"best in service"- what do consumers really want?
TRANSCRIPT
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Triple Bottom Line Investing Conference 2005Frankfurt November 2-3-4
„Best in Service“ –
What do consumers really want?
INrate AG, Switzerland www.inrate.ch
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Role of SRI Approach: „Best in Service“ Sustainability universe Investment products Conclusions
Content
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Achieving a sustainable society by improving intra- and intergenerational fairness, reducing the ecological foot print, primarily in
industrialised countries.
Role of SRI: The Aim
Sustainability = Improved eco-efficiency and social fairness of production and consumption
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Saving energy or consuming energy: Insulation instead of heating.
Improving a standard technology or developing intelligent system solutions: combustion engines versus mobility management.
Prevention versus healing and rehabilitation: Promotion of good food and fitness activities versus expensive medical equipment.
Responding to upcoming ecological and social problems or waiting until regulations will come into effect.
There is always the choice between…
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Consumers predominantly ask for services, such as nutrition, clothing, housing, mobility, communication, entertainment, etc.
Consumers (should) prefer eco- and socio-efficient alternatives - if they are cost-efficient.
Eco- and socio-efficient - sustainable - alternatives of services are available, e.g.:
Power and heat from renewable energies, eco-efficient building materials, eco-efficient means of transportation.
Role of consumers
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Firms are considered a means to an end. They are supposed to offer eco- and socio-efficient services,
good jobs and good investment opportunities. There are firms offering sustainable alternatives, e.g.:
Power: Solarworld Construction/thermal insulation: Sarna (SIKA) Rail Carrier: Deutsche Bahn
Role of firms
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SRI means investing in firms offering the most socio- and eco-efficient alternatives to consumers, and in doing so:
raising the economic value of sustainable firms, increasing incentives of firms towards sustainable
activities, fostering sustainability.
Development towards sustainability implicates incorporating social costs and newly structuring relative pricing. Firms with social awareness - SRI firms - are ready for this development.
Role of SRI: Quintessence
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Focus on…. …ecological and social efficiency:
On demand are the most eco- and socio-efficient solutions satisfying consumer needs. firms which offer such solutions are called „best in service“.
…life cycle analysis: Analysis of the role of firms within economy and society
as a whole: Up-stream and down-stream effects of products and services are systematically taken into account.
Best in Service: Two core elements
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Sustainable Development calls for a fundamental structure change towards improved ecological and social efficiency.
Therefore a new approach is inevitable, starting with consumer needs. The key question is:
Best in service: Key notes (I)
How do we satisfy consumer needs so that they will be compatible with ecological and social goals?
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The focus has to be on services and not on products. The potential of more eco- and socio efficient solutions can be
enlarged drastically by exploiting the innovative scope arising from the focus on services.
Best in service: Key notes (II)
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Focus on service oriented innovations
policy / market incentives for firms
ecological discharge potential
processinnovations
productinnovations
functionalinnovations
service oriented innovations
Source: Minsch et al. 1996
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Ecological and social impacts per service unit are compared:
Best in service: Key notes (III)
UnitServiceePerformanc/SocialEcological
Comparison of all firms offering the same service. The comparative setting is enlarged, and the barrier for passing the check mark is set significantly higher compared to the usual best-in class-approach.
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Which services are considered?
Housing Communication
Clothing Mobility
Nutrition Heat
Health Power
Education Sanitation
Recovery Disposal
Infotainment Safety
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Mobility as a service offer: Transportation of people and goods Providers of mobility from car manufacturer, rail, navigation and
air carriers to bike manufacturers are being compared with regard to ecological and social efficiency.
Due to the assessment across different industries, no car manufacturers and air carriers are represented in the INrate investment universe.
Example: Service sector mobility
Outcome of the INrate approach of ‚best in service‘
Critical industries such as cars or oil refineries are excluded. Long-term sustainable industries are reinforced.
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Non-sustainable industries such as oil, tobacco or nuclear power are not represented.
Strong significance of future oriented technologies such as renewable energies or sustainable forest utilisation.
Compared to conventional business classification – used in benchmark indices such as the SPI or the MSCI – there are sector over- and under-representations.
The INrate sustainability universe
INrate investment universes differ significantly from reference indices. They meet the claim of implementing the sustainability principle in a self-contained and persistent way.
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The INrate sustainability universe
Classification matters:
Service Firm Rating INrate Universe MSCI World
EnergySolarworld efficient Energy IndustrialVestas efficient Energy IndustrialExxon non efficent Energy EnergyBP non efficent Energy Energy
MobilityEast Japan Railway efficient Mobility IndustrialFord non efficent Mobility Consumer Disc.GM non efficent Mobility Consumer Disc.
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Futura Fund Swiss Stock vs. Swiss Performance Index
Futura Fund Global Stock vs. MSCI World
Source for CO2-intensity: NAMEA (national accounting matrix including environmental accounts), EBP/INFRAS 2005
INrate Sustainability Universe – Illustration of sustainability characteristics: CO2-Intensity
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Futura Fund Swiss Stock: Sector Weights (as at August 05)
Sector Weights Market Capitalisation
0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0%
Bank
ConstructionChemicals
Retail
Utility SuppliersFinancial Services
Health Care
Basic Resources
Industrial Goods&Services
Media
Food&Beverage
Non-Cyclical Goods&Services
TechnologyTelecomInsurance
Cyclical Goods&Services
SPI
Futura
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Futura Funds Swiss Stock: CO2-Intensity
CO2-Intensity: MSCI Market Sectors kg CO2equ/Euro Value Added
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
EnergyMaterials Industrials
Consumer Disc.Consumer Stap.Health CareFinancials
Information Tech.Telecom Services
Utilities
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Futura Funds Swiss Stock: Reduced CO2-Intensity
CO2-Intensity: SPI vs. Futura Swiss kg CO2equ/Euro Value Added
0.0000
0.0050
0.0100
0.0150
0.0200
0.0250
0.0300
0.0350
0.0400
Swiss Performance Index Futura Swiss Stock
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Futura Funds Global Stock: Sector Weights(as at August 05)
Sector Weights Market Capitalisation
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
EnergyMaterialsIndustrials
Consumer Disc.Consumer Stap.Health CareFinancials
Information Tech.Telecom Services
Utilities
MSCI
Futura
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Futura Funds Global Stock: CO2-Intensity
CO2-Intensity: MSCI Market Sectors kg CO2equ/Euro Value Added
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
EnergyMaterials Industrials
Consumer Disc.Consumer Stap.Health CareFinancials
Information Tech.Telecom Services
Utilities
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Futura Funds Global Stock: Reduced CO2-Intensity
CO2-Intensity: MSCI vs. Futura Global kg CO2equ/Euro Value Added
0.000
0.050
0.100
0.150
0.200
0.250
MSCI World Futura Global Stock
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CO2-Intensity of INrate investment products is significantly reduced compared to regular market indices
Futura Swiss Stock (per 08/05) shows a CO2-intensity which is 25% lower than the benchmark.
Futura Global Stock (per 08/05) shows a CO2-intensity which is 35% lower than the benchmark.
CO2-Intensity: Conclusions
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The INrate sustainability universe: Illustration of Performance characteristics
Futura Fund Global Stock vs. MSCI World Futura Fund Swiss Stock vs. Swiss Performance Index
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Performance characteristics: MSCI World
MSCI World and Sector Performance
95
100
105
110
115
120
125
130
135
Jun 03 Sep 03 Dez 03 Mrz 04 Jun 04 Sep 04 Dez 04 Mrz 05 Jun 05
MSCIWMSCIW ex Energy ex Cons Dis
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Futura Global Stock
40
50
60
70
80
90
100
110
Jun 01 Dez 01 Jun 02 Dez 02 Jun 03 Dez 03 Jun 04 Dez 04 Jun 05
Index
Futura Global StockMSCI World ex CH
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Performance characteristics: Swiss Performance Index
SPI and Sector Performance
95
100
105
110
115
120
125
130
135
140
145
Jun 03 Sep 03 Dez 03 Mrz 04 Jun 04 Sep 04 Dez 04 Mrz 05 Jun 05
SPI
SPI ex Gesundheit ex Nahrung
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Futura Swiss Stock
40
50
60
70
80
90
100
110
120
Jun 01 Dez 01 Jun 02 Dez 02 Jun 03 Dez 03 Jun 04 Dez 04 Jun 05
Index
Futura Swiss StockSPI
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Performance characteristics: Conclusions
Global level: same return, less risk – due to exclusion of energy (= oil companies). Correlation to global benchmark (MSCI) remains very high.
Swiss level: Higher return, higher risk. Correlation not perfect and tracking error not low (typical level for actively managed portfolios – also due to poorly diversified benchmark SPI).
Performance characteristics of sustainable portfolios are attributed to properties of the sustainability universe and to stiles and skills of the portfolio management (benchmarking, selection, etc.).
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“Best in service”-approach is a consistent screening of sustainability.
The approach fosters structural change towards a sustainable society in an efficient manner.
At the same time, sustainable investment opportunities with regular performance characteristics are generated.
The resulting investment opportunities are of interest for “principle guided” investors as well as for “neutral” investors.
Conclusions
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Independent Swiss-based agency for sustainability rating Founded in 2001 by Nest pension fund and INFRAS Research and Consulting Group INrate prepares sustainability ratings for the group of funds „Futura“ offered by Swiss Raiffeisen Banks. Self-contained methodological approach „best in service“. Consistent definition of exclusion criteria. External committee of experts reviews each rating. Access to top specific know how through partnerships, e.g. to INFRAS.
P.O. 454 8037 Zürich Switzerland +41 44 274 15 80 [email protected]
INrate AG