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Our ESG Investment Minimum Standards
Our ESG Investment Minimum Standards serve as the foundation for our Asset Management, and their compliance is ensured at all times by our portfolio management team. Thus, companies and sovereigns that do not meet the minimum ecological, social, and ethical standards we have set are excluded from the investable universe.
Shares and bonds of companies involved in controversial weapons activities or in significant corporate controversies, defined as serious misconduct in the environmental, social, and corporate governance areas, are excluded from the investable universe. Additionally, companies that exceed defined revenue thresholds in thermal coal mining or power generation from thermal coal are excluded. These exclusions support the reduction of the carbon footprint of our investments as part of our environmental impact assessment.
Regarding sovereigns, we consider three sustainability criteria that may lead to the exclusion of their bonds from our investment universe. Sovereign issuers are excluded if they have not ratified the two fundamental UN agreements, the International Covenant on Civil and Political Rights and the Convention against Corruption, or have not initiated their implementation. Furthermore, to remain in the investable universe, each country must have at least a rating of “B“ according to MSCI ESG Research.
In the ESG Investment Committee of the Warburg Group, which combines the sustainability expertise of our ESG management with the portfolio management of Warburg Bank, as well as that of our subsidiaries Warburg Invest and Marcard, Stein & Co, all exclusions are continuously reviewed and adjusted as necessary. In order to make well-founded assessments of the severity of controversies, we engage in active dialogue with selected companies.
Focused sustainability strategies
Warburg's Portfolio Management looks at the sustainability performance of a country or company using the MSCI ESG rating. This aggregates environmental, social and ethical aspects together into a rating on a scale from AAA to CCC. Countries or companies with a rating lower than BBB are excluded from the sustainability universe.
The assessment of countries is based on twelve criteria. We refer to globally recognised institutions such as Freedom House, the UN or Transparency International. Important criteria are climate protection, corruption, money laundering, military expenditure and the death penalty.
The sustainability methodology for selecting companies follows a multi-stage process. Absolute and relative exclusion criteria for business activities are combined with minimum rating thresholds and quality standards for handling corporate controversies. The exclusion criteria apply to business sectors considered controversial, including alcohol, tobacco, weapons, and nuclear energy. In addition, companies whose ESG rating from MSCI ESG Research is below BBB – and thus exhibit a markedly deficient sustainability profile relative to their industry – are excluded. No investments are made in companies that violate recognized standards, such as the UN Global Compact.
In the area of impact investments, we allocate funds that grant microfinance loans in addition to green bonds.
We show our clients the sustainability characteristics of their assets in the form of a supplementary overview, which we integrate into our regular reporting.
We believe that changes in the sustainability performance of companies can serve as valuable indicators of their reputation, operating environment and ultimately the performance of their shares.
We have your risk in mind
A significant risk of sustainable investment is so-called "greenwashing"; this involves making misleading or unsubstantiated statements regarding the sustainability of investments. Our strict implementation of the sustainability criteria described on this page rules out greenwashing.
ESG-compliant investments in securities are also associated with risks. Nevertheless, in our view, there are clear arguments in favor of including sustainability criteria, and more and more investors are acting accordingly. This is not a short-term trend, but a fundamental rethink in the behavior of investors.
A key aspect here is that today's investors are making very conscious decisions, attaching greater importance to transparency, and want to make a positive contribution with their investments. We would like to support them in this.
Date of update: 22.12.2022
Date of first publication: 01.06.2020
Daniel Hupfer
Head of Portfolio Management
Hamburg
