01.06.2015 1
Serge Ledermann
Head of Asset Management (Switzerland) and
Member of the Executive Committee
Dr. Jan Amrit Poser
Head of Institutional Asset Management
Pierin Menzli
Head of Sustainable Investment Research
June 2015
Integrating Sustainability The case of the Carbon Bubble
01.06.2015 2
Sustainability at J. Safra Sarasin
Integrating Sustainability into every step of the Investment Process
The Carbon Bubble and Consequences for Asset Allocation
Sustainable Investment Analysis – The Energy Sector and Statoil
Sustainable Investment Strategies
Agenda
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Sustainability at J. Safra Sarasin
01.06.2015 4
Definition of Sustainability
«Only cut as much wood as the forest
can bear! As much wood as can
regrow!» Hans-Karl von Carlowitz (1713)
«Meeting the needs of the present without
compromising the ability of future generations
to meet their own needs.» UN Commission (1987)
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J. Safra Sarasin – Leading asset manager for
sustainable investments
*Forum for Sustainable Investment Funds, Eurosif, SSF – Swiss Sustainable Finance and more
Pioneer – 25 years of experience in sustainable
research and asset management
Swiss market leader in sustainable investments
and one of the largest providers in continental
Europe
We are able to customise individual mandates to
reflect clients’ view of sustainability
We are an active member of various sustainability
organisations*
J. Safra Sarasin expertise
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Swiss market for sustainable investments
J. Safra Sarasin is the uncontested market leader
Source
Market Share:
J. Safra Sarasin 30.8%
Credit Suisse (incl.
responsibility) 15.9%
Ethos-Pictet 13.5%
Vontobel-
Raiffeisen 7.8%
RobecoSAM AG 7.4%
UBS Global AM 4.2% Funds Man-
dates
Structured products
01.06.2015 7
Our convictions and leading principles:
Sustainable investing is a fiduciary duty
We believe, a lasting, sustainable return can only be realised…
…if the livelihood of future generations is preserved
This, however, requires dramatic ecological, social and regulatory changes
…to which sustainable investors can contribute through their actions
Only if these developments are recognised early enough and integrated into the
investment process, can the arising risks and opportunities be addressed
Therefore, issuers of securities need to be analysed holistically, i.e. in their
broader context
Among financial factors, this analysis should comprise ecological, social and
governance factors (ESG)
Integrating ESG issues is a fiduciary duty of long-term thinking asset managers
and pension funds
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Integrating Sustainability into every step of the Investment Process
01.06.2015 9
1 We will incorporate ESG issues into investment analysis and
decision-making processes
2 We will be active owners and incorporate ESG issues into our
ownership policies and practices
6 We will each report on our activities and progress towards
implementing the Principles
3 We will seek appropriate disclosure on ESG issues by the
entities in which we invest
4 We will promote acceptance and implementation of the
Principles within the investment industry
5 We will work together to enhance our effectiveness in
implementing the Principles
Source: UN PRI – UN Environment Programme Finance Initiative and UN Global Compact
United Nations Principles
for Responsible Investment
45 Trillion US-Dollar
assets under
management
1325 Signatories
worldwide
UN PRI – Six principles of the United Nations –
We are a signatory
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“Sustainable” strategies
“Responsible” strategies
Sustainable Beta Sustainable Alpha
Sustainability
Analysis
(JSS Sustainability Matrix®
Investable Universe)
Sustainable
Beta
Construction
(Sustainable Beta
Portfolio)
Sustainable
Investment
Analysis
(Coverage List)
Portfolio
Construction
(Mandate Portfolio)
Industry
Analysis
(Industry Key and
Sustainability Issues)
Our Sustainable Investment Process at a glance
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New dimensions of sustainable investing
Sustainable Beta and Sustainable Alpha
Sustainable Beta
Selecting the most sustainable equities in the
investment universe
Creating the factor “sustainability”
Sustainable Alpha
Financially-material ESG-factors
Integrating sustainability into the analysis
Identifying attractive equities
Market value Fair value
Sustainability
premium
ROIC WACC
Sustainable Investment Analysis JSS Sustainability Matrix®
ESG-factors
Su
sta
ina
bilit
y o
f c
om
pa
nie
s
Sustainability of the sector
hig
h
low
high low
Financial ratios
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Sustainable Beta Portfolio – Creating and extracting
the factor sustainability The objective of the Sustainable Beta Portfolio
Measuring the impact of sustainability analysis
on the portfolio
Eliminating unwanted tilts in the sustainable
universe
Benchmarking manager performances
Separating sustainable beta from sustainable
alpha
Sustainable Beta Portfolio creation
Reducing the investment universe with the help
of the JSS Sustainability Matrix®
Complying with client restrictions such as
liquidity, maximum single exposure
Rebuilding the official benchmark with a higher
sustainability rating
Sustainable Beta of the clients’
official benchmark
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0
5
10
15
20
25
30
0
20
40
60
80
100
120
Sustainable Beta Portfolio
MSCI Europe
Cumulative excess return (right-hand scale)
Performance of the Sustainable Beta Portfolio
The example of European Equities
% Index
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The Carbon Bubble and the Consequences for Asset Allocation
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Global Footprint: Our hunger for resources
equals already today one and a half times planet Earth
Source: Global Footprint Network, y-axis: number of planets earth, x-axis: years
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The shale gas revolution
How long can we still count on cheap energy?
“Unburnable” fossil reserves
…if we want to limit global warming
Gas production is rising in the US
…and boosts industrialisation
Source: Datastream, J. Safra Sarasin Source: www.carbontracker.org
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Sustainability and energy companies:
Are we ahead of a dramatic devaluation of assets?
Quelle: www.carbontracker.org
Source: www.carbontracker.org
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JSS Sustainability Matrix® for countries
Oil-producers are discounted, facing a transition
Investment universe
Availability of resources
Resourc
e e
ffic
iency
Saudi Arabia
Russia
USA Canada
Iraq
Iran
UAE
Kuwait
Mexico
Venezuela
Nigeria Brazil
Qatar
Source: J. Safra Sarasin
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Sustainable Investment Analysis The Energy Sector and Statoil
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Carbon Bubble: Evidence is mounting
Climate change and air pollution is a threat to many sectors and industries. We have increased
evidence that human activity is accelerating negative patterns
Proven oil, gas and coal reserves would generate carbon emissions in excess of our carbon budget
under a 2°C target scenario (maximum global temperature increase by 2100)
Easy barrels are depleting: reserves are located in harsh environments (ultra-deep water, Arctic,
shale rocks). Can we afford to develop those reserves regarding costs and environmental risks?
Natural Gas is a viable option to bridge the gap from a fossil fuelled energy mix to renewables. But
opposition against “fracking” and methane leakage from infrastructure remain as challenges
Source: IPCC, 5th Assessment Report (2013), Stem Review on the
Economics of Climate Change, J. Safra Sarasin
Source: Swiss Re Economic Research & Consulting (2014), J. Safra
Sarasin
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Industry Analysis – Basis for Sustainability Analysis
and Investment Analysis
Sustainable Industry Key Issues
J. Safra Sarasin
Research
Basis: Industry Classification (GICS®)
Assessment of mid- and long-term opportunities and risks
Analysis of demand and supply
Identification of profitability drivers
Evaluation of ESG-factors (Environment, Social, Governance)
Source: J. Safra Sarasin
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Energy Industry Analysis
Profitability more important than reserves
Current WTI
crude oil price
(May 26th 2015)
Economic viability
questionable:
«Stranded Assets?»
Source: Morgan Stanley (2014), J. Safra Sarasin
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Sustainability Analysis – Best-in-class
JSS Sustainability Matrix®
ESG key issues: Identification & weighting of key issues /
Weighting of environmental, social and governance dimensions
ESG-Analysis: Assessment of ESG risks and opportunities and
management quality
ESG-Rating: Quality of ESG performance and positioning of the
company in comparison to peers / Calculation ratings - Score of 0
(low) to 5 (high)
Source: J. Safra Sarasin
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Sustainability Analysis
Statoil in peer comparison
Industry leading position in managing environmental
and social risks (e.g. lowest spills intensity compared
to its peers)
Operations remain largely concentrated in Norway
(70% of proved reserves), where stringent
environmental and safety standards and regulatory
oversight apply
Strong commitment to best practices in order to
tackle technical and operational challenges of
the increasing focus on Arctic oil
Focus on developing clean energy
technologies, especially offshore wind
credible ambition to benefit from
future growth potential of long-term
sustainability trends
Statoil
Source: J. Safra Sarasin
01.06.2015 25
Sustainable Investment Analysis
Sustainability as additional alpha source
Sustainable Key Performance Indicators (KPI) are the basis for investment analysis
The JSS Sustainable Fair Value includes ESG-factors and adds sustainable alpha
If sustainable fair value is higher than market value, the company will be put on the Coverage
List
The Coverage List is the selected universe of companies for the composition of the mandate
portfolio
Weighted Average
Cost of Capital
(WACC)
Return on Invested
Capital (RoIC)
Sustainable Investment Analysis
Coverage List …
…
…
…
Sustainable
Key
Performance
Indicators (KPI) Market
value
Sustainable
Fair Value
Sustainable Alpha
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Statoil ASA (OSEAX, NOK)
Strong production base, natural gas skew Author: DSTE Last update: 27.05.2015
Financials
Share Price (3y, daily, indexed, CHF) Valuation
Key Performance Indicators
Indicator Expectations Latest Developments
Q1 2015 results showed impairments due to lower oil
price
Appointment of new CFO announced in May 2015
Management confirmed its commitment to move toward
cash flow neutrality after capital expenditure and
dividend in the near term
Investment Case
Strong production base in Norway and deep knowledge
of local geology
Favourable fiscal regime on exploration activities in the
Norwegian North Sea
After spin-off of its downstream activities (refining) in
2010, it became a pure upstream player
Sound balance sheet and significant dividend yield (5%)
Growth projects have appealing economics
Natural gas production is significant and has a lower
carbon footprint than coal and oil – provides a lower risk
profile
- Maintain IRR above 15% for all
development projects Project economics
- Structurally higher with time as long
life projects come on stream (>10%) Return on invested capital (ROIC)
- Neutral after Capex and Dividend by
2017 onwards Free cash flow
Commodity pricing (oil, natural gas) - Forward curve: moving towards high
70$/bbl on the long term
Fwd
(1y)
Fwd
(2y)
P/E 21.3 14.6
EV/EBITDA 3.2 2.8
EV/EBIT 7.5 5.0
Operating Margin 14% 20%
ROIC (current) 7%
DY (current) 4.9%
P/B (current) 1.2
Source: J. Safra Sarasin, Company Data, Datastream
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JSS Sustainable investment strategies
Three pillar approach to carbon investments
We see less risk with natural gas producers due to the lower carbon content of gas and a better
outlook for global gas demand and gas prices
On clients’ request we offer fossil free investment-strategies
Oil demand might be slowing due to energy efficiency measures (automotive sector, buildings) which
would be a likely incentive to reach the 2°C target – the underlying value of oil companies is at risk
Low exposure of portfolios to fossil fuels: strategically underweighting carbon intensity
1 Prioritizing investments in “best-in-class” companies with strong positioning on the JSS Sustainability Matrix®
2 Engaging with companies and raising the debate around relevant sustainability issues
3
JSS Sustainability Matrix®
Selected Oil and gas companies
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Sustainable Investment Strategies
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Performance Comparison of the New Power Fund
Outperformance against important Peers
Net asset value at the starting date = 100. Performance does not include the effect of any initial charge. Individual costs such as fees, commissions and other
payments are not reflected; if taken into account, these would have a negative impact on the development of value. Past performance is not a reliable guide to
performance in the future. This fund was categorised in risk class 7 (Risk classes: 1: low; 7: high) because, in accordance with the investment policy, the value of
the investments may fluctuate very sharply. Consequently, both the expected return and the potential risk of loss may be very high. The risk and reward category
shown is based on historical data and cannot be used as a reliable indicator of the future risk profile of the fund. The classification of the fund may change over
time and is not a guarantee. Due to the calculation method, please note that the risk and reward profile does not fully reflect the liquidity, default and operating
risks, among others.
Source: Bloomberg
0
20
40
60
80
100
120
12/2009 12/2010 12/2011 12/2012 12/2013 12/2014
Indexed performance 31/12/2009 - 31/03/2015 in EUR
SARASIN NEW POWER P EUR ACC KBC ECO ALTERNATIVE ENERGY ACC GUINNESS ALTERNATIVE ENERGY B
LSF ASIAN SOLAR & WIND A1 KEPLER ÖKO ENERGIEN T
01.06.2015 30
Retu
rn p
ote
nti
al
Risk
Bond
Balanced / Hybrid
Equity
Real Estate
Investment strategies – Our offering of sustainable
investment funds
Bonds Europe – since 2002 Bonds Euro – since 2003
Bonds Swiss Franc– since 2002*
Bonds International – since 2002 Corporate Bonds Euro – since 2011*
Bonds Euro High Grade – since 2013
Real Estate Switzerland – since 2009 Real Estate Europe – since 2011
Balanced Defensive Focus Switzerland (75/25) – since 2012
Balanced Dynamic Global (50/50) – since 1994
Balanced Defensive Europe (75/25) – since 2001
Convertible Bonds Global – since 2009 Fund of Funds Global – since 2005
Switzerland Flexible Allocation – since 2012
Renewable Energy & Energy Efficiency – since 2000
Global – since 1998
Europe – since 2007*
Global – since 1999
Water – since 2007
Switzerland – since 2009*
Real Estate Global – since 2009 * Lifestyle Brands – since 2009*
Emerging Markets – since 2010
USA – since 2010
Source: J. Safra Sarasin
01.06.2015 31
Multiple award winner – J. Safra Sarasin
01.06.2015 32
Our unique selling proposition – Integration of
sustainability in every step of the process
We have been pioneer in sustainable analyses and investments for 25 years
We are Swiss market leader and one of the most important European providers of
sustainable investments
We integrate sustainability consequently into each and every step of the investment
process – we take the UN PRI literally
By identifying financially-materially aspects of sustainability we gain an information advantage
and achieve a sustainable Alpha
Our proprietary and patented sustainability matrix helps value-based investors to reduce
reputational risks and to create a sustainable Beta
We are able to customise sustainable investment solutions to the clients’ own view and value
set
With one of the largest investment teams in the industry devoted to sustainability, we offer a
broad range of sustainable solutions in all asset classes
01.06.2015 33
Important legal disclaimers and information
This marketing publication has been prepared by Bank J. Safra Sarasin Ltd, Switzerland for information purposes only and does not
constitute an offer to subscribe for units of the fund. The information contained in this document is provided without any guarantee or
warranty. The collective investment fund described in this document is a subs-fund of Sarasin Investmentfonds. Sarasin
Investmentfonds is a UCITS organized as an open-ended investment company (société d’investissement à capital variable – «
SICAV») regulated by the Commission de Surveillance du Secteur Financier (« CSSF»). It has been authorized for marketing in
Switzerland by the Swiss Financial Market Supervisory Authority FINMA. Past performance is not a reliable indicator of current or
future performance. The performance shown does not take account of any commissions and costs incurred on the issue and
redemption of units. Such costs and commissions have a negative impact on the performance of the fund. Investing in this fund
entails risks which are outlined in the prospectus. Market developments and/or currency fluctuations may (negatively or positively)
impact the value and return of your investment. The latest available prospectus as well as the Key Investor Information Document «
KIID» should be carefully read and an independent consultant should be consulted before considering any investment. The above
mentioned documents as well as the annual and semi-annual reports are available free of charge from the paying agent (Bank J.
Safra Sarasin Ltd, Elisabethenstrasse 62, P.O. Box, CH-4002 Basel, Switzerland) or the representative is Switzerland (Sarasin
Investmentfonds Ltd, Wallstrasse 9, CH-4002 Basel, Switzerland).
This publication is intended only for investors in Switzerland. Units of this fund may not be offered, sold or delivered to persons
domiciled in the USA, US nationals or US person as defined by FATCA-rules.
© Bank J. Safra Sarasin AG 2015
01.06.2015 34
We are pleased to give you further information
Bank J. Safra Sarasin Ltd
Elisabethenstrasse 62
P.O. Box
4002 Basel
Switzerland
T: +41 (0)58 317 44 44
F: +41 (0)58 317 44 00
www.jsafrasarasin.ch
