Sustainable Asset Management

For many investors, ensuring sustainability is becoming a more and more important element of portfolio building. Our Portfolio Management team meets this requirement by taking investment decisions not just from a financial perspective, but also using ESG criteria. Investing sensibly in ESG assets depends on thorough research, sophisticated processes, and substantial experience. We are happy to advise clients on investments in this area and to assist them on the journey towards a more sustainable future.

What does ESG stand for?

Sustainable investment is not just about environment protection. The acronym ESG stands for “environmental, social, and governance.” In addition to investments in renewable energy projects, for example, it covers topics such as complying with labor rights and strengthening shareholder rights.

The following graphic provides an overview of ESG topics:

Our methodology

Warburg’s sustainability methodology is based on a transparent, multistage process that defines both exclusion criteria and minimum requirements for companies and states. The underlying data are sourced from MSCI ESG Research, a leading global provider of sustainability analyses and other globally recognized indices and indicators. We are convinced that using our sustainability methodology offers an additional way of meeting the responsibility we owe our clients and society even more successfully.

Selection procedure

M.M.Warburg & CO’s Portfolio Management team uses the MSCI ESG Ratings methodology to assess the sustainability performance for particular countries or enterprises. This combines environmental aspects (e.g. climate change, environmental protection opportunities), social aspects (e.g. human capital, economic environment), and ethical aspects to produce a single rating on a scale from AAA to CCC. States with a rating of less than BBB are excluded from the sustainability universe.

A total of eleven minimum standards are used to classify states. These include topic areas such as climate protection, anti-corruption, money laundering, and military spending.

Portfolio Management has implemented the sustainability methodology used to select companies as a multilevel filter process. Absolute and relative exclusion criteria for business activities are combined with minimum ratings and quality standards to be applied when handling controversies. Absolute exclusion criteria include the manufacture of non-military weapons and tobacco products, and the use of nuclear power to generate electricity. Relative exclusion criteria focus on the importance of business activities to revenues. They are used, among other things, to exclude wholesalers and retailers generating more than 5 percent of their revenues from non-military weapons.  

In addition, we rule out investments in companies that have a below-average MSCI ESG Rating for sustainability compared to their sector peers. Equally, any enterprises that infringe accepted agreements such as the UN Global Compact are not considered as candidates for investment.

Adding value for investors

We are convinced that investments that comply with ESG criteria are more stable and hence more successful in the long term. A well-balanced, ESG-compliant portfolio offers opportunities for increased returns, and may reduce volatility and generate an improved risk-adjusted return.

ESG-compliant investments in securities still involve risks. Nevertheless, in our view there are clear arguments in favor of an ESG approach, and more and more investors are acting accordingly. This is not a short-term trend, but a fundamental shift in investor behavior.

Key aspects of this are that investors today take extremely conscious investment decisions, set greater store by transparency, and want to make a positive contribution with their investments. We would be happy to help you with this.  

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