“Expert View” – sustainability: both a challenge and an opportunity – Current overview of the structured products industry by Adrian Steinherr, UBS
The topic of sustainability is shaping public debate like no other. Politicians, scientists, business leaders and consumers are struggling with the question of how to master the enormous ecological and social challenges. In 2015 the United Nations (UN) supported by 193 countries approved “Agenda 2030” for sustainable development. This is designed to end poverty, while simultaneously combating climate change and injustice.
According to UN figures, annual investments of five to seven trillion US dollars will be needed to achieve the 17 social development goals (SDG) by 2030. This estimate alone demonstrates that the financial sector will be closely involved. When it comes to safeguarding resources and opportunities for future generations, it has a key role to play. On the one hand, this applies to the allocation of outside capital. Banks can support this process of change, for example by no longer funding coal-fired power stations.
At the same time, sustainability can and should become a central parameter for the asset management sector. The transformation is in progress, and investors are increasingly resorting to “ESG” for capital allocation. This refers to environmental, social and governance topics. The question is how these criteria can be effectively and rigorously realised in a portfolio. In the past, it was enough for investors to exclude controversial sectors, such as for example armaments or tobacco producers. Today portfolio management goes further. Companies need to satisfy the most stringent ESG standards before their shares or bonds can be considered for a sustainable investment.
Such approaches serve more than just a good conscience. ESG investments need to generate stable returns over different time horizons. Under no circumstances should investors have to “pay” for their principles by accepting a lower performance. To achieve this goal, information is essential, in addition to portfolio management expertise – high-quality and extensive data is required to distinguish ESG star performers from the broader masses. However, an exemplary sustainability strategy is not enough on its own. In future, long-term success will also be crucially dependent on a company’s financial and operative strengths.
The Swiss market for structured products is taking this change into account. Sustainable investment solutions are increasingly being offered by issuers – whether through equity indices with ESG filters or with third parties who wish to finance specific projects. Our industry has in the past repeatedly demonstrated its ability to respond quickly and flexibly to a changing environment. To this extent, ESG offers a tremendous opportunity, as the segment is very likely to become increasingly important within the market for structured products. At any rate, I am certainly looking forward to a fascinating and fruitful discussion of appropriate and promising solutions.