Sustainable Swiss Private Banking since 1841.
Sustainability and Performanceof Sovereign Bonds
Balazs Magyar, Bank SarasinTBLI Conference™ EuropeNovember 2012
Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
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Our Bank – Facts at a glance
Leading Swiss private bank – founded in 1841.
Investment advice and asset management for private and institutional clients as our core business.
Active asset management with a sustainable investment philosophy based on more than 20 years of experience and an integrated approach based on the analysis of financial, social and ecological opportunities and risks.
Represented world wide at more than 20 locations in Switzerland, Europe, the Middle East and Asia.
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Sustainability research since 1989 Continuous build-up of staff Very low fluctuation Responsible for CHF 12,7 billion / EUR 10,5 billion assets
The team:
74 employees 30 portfolio manager 10 sustainability analysts
On average: 40 years of age 15 years of work experience
Number of employees working in sustainable investment
Sustainable Investment at Bank Sarasin –Significant Resources & Experience
Source: Bank Sarasin, as at 30.06.2012
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Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
5
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 Ratingof Sovereign Bonds
Assessment of emerging and developed countries 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
Sarasin Sustainability-Matrix®
Res
ourc
e ef
ficie
ncy
Availability of resources
Investmentuniverse
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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
Res
ourc
e ef
ficie
ncy
low high
low
high
not covered directly bythe Ecological Footprint
Availability of Resources –Global Biocapacity
Natural resources are being overused
10
Source: Global Footprint Network, WWF
Ecological deficit
Availability of Resources –National Biocapacity
Most of the developed countries have an ecological deficit*
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Source: Global Footprint Network, Sarasin * Biocapacity minus Ecological Footprint
Reserve
Deficit
Guy
ana
Bra
zil
Aust
ralia
Rus
sia
Chi
na
Sw
itzer
land
Irela
nd
Pola
nd
UK
Gre
ece
Ger
man
y
Spa
in
Japa
n
US
A
Qat
ar
-15
-10
-5
0
5
10
15
Glo
bal h
ecta
res
per
pers
on
2005 2007
59.5
Availability of Resources –Demographic Change
Human resources might also become scarce
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Source: United Nations, Sarasin
0102030405060708090
100110
0% 2% 4% 6% 8% 10%
Age
(5-y
ear
grou
ps)
Share of population
JapanGermany
OptimumUSA
China
2050
South Africasolid lines:WPP 2010 edition
dashed lines:WPP 2008 edition
Availability of Resources –Demographic Change (PIIGS)
Human resources might also become scarce
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Source: United Nations, Sarasin
0102030405060708090
100110
0% 2% 4% 6% 8% 10%
Age
(5-y
ear
grou
ps)
Share of population
Portugal
Italy Optimum
Ireland
Greece
2050
Spain
solid lines:WPP 2010 edition
Availability of Resources –Debt Levels
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Source: IMF, OECD, CIA, Sarasin
Debt levels are rising in many countries
Empty dots represent 2008 levels,filled dots represent 2011 levels.
Japan
JamaicaItaly
Greece
USA PortugalGermany
NLNorway
UK
SpainSwitzerland
Brazil
SwedenChinaAustralia
RussiaQatar
Ireland
0
50
100
150
200
250
-150 -100 -50 0 50 100 150
Publ
ic d
ebt
(gro
ss, %
of
GD
P)
Foreign debt (net, % of GDP)
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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
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Resource Efficiency –Transformation Efficiency
Source: SarasinEmpty dots represent 2006 levels,
filled dots represent 2008 levels.
Australia
Brazil
China
Cyprus
Germany
Greece
Japan
Congo (Dem.) Niger
Peru
Poland Portugal
Russia
Switzerland
South Africa
Sudan
USA
UK
Norway
Spain
Ireland
Italy
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Qua
lity
of li
fe
Resource consumption
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Resource Efficiency –Process Efficiency
0%
20%
40%
60%
80%
100%
Sw
itzer
land
Nor
way
Ger
man
y
Aust
ralia
Irel
and
UK
Japa
n
US
A
Ital
y
Pola
nd
Gre
ece
Bra
zil
Sou
th A
fric
a
Chi
na
Rus
sia
Zim
babw
e
In %
of
the
high
est
ratin
g Social
Governmental
Economic
Source: SarasinEmpty bars represent 2008 levels,
filled bars represent 2011 levels.
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USA
UK
Switzerland
Sweden
Netherlands
Germany
Spain
Australia
Japan
Poland
China
Peru
Brazil
South Africa
Greece
Russia
Availability of resources
Res
ourc
e ef
ficie
ncy
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.
Agenda
Sustainable investment at Bank Sarasin
Sustainability rating of sovereign bonds
Effects of sustainability on performance
19
Sustainability Ratings as an Indicationfor Changes to Credit Ratings?
Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 30.06.2011
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Sustainability Ratings as an Indicationfor Changes to Credit Ratings?
Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 31.10.2012
Sustainability and Performance –Developed and Emerging Markets
Citigroup World Government Bond Index15 sustainable and 10 non-sustainable countries*
JPMorgan Government Bond Index-EM9 sustainable and 11 non-sustainable countries*
Source: Datastream, Sarasin
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80
100
120
140
160
180
12/05 12/06 12/07 12/08 12/09 12/10 12/11
Tota
l ret
urn
(inde
xed
in U
SD
)
sustainable non-sustainable WGBI
80
100
120
140
160
180
200
220
240
12/05 12/06 12/07 12/08 12/09 12/10 12/11
Tota
l ret
urn
(inde
xed
in U
SD
)
sustainable non-sustainable GBI-EM
* The actual constituents might change over time.
Sustainability Studieson Sovereign Bonds
The world in a dilemma betweenprosperity and resource protection
Sustainable fulfilment ofsovereign obligations
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Both reports are available at: www.sarasin.ch/internet/iech/en/index_iech/sustainability_iech/sustainable_investments_iech/sustainability_publications_iech.htm
Summary Update of Both Studies –Coming in January 2013
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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. © 2012 Copyright Bank Sarasin & Co. Ltd. All rights reserved.
Sustainable Swiss Private Banking since 1841.
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