The most recent climate conference in Sharm El-Sheikh ended almost two weeks ago. What do you remember from this meeting?
Fabio Pellizzari: Nothing that was not already discussed in Glasgow in 2021. No progress has really been made this time.
Are these annual conferences even necessary?
The meetings are essential, even if it is sometimes difficult to agree on concrete measures. Indeed, climate change is a global problem and can only be solved globally. Also, important decisions have been taken at previous UN climate change conferences, namely those in Paris in 2015.
How do these affect your day-to-day business?
The decision of the Paris Climate Change Conference to reduce net greenhouse gas emissions to net zero by 2050, for example, motivated various countries to issue bans on the sale of petrol and diesel cars. As a result, many car manufacturers have announced that they will be phasing out combustion engines. As an asset management company, it is crucial for us to recognise the resulting risks and opportunities for the individual companies. These have a direct impact on the return on a financial investment.
How do you proceed in this context?
We are also committed to the Paris climate targets and have been pursuing a path to greenhouse gas reduction with our active investments in traditional asset classes since 2020. To this end, we measure CO2e emissions in every investment universe. In order to reach the 2-degree target by 2050, we need to reduce greenhouse gas emissions by 4 percent annually. If we strive for the 1.5 degree target, this figure is as high as 7.5 percent per year. We can determine the amount of CO2e emissions for each portfolio on a daily basis. It is also possible to simulate the impact of purchases or sales on the portfolios.
To what extent do you influence companies' sustainability efforts?
We follow the engagement approach, talk to the companies and try to initiate or support appropriate measures. For example, we have been maintaining regular dialogue on greenhouse gas reduction targets with Holcim, probably the largest listed CO2e emitter in Switzerland, since 2017. Another option is to sell some or all of the securities if the reduction target is not achieved. After all, we have to compensate for the CO2e emissions in the portfolio if a company emits more emissions than our reduction path specifies.
Holcim is considered one of the more sustainable cement companies.
That is true. The cement company is working to reduce its greenhouse gas emissions by 7.5 percent annually. It has already initiated numerous measures to this end.
What if Holcim deviates from this path?
Over time, we would have to consider underweighting Holcim stocks in order for the portfolio to meet the carbon reduction path.
You manage the two product lines "Responsible" and "Sustainable". Why is this distinction necessary?
The "Responsible" strategy focuses on the transformation into a sustainable economy and therefore invests in almost all sectors and countries. The strategy goes beyond the blacklist recommended by the Swiss Association for Responsible Investments (SVVK-ASIR). We exclude companies, for example, which manufacture weapons and ammunition, tolerate child labour, produce pornography or operate in the coal industry. We also seek dialogue with companies and strive for the 2-degree climate target.
In the "Sustainable" strategy, the exclusion criteria are even more extensive and the highly ambitious 1.5 degree target is pursued – with the exception of the thematic funds. Here we also invest in business models that already offer solutions for the future today, which will enable them to grow at an above-average rate in view of the social and ecological problems in the coming years. Due to the exclusion criteria and positive selection, around 30 percent of the original investment universe remains. This explains the slightly higher risk of deviation of the "Sustainable" strategy from a traditional benchmark.
Is the "Responsible" strategy actually sustainable?
Yes, absolutely. "Responsible" primarily stands for exclusion criteria and exercising voting rights. We go much further by integrating ESG criteria and incorporating the climate target specifications. There are different approaches to sustainable investing. However, many retail customers have the "Sustainable" concept in mind when talking about sustainability. They are surprised when they find Nestlé or Holcim in the portfolio, for example. Converting existing conventional business models into sustainable business models is very complex, expensive and time-consuming in practice. There is often a lack of understanding of this transition. But it is important that large corporations succeed in the transition. On the one hand, their products are often essential for carrying out the transformation. On the other hand, the effect is also significantly greater if, for example, Nestlé switches completely to recyclable and degradable packaging than if a small organic shop on the corner serves a few customers with a zero-waste concept. Both approaches are justified and benefit society and the environment.
Let's return to the engagement approach, the dialogue with the companies invested in. How effective is this approach?
It is very difficult to demonstrate a direct impact, as we are not the only ones who get involved. In Switzerland, we will certainly be heard more strongly as the third-largest asset manager. Here, we also have very good contacts in the top management of Swiss companies. We have commissioned Sustainalytics to carry out this task abroad. We are also active abroad through co-engagements. All in all, we can achieve a much greater impact today than we could just a few years ago. One successful example of an engagement in which we have been involved is that of Engine Number 1, a small hedge fund. It called for a change in Exxon's Board of Directors towards more sustainability. Thanks to the joint approach of several financial institutions, three established directors were replaced by experts in the field of renewable energies. You can certainly make a difference – not on your own, but together with others.
How do you report transparently to your customers?
Our Swisscanto Sustainability Report shows a number of important key figures for all sustainable funds and compares them with the benchmark index. Besides our own ESG score, we also report on the achievement of the climate target. Controversial business areas are also indicated.