How do we integrate sustainability into our portfolios?

corporate

How do we integrate sustainability into our portfolios?

Florence Kiss - Head of the Sustainable Investment Offering <br/>Bank Lombard Odier and Co Ltd

Florence Kiss

Head of the Sustainable Investment Offering
Bank Lombard Odier and Co Ltd
Carole Candaux - Portfolio Manager<br/>Bank Lombard Odier and Co Ltd

Carole Candaux

Portfolio Manager
Bank Lombard Odier and Co Ltd
Nathalie Haym - Portfolio Manager<br/>Bank Lombard Odier and Co Ltd

Nathalie Haym

Portfolio Manager
Bank Lombard Odier and Co Ltd

Sustainability is not new at Lombard Odier. We created our first ESG (environmental, social and governance) analysis models in the late 1990s, and have continued to develop our proprietary expertise and tools to understand how companies’ business practices are positioned. We also work to understand their exposure or vulnerability to sustainability challenges such as the climate transition. In addition, we have extended the range of our security analysis and expanded our offer to include strategies such as sustainability-themed equity investments, impact investing, or green bonds.

This expertise means we can help clients position their portfolios as the transition to a sustainable economic model continues to accelerate. This "sustainability revolution" is already beginning to transform our economies, impact businesses and their profits. Sustainability opens up many investment opportunities, but also harbours risks. From a management perspective, we believe that companies that do not make the appropriate changes face an existential threat. Their clients may abandon them, innovation make them obsolete, new regulations jeopardise their business opportunities as they are starved of capital and talent. It is therefore imperative to embed sustainability into the investment process.

We believe that companies that do not make the appropriate changes face an existential threat.

Pragmatic, tailor-made methodology

At Lombard Odier, sustainable investment means building portfolios to mitigate the risks and benefit from the opportunities presented by the transition to a sustainable economy. This means analysing and investing in stable and efficient companies that respect their ecosystem of partners and that are able to weather changes in the global economy.

To achieve this, we have developed a proprietary methodology for analysing our investment universe based on three pillars. The first pillar analyses a company from a financial perspective, the second looks at its business practices, and the third examines its business model.

This expertise lets us build portfolios based on your personal investment objectives and values. For example, a sustainability mandate can invest in individual securities as well as our sustainable investment funds and a selection of the best solutions in the wider market (including external mutual funds and indexed funds such as ETFs).

To be included in this sustainable portfolio, a company may need to derive no more than 5% of its revenues from the oil, tobacco, alcohol, nuclear or arms industries except if the company shows evidence of transitioning to a sustainable business model (duly documented and follow-up over time). In addition, its ESG rating may need to be among the “best-in-class” in its sector, i.e. in the top three quintiles of results, and the company may not be the subject of any serious controversy. Naturally, we can adjust these criteria according to your goals.

We generally replace the alternative component of traditional portfolios (hedge funds, real estate and gold), by an allocation to microfinance funds. This type of impact investment directly finances solutions to a number of environmental and social problems. In addition to microfinance, clients can include impact investments in their portfolios in the form of green and climate bonds, or we can add thematic equity funds made up of companies providing solutions to environmental issues such as water or climate.

We work on the principle that sustainability is not an impediment to performance, quite the contrary.

Performance comparison and IT system integration

We measure the performance of these mandates against Lombard Odier’s traditional benchmarks. We work on the principle that sustainability is not an impediment to performance, quite the contrary.

Over the medium term, comparing performance since 31 December 2016, the euro portfolio has generated a total gross return of 15.64%, compared with 14.76% for the benchmark, while the Swiss franc portfolio has returned 17.11%, compared with 15.35% for the index.

Our bankers can now directly monitor sustainability parameters in our portfolio management tool. They are able to view ESG and CAR (consciousness, actions and results) scores, controversies, companies' involvement in controversial activities, carbon and water footprints, and the alignment of their business practices with the 17 United Nations Sustainable Development Goals (SDGs). These measures are also included in a report that allows each client to assess the quality of their portfolio from a sustainability perspective and to track progress. This provides our clients with tailored reporting.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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