESG principles to all asset classes, including emerging markets, fixed income and real estate, where a purely index-driven approach simply won’t work.
More Demanding, and More Effective
Active company analysis is the only means of ensuring that firms with the best business practices are prioritized when investing. This means that if you not only seek to act sustainably but also want your investments to have a sustainable impact, you will inevitably have to follow the perhaps more demanding but also more effective active approach.
Axel Schwarzer has been in charge of Vontobel's asset management since 2011. Before joining the Zurich-based bank, Schwarzer worked for more than two decades at Deutsche Bank, first in private banking and later, from 1999, in asset management.
