ESG

How Blending Philanthropy, Investment Creates "Win-Wins" – Pictet

Tom Burroughes Group Editor London 14 November 2023

How Blending Philanthropy, Investment Creates

This news service recently spoke to a senior Pictet figure about the work it does on sustainability, impact investing, and philanthropy – areas which increasingly intersect.

Blending philanthropy with forms of early-stage investment can remove some of the risks from projects for a more sustainable world. This approach appeals to the time horizons of wealthy clients, a senior figure at Pictet Wealth Management says. 

Pictet Wealth Management’s head of ESG, Rosa Sangiorgio, who is based most of the time in Switzerland, talked to WealthBriefing at the firm’s London offices in a wide-ranging conversation that touched on many facets of sustainability. These go beyond the usual topic of curbing fossil fuels, to address subjects such as biodiversity, regenerative agriculture and management of oceans.

Mindful that the more challenging economic conditions at present can create headwinds, a major concern about putting money into sustainability is how to do this at scale and in ways which bring tangible results, she said. Working with colleagues on the philanthropy side, Sangiorgio noted how philanthropy can be married up with forms of investment – for a period. “Philanthropy can help to de-risk it,” she said.

“We are talking about multi-generational wealth and time horizons that go well beyond 10 years,” Sangiorgio said. “Clients realise that their investments are the real economy that they will leave for their children, their nephews and nieces.” 

“Many clients are successful entrepreneurs and they have been successful because they found solutions to problems,” she said. “The financial industry is a bridge between people with money and people with ideas.”

Sangiorgio brings plenty of experience to the role – 22 years of it. She has worked in structuring, managing, and distributing traditional and responsible investment solutions for institutional and private investors globally. Before she joined the Swiss firm in 2020, Sangiorgio worked for several major European financial institutions. Since 2012, she has been concentrating on sustainability and impact investing, most recently leading the sustainability and impact investing effort for Credit Suisse Investment Management.

Sangiorgio talked about the approach Pictet takes in private market investments. This news service put several questions to her:

Does Pictet have a particular approach to how private market investments are held and managed from a sustainability point of view? 
“Pictet has more than 30 years of experience in alternative investments, and around $27 billion of assets under management invested in private equity. This expertise in private markets, coupled with our long-term thematic franchise, allows us to capture interesting investment opportunities. As the risk-profile of private investment opportunities is different from listed markets, we are particularly careful to invest in well diversified portfolios, along with experienced partners in the space and with dedicated due diligence. 

“It's common knowledge that private markets are opaque, with unlisted companies not required to make the same levels of disclosure as their listed peers. This is far from ideal for sustainability where transparency is key. Fortunately, this is now changing for several reasons including sustainability becoming a priority for asset owners and companies, growing interest in democratising private markets, and regulation around disclosure developing in Europe (green taxonomy and sustainable finance disclosure regulation), the UK and US. 

“In this journey towards transparency, Pictet is taking an active role. In 2021, we joined the ESG Data Convergence Initiative (EDCI) as a member of the steering committee. The objective of EDCI is to increase transparency and facilitate the comparability of data between companies and sectors. 

“In general, we believe that private markets are well placed to lead the green transition with private investors exerting direct control and therefore greater influence on corporate behaviour and capital allocation decisions (compared with listed markets). The time horizon is also often longer than that of investors in listed assets, giving companies more time to act and succeed.” 

Does Pictet WM have a cap on how many flights its staff take on business to curb C02 emissions, or if it has a carbon offset strategy, how does this work? Has it found that working from home or in an office is, in net terms, energy efficient?
“To significantly reduce the environmental impact of both our activities and investments is a key ambition for us. We have established a strategy based on three pillars to meet the challenge of making operations responsible: infrastructure, mobility and consumption.
 
“On business travel, we have forbidden air travel within Switzerland and encourage employees to travel by train across France, Italy and Germany. We promote virtual meetings to reduce travel demand by investing in tools (for both desktop and meeting rooms) that facilitate remote collaboration. While working from home automatically results in a reduction of the emissions generated by commuting. 
 
“At Pictet, our strategy is to reduce emissions first and then contribute to financing global projects to remove CO2. These include, for example, projects that sequestrate emissions by relying on natural processes – e.g., afforestation, reforestation and revegetation and stewardship of coastal ecosystems – to enhance natural carbon sinks. As well as projects that use chemical processes for carbon dioxide removal (CDR) with an objective to achieve "net negative emissions," i.e., drawing more CO2 from the atmosphere than the levels emitted. 
 
“Most recently, Pictet has been one of the few financial institutions with committed and validated targets by the Science Base Targets initiative. By 2030, the Pictet Group aims to reduce direct greenhouse gas emissions by 55 per cent compared with 2019 levels.”

Can we talk about some of the ways that clients who are interested in areas such as, for example, regenerative agriculture, can put their money to work? Can you offer a few case studies?
"The latest statistics show the population increasing to around 10 billion by 2030, compounded with a progressively higher quality of life. This translates into an increasing demand for food. At the same time, food production accounts for 40 per cent of land, 70 per cent of water, 47 per cent of pressure on biodiversity and food systems are responsible for one third of global GHG emissions; one in five deaths are due to poor nutrition, more than two billion people are overweight or obese, and more than two billion people have insufficient access to nutrition. We believe that food systems are key to optimising human health and environmental sustainability.

“We see great interest in regenerative agriculture from our clients to promote better practices, more yield and nutritional value in the long term, with fewer resources used. Some of our clients invest directly in agriculture, buying land and transitioning from conventional agriculture to regenerative agriculture. However, this type of activity requires a high level of involvement, a development of competence and a long-term perspective.

“Others are investing in agritech either directly or through investment funds. Examples of investments in this field include leading providers of agriculture integrated equipment – that are innovating themselves by improving their technology to support regenerative practices – and smaller innovators producing smart tools, working for example on highly efficient and precise soil sampling, or drones for agriculture.”

Data is important and clients need and expect evidence that their investments are working as hoped. What sort of data do you collect and how do you deal with the challenge of making it intelligible?
“Across research, investment decisions, risk management and advisory services, we place an emphasis on the inclusion of high quality environmental, social and governance data when evaluating corporate issuers. As such, and specifically to inform investment decisions and active ownership activities, we have developed a proprietary ESG scorecard that provides a focused view of ESG risks and opportunities. 

“We believe investment success results from a rigorous and repeatable process. It is not about luck or having access to privileged information. It requires a rigorous and unbiased method for gathering and analysing information, taking decisions, and executing them with discipline. 

“The Pictet ESG Scorecard is based on a curated set of the most material data points, across four pillars:

1.  Corporate governance: Are companies managed for the long term e.g., board competence and independence, executive renumeration, audit and risk control?

2.  Products and services: How “future-fit/SDF compatible” is their product-mix? Are they generating revenue at the expense of public health and/or the environment? Are they offering “clean and safe” products and services?

3.  Operational risks: How do they run their business? What is the carbon intensity of their operations? Are they exposed to extreme weather events and other climate risks? Are they managing other environmental and social impacts associated with their activities and sup-ply chain?

4. Controversies: Are they 'walking the talk' e.g., bribery and corruption, market abuse, product recalls?

“The Pictet ESG Scorecard is underpinned by a robust framework of data and threshold selection, driven by deep data knowledge, analysis and experience. Rather than going down the route of aggregation and risk losing the details that matter, our investment teams use flags as indicators for their own fundamental research and decision-making.  

“The Scorecard indicates areas of concern from an ESG perspective through red flags. Meanwhile, areas seen as positive from an ESG perspective are indicated through green flags.”
 

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