“The finance sector remains strong”- Patrick Odier, Senior Managing Partner on sustainable investing and Swiss banking
Patrick Odier, Senior Managing Partner

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“The finance sector remains strong”- Patrick Odier, Senior Managing Partner on sustainable investing and Swiss banking

Published Wednesday 31 March 2021 in Bilan. Article by Philippe Monier

Between the pandemic, Brexit and the ever-increasing focus on sustainable investments, 2020 has been a year like no other for Lombard Odier. But the specialists in wealth and asset management remind us that the Group has already weathered 40 financial crises since it was first founded back in 1796. Against the backdrop of these unusual circumstances, Patrick Odier, Senior Managing Partner of the Lombard Odier Group, met up with Bilan to discuss the Group's sustainable investment strategy, how to tackle the challenges facing the Swiss financial sector and the UN’s 17 sustainable development goals.

 

Almost all banks have been highlighting the importance of sustainable investments, including Lombard Odier. Is this partly a commercial decision?

First and foremost, investing sustainably is rooted in our investment conviction and, as such, is a source of returns for our clients. We firmly believe that conventional business models are reaching their limits in view of the urgent need to find solutions to social and environmental challenges.

Companies that fail to adapt and move towards a more circular, efficient, inclusive and cleaner economy (CLIC™) will be heavily penalised by consumers, regulators and taxation. Bear in mind that technological innovation combined with economies of scale can offer more sustainable solutions that are also more affordable. Investors will naturally move away from companies that don’t adapt, pushing up the cost of capital and therefore making those companies less competitive.

…investing sustainably is rooted in our investment conviction…. We firmly believe that conventional business models are reaching their limits in view of the urgent need to find solutions to social and environmental challenges

To what extent are your clients willing to turn down attractive short-term financial opportunities that are not compatible with sustainability criteria?

Investing sustainably is a better way of investing – it's that simple. Clients are becoming more and more aware of how sustainability issues affect investment opportunities and portfolio performance. So they want to know that we are putting their money into companies that are set to emerge as winners in this economic transformation.

In practical terms, that means prioritising investment in companies who understand how their business model needs to change and are taking action so as to be able to continue operating in a world subject to carbon constraints.

How do you identify good sustainable investment opportunities?

As wealth and asset managers, we have an obligation to understand and analyse these paradigm shifts, to identify investment opportunities and pass on the information to our clients. To that end, we have developed a methodology that allows us to measure the extent to which investments are in line with the temperature goals of the Paris Agreement. It is a particularly persuasive tool in conversations with clients. Basically we would recommend avoiding the medium-term risks associated with a portfolio focused on companies that do not have a plan for adapting and making the necessary changes to their business model.

…we have developed a methodology that allows us to measure the extent to which investments are in line with the temperature goals of the Paris Agreement

What happens when the sustainable investment opportunities that you recommend do not generate the right returns?

We have a fiduciary responsibility to ensure that our analysis offers our clients the best long-term performance combined with low investment risk. This is not a hypothetical scenario: our results speak for themselves.

Our approach involves analysing fundamental trends and identifying long-term opportunities – which is not dissimilar to the aims that led to the creation of stock exchanges in the first place.

 

Does that mean that stock exchanges of yesteryear took more of a long-term view than they do now?

Yes, that’s correct. Originally, stock exchanges were created as a platform for investing in long-term industrial projects.

The markets evolved rapidly around 40 or 50 years ago, when high levels of sophistication gave rise to instruments and purely financial strategies based on much shorter time periods.

 

Your Group is not listed on the stock exchange and is not subject to the short-termist pressures of the financial markets. Is that useful in terms of your emphasis on sustainable strategies?

No, I don’t think it is a significant factor. However, the private and resolutely independent nature of Lombard Odier has definitely helped us grow over 225 years – we have proved that our model is sustainable!

 

Would you say that interest in sustainability is more pronounced in industrialised countries as compared with emerging markets?

Generally speaking, no-one can argue that emerging countries are lagging behind when it comes to sustainable investments. In fact, technological advances have put some emerging markets ahead of more mature economies in certain fields. That is the case with the inclusive use of telecommunications and renewable energies. Some economies are more agile because they don’t have a long industrial heritage.

 

Are you optimistic about the prospect of achieving the 17 UN sustainable development goals by 2030?

In order to achieve the sustainable development goals, governments need a way of measuring progress and assessing what still needs to be done. Having high-quality, up-to-date information that is readily accessible and comparable is essential. Things are moving in the right direction, but there are still some significant shortcomings.

Things are moving in the right direction, but there are still some significant shortcomings

Where does the financial sector stand on the sustainable development goals?

The financial sector has the potential to play a vital role in the transition, but the quality of the information it can add largely depends on the quality of the information available.

On a positive note, the Geneva-based start-up Impaakt is rapidly emerging as an international leader for data on the qualitative impact of corporate actions. The lack of a standard terminology for describing and measuring supposedly sustainable economic activities is a major obstacle.

 

What about the Swiss Building Bridges Week initiative? I know that both Lombard Odier and the United Nations are involved in this.

The initiative provides a unique global forum for discussion and cooperation. Building Bridges Week brings together a wide variety of participants from the financial sector, industry, government authorities, communities and international organisations. Not-for-profit organisations and universities are also involved. The aim of Building Bridges is to create an environment that will generate tools and solutions for channelling public and private capital more effectively into business activities so as to improve prosperity across the board while also maintaining the delicate balance of our fragile planet.

 

Then there is technology. What potential uses does the Lombard Odier Group anticipate for blockchain?

Our Group seeks to offer a range of services, with a particular emphasis on trading and custody of digital assets. There is no way to avoid blockchain in those fields: everything that can be digitised will be.

 

Lombard Odier has developed its own banking and technological solutions. Does that mean you are competing with Temenos, Avaloq and Eri Bancaire in some areas?

Not necessarily. We designed our banking platform because we wanted a reliable solution that had been created by our in-house developers. Our IT team has an in-depth understanding of private banking and our clients. A dozen of our partners – Swiss and European financial institutions – have chosen to make full or partial use of our banking platform. This ranges from providing a purely technical service through to full support for back-office operations. Rather than focusing on volumes, we are operating on the basis of pooling costs and sharing knowledge with our partners.

We designed our banking platform because we wanted a reliable solution that had been created by our in-house developers

On the question of increasing regulatory requirements, do you think that the Swiss Financial Market Supervisory Authority FINMA sometimes goes too far?

I don't see it that way. FINMA has an essential and positive role to play in maintaining competition within the Swiss finance sector. Its role is to ensure that the market functions properly and to anticipate new developments. Blockchain technologies are a good example: FINMA swiftly created a good over-arching legal framework without stifling new initiatives with extremely detailed rules. As a result, we have seen some encouraging developments in Switzerland, with new companies like Taurus in Geneva.

 

Is Brexit synonymous with opportunities for the Swiss financial sector?

The United Kingdom is already developing bilateral arrangements, creating scope for new dialogues with Switzerland. The increased contact has rapidly translated into practical solutions, such as mutual recognition for financial transactions. The City of London and Switzerland rank among the world’s most competitive financial centres. So it is both logical and essential that we see greater cooperation between the two.

“Swiss banks have played a vital role during the pandemic”

How are the financial sectors in Switzerland and Geneva doing?

The Swiss finance industry has successfully adapted to the end of bank-client confidentiality for tax purposes and the dramatic increase in regulation, while also improving service quality. Switzerland has strengthened its position as a leading global financial centre for cross-border wealth management. The recent crisis has once again demonstrated the unparalleled level of trust that foreign investors have in our finance industry when it comes to protection and good advice. Swiss banks have also played a vital role during the pandemic, providing rapid cash injections for companies in the form of Covid loans. Lastly, many banks, including ours, have recently announced positive results for 2020, which serves to illustrate the symbiotic relationship between economic sectors that constitutes one of Switzerland’s strengths.

The recent crisis has once again demonstrated the unparalleled level of trust that foreign investors have in our finance industry when it comes to protection and good advice

Where do you think that resilience comes from?

I think that much of our resilience is linked to the emphasis on wealth management rather than corporate banking. Corporate banking has experienced other, more serious crises, like the sub-prime crisis. Swiss banks are often criticised for being overly cautious but we are currently enjoying the benefits of that approach.

 

All the same, there has been a wave of consolidation within the Swiss financial centre.

It’s true that we have fewer banks than we used to, but the consolidations have been very orderly, with no bankruptcies or risks to savings. In any event, finance remains a strong and pivotal sector for Switzerland. For example, Geneva has 92 banks with a combined staff of 35,000 and those banks generate 13% of the canton’s GDP.

 

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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