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TBLI CONFERENCE™ EUROPE 2011- London - United Kingdom TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.TRANSCRIPT
Sustainable Swiss Private Banking since 1841.
Sustainable Fulfilmentof Sovereign Obligations
Sustainability and performance of sovereign bondsBalazs Magyar, Bank SarasinTBLI Conference™ EuropeNovember 2011
2
Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
3
Sustainable Investment at Bank Sarasin & Co. Ltd
Leading Swiss private bank – founded in 1841
Investment advice and asset management for private and institutional clients as our core business
Majority shareholder Rabobank has a triple-A credit rating*
Represented at more than 20 locations around the world, in Switzerland, Europe, the Middle East and Asia
*Standard & Poors issues credit ratings of corporations: AAA is the best rating and denominates reliable and stable borrowers
4
Sustainability research since 1989 Continuous build-up of staff Very low fluctuation Responsible for CHF 13,7 billion / EUR 11,2 billion assets
The team:
54 employees 30 portfolio manager 10 sustainability analysts
On average: 39 years of age 14 years of work experience
Number of employees working in sustainable investment
Sustainable Investment at Bank Sarasin –Significant Resources & Experience
Source: Bank Sarasin, as at 30.06.2011
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
0
10
20
30
40
50
60
5
Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
6
Sovereign Bonds
Investor Government
one-off payment
today
EconomicActivities
tax revenue
government spending
Debt repayment requires sustainable tax revenues
interest and principal payments
in the future
7
Economic Activities
Sustainable tax revenues require sustainable economic activities
(Limited) Resources
Qualityof life
Economic system
Transformation efficiency
Process efficiency
8
Sustainability Rating ofSovereign Bonds 2010
Assessment of emerging and developed countries for the first time on the basis of the same indicators:
Over 150 countries About 50 indicators in the fields of:
– Environment– Economy– Social
Focus of analysis:– Availability of resources
• mainly natural resources• but also human and financial res.
– Efficiency• in transforming resources into quality of life• of the economic, political and social processes
9
Sustainability-Matrix
Sarasin Sustainability-Matrix® for sovereign bonds
Availability of resources
Res
ou
rce
effi
cien
cy
low high
low
high Investment
universe
10
Availability of Resources – Horizontal Axis
Environment Biocapacity (absolute and relative to
the Ecological Footprint of production) Nuclear power Water scarcity Biodiversity Climate change risks
(extreme weather events, agriculture, sea level rise)
Society & economy Demography Wealth (tangible and intangible capital) Public debt Net foreign assets
Availability of resources
Re
sou
rce
effi
cie
ncy
low high
low
high
not covered directly bythe Ecological Footprint
11
Natural ResourcesAre Being Overused
Humanity actually requires c1.5 planetsto support its lifestyles
Most of the developed countries have an ecological deficit*
Source: Global Footprint Network
Reserve
Deficit * Biocapacity minus Ecological Footprint
Biocapacity
0.0
0.5
1.0
1.5
19
61
19
66
19
71
19
76
19
81
19
86
19
91
19
96
20
01
20
06
Num
ber
of
Ear
ths
Built-up land
Forest land
Fishing grounds
Grazing land
Cropland
Carbon footprint
Biocapacity
Bra
zil
Su
rina
me
Sw
ed
en
Ch
ina
Au
stra
lia
Ru
ssia
Sw
itze
rlan
d
So
uth
Afr
ica
Po
lan
d
UK
Gre
ece
Ge
rma
ny
Jap
an
Ne
the
rlan
ds
US
A
Qa
tar
-15
-10
-5
0
5
10
15
Glo
ba
l he
cta
res
pe
r p
ers
on
97.5
Ecological deficit
Financial and Human Resources Are Also Often Limited
Over-indebtedness Over-ageing
12
0102030405060708090
100110
0% 2% 4% 6% 8% 10%
Share of population
Age
(5-yea
r gr
oups
)
J apanGermany
Optimum
USAPoland
2050
0102030405060708090
100110
0% 5% 10% 15% 20%
Share of population
Age
(5-yea
r gr
oups
)
China
Brazil
OptimumSouth Africa
Uganda
2050Mongolia
Zimbabwe
Japan
JamaicaItaly
Singapore Greece
USA PortugalGermanyNetherlandsNorway UK Poland
SpainSwitzerland BrazilSwedenSouth Africa
China Australia BulgariaRussiaQatar Estonia0
50
100
150
200
-150 -100 -50 0 50 100 150
Foreign debt (net, % of GDP)
Publ
ic d
ebt (g
ross
, %
of G
DP)
Source: United Nations, SarasinSource: IMF, OECD, CIA, Sarasin
2008 2050
13
Resource Efficiency – Vertical Axis
Transformation efficiency Quality of life
– Material well-being (GDP)– Education– Health
Resource consumption– Ecological Footprint of consumption– Nuclear power– Water consumption
Process efficiency Economic structure
(industrial heterogeneity, inflation, adj. savings, etc.) Governance
(political stability, corruption, etc.) Social conditions
(income equality, gender empowerment, etc.)
deviation from the norm
Availability of resources
Res
ourc
e ef
ficie
ncy
low high
low
high
14
Transformation Efficiency
Source: Sarasin (as of 2006)
UK
USA
Sudan
South Africa
SwitzerlandSweden
Russia
Portugal
Poland
Peru
Niger
Netherlands
Congo (Dem.)
Japan
GreeceGermany
Cyprus
China
Brazil
Australia
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Resource consumption
Qua
lity
of li
fe
high middle
low
high
effi
cien
cy
15
Process Efficiency –Sample Indicators
CorruptionIncome distribution
Source: World Bank (latest year available)Source: Transparency International (as of 2009)
unequaldistribution
middleto high
corruption
0
2
4
6
8
10
Bur
ma
Rus
sia
Chi
na
Bra
zil
Gre
ece
Sou
th A
fric
a
Pol
an
d
US
A
UK
Japa
n
Ger
man
y
Aus
tra
lia
Net
he
rla
nds
Sw
itze
rlan
d
Sw
ed
en
New
Zea
lan
dCo
rru
ptio
n P
erc
ep
tion
s In
de
x
0.0
0.2
0.4
0.6
0.8
1.0
Nam
ibia
Sou
th A
fric
a
Bra
zil
Chi
na
US
A
Rus
sia
UK
Aus
tra
lia
Pol
an
d
Gre
ece
Sw
itze
rlan
d
Net
he
rla
nds
Ger
man
y
Sw
ed
en
Japa
n
Den
mar
k
Gin
i co
effi
cie
nt
16
Process Efficiency
Source: Sarasin (as of 2007)
0%
20%
40%
60%
80%
100%D
en
ma
rk
Sw
ed
en
Sw
itze
rlan
d
Ne
the
rlan
ds
Ge
rma
ny
Au
stra
lia
Jap
an
UK
US
A
Po
lan
d
Gre
ece
Bra
zil
Ch
ina
So
uth
Afr
ica
Ru
ssia
Zim
ba
bw
eIn %
of
the
high
est
rat
ing
Social Governmental Economic
17
USA
UK
Switzerland
Sweden
Netherlands
Germany
Spain
Australia
Japan
Poland
China
Peru
Brazil
South Africa
Greece
Russia
Availability of resources
Res
ourc
e effi
cien
cy
AAAAAABBBBB and lower
Credit rating*:
low high
low
high
Final Sustainability Ratings inComparison to Credit Ratings
risk ofcredit
downgradesin the
long run
* Lowest assessment of the rating agencies Moody’s, Standard & Poor's and Fitch for long-term foreign-currency bonds as of March 18, 2010.
18
Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
Sustainability and Performance – Sovereign Bonds of Developed Markets
Citigroup World Government Bond Index15 sustainable and 10 non-sustainable countriesSustainable countries nearly 20% higher…mainly since the start of the sovereign debt crisis
Switzerland
Sweden
Netherlands
Australia
USA
Portugal
Greece
Availability of resources
Res
ourc
e effi
cien
cy
low high
low
high
Source: Datastream, Sarasin
80
100
120
140
160
12/ 05 12/ 06 12/ 07 12/ 08 12/ 09 12/ 10
Tota
l ret
urn
(inde
xed
in U
SD
)
sustainable non-sustainable WGBI
Sustainability and Performance – Sovereign Bonds of Emerging Markets
JPMorgan Government Bond Index-EM9 sustainable and 11 non-sustainable countriesSustainable countries over 70% higher…despite the slump during the subprime crisis
Source: Datastream, Sarasin
Poland
Chile
Brazil
South Africa
Russia
China
Availability of resources
Res
ourc
e effi
cien
cy
low high
low
high
80
100
120
140
160
180
200
220
12/ 05 12/ 06 12/ 07 12/ 08 12/ 09 12/ 10
Tota
l ret
urn
(inde
xed
in U
SD
)
sustainable non-sustainable GBI-EM
Sustainability Ratings as an Indicationfor Changes to Credit Ratings?
Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 30.06.2011
22
Important Information
This publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) for information purposes only. It contains selected information and does not purport to be complete. This document is based on publicly available information and data (“the Information”) believed to be correct, accurate and complete. BSC has not verified and is unable to guarantee the accuracy and completeness of the Information contained herein. Possible errors or incompleteness of the Information do not constitute legal grounds (contractual or tacit) for liability, either with regard to direct, indirect or consequential damages. In particular, neither BSC nor its shareholders and employees shall be liable for the opinions, estimations and strategies contained in this document. The opinions expressed in this document, along with the quoted figures, data and forecasts, are subject to change without notice. A positive historical performance or simulation does not constitute any guarantee for a positive performance in the future. Discrepancies may emerge in respect of our own financial research or other publications of the Sarasin Group relating to the same financial instruments or issuers. It is impossible to rule out the possibility that a business connection may exist between a company which is the subject of research and a company within the Sarasin Group, from which a potential conflict of interest could result. This document does not constitute either a request or offer, solicitation or recommendation to buy or sell investments or other specific financial instruments, products or services. It should not be considered as a substitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor.This document is intended for persons working in countries where the Sarasin Group has a business presence. BSC does not accept any liability whatsoever for losses arising from the use of the Information (or parts thereof) contained in this document. © 2011 Copyright Bank Sarasin & Co. Ltd. All rights reserved.
Sustainable Swiss Private Banking since 1841.
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