Responsible Investing by Kaiser Partner

Implementing the United Nations’ Principles for Responsible Investment (PRI)

Kaiser Partner Privatbank is so far the only financial services provider in Liechtenstein to commit itself to the UN Principles for Responsible Investment. It signed up to the Principles, which were developed for the United Nations by a group of international experts, in 2009. Implementation of the PRI brings clear benefits for clients by providing a more solid foundation for investment decisions. Dr. Ingeborg Schumacher-Hummel, Director of Responsible Investing*, tells us more.

Around 900 institutions in 45 countries are already implementing the Principles for Responsible Investment (PRI). At the end of each year the institutions themselves self-assess the extent to which this commitment has produced concrete results, though they all use the same evaluation criteria to do so. In 2010 Kaiser Partner Privatbank scored very highly in most areas, getting close to 100% fulfillment rates. Can you tell us how we managed to do so well?

Dr. Ingeborg Schumacher-Hummel: Our strategy already has similar aims to the PRI initiative. We integrate environmental, social and corporate governance (commonly abbreviated as ESG) considerations into our investment decisions. We’ve been following this strategy since 2009, and are also guided by the Responsible Investing concept developed by the Private Wealth Council, which was initiated by Fritz Kaiser in 2004.

How do you assess potential investments using ESG criteria?

Dr. Ingeborg Schumacher-Hummel: The information we need for our investment decisions is not yet included as standard in normal financial reporting, so we collect this data from various specialized sources. We have also started collaborating with a rating agency that has evaluated more than 3,000 companies using ESG criteria and turned this comprehensive analysis into detailed profiles. Another company we use specializes in the early identification of environmentally and socially irresponsible behavior, the negative results of such behavior, and the consequent reputational risk. Damage to a company’s reputation can also damage its share price.

We use all this information to evaluate individual investment targets as well as for the far more complex ESG analysis of whole investment funds. Our findings are then included in our Fund Factsheets, which have put us in the forefront of the industry.

Your strategy based on ESG criteria also reflects your conviction that these days environmental and social aspects, as well as good corporate governance, can improve a company’s business performance.

Ingeborg Schumacher-Hummel: Correct! Investments won’t be successful in the longterm if they carry heightened risk, and companies will only be successful in the longterm if they accept their environmental and social responsibilities.

What benefits do your clients get from your approach?

Ingeborg Schumacher-Hummel: By providing a broad-based, well-founded choice of financially interesting investments, we offer our clients added value. And thanks to the new Fund Factsheets, it’s easier for them to see the reasoning behind the investment decisions. We carry out a differentiated analysis of the funds universe, so we don’t have to limit ourselves to the traditional sustainability funds. We can continue to choose from the full range of investment funds. The Fund Factsheets also answer our clients’ need for transparency, which has grown significantly since the financial crisis.

Your strategy also places greater expectations on fund managers.

Ingeborg Schumacher-Hummel: We do want fund managers to combine their financial targets with the environmental, social and governance standards expected of the companies they invest in. This is where our commitment to the Principles for Responsible Investment is sending out a clear signal to the financial market. In 2010 we carried out more than twenty interviews – including with fund managers who are not yet explicitly selling themselves on their commitment to ESG criteria. We were impressed by the fact that all of them were happy to talk to us. Our portfolio managers are also constantly asking the fund managers ESG-related questions. We have deliberately put the emphasis on portfolio management, because this is where our responsibility to our clients lies.

So this is how you live up to the most important of the Principles for Responsible Investment: “We will incorporate ESG issues into investment analysis and decision-making processes.” The next principle is: “We will be active owners and incorporate ESG issues into our ownership policies and practices.” How are you doing on this one?

Ingeborg Schumacher-Hummel: You have picked precisely the principle that, because of the way we run our business, is hardest for us to meet. As a private bank we look after a relatively small volume of assets. That’s why we concentrate on investment funds rather than investing in individual shares. We believe, however, that through the interviews we conduct we are having a broader effect, despite our relatively small size. This is reflected in the willingness with which fund managers are responding to our ESG concerns. Our clear message – that Responsible Investing considerations have to be integrated into any investment process – is hitting home. We are making fund managers more aware that it pays to integrate ESG criteria. The intensive dialog we are conducting proves unequivocally that we are putting the Principles for Responsible Investment into practice.

The overall number of financial institutions that take account of ESG criteria will continue to increase. Will this mean your lead will be eroded?

Ingeborg Schumacher-Hummel: We are confident that everyone will benefit if the number grows. That’s why we are supporting communication between financial institutions in German-speaking countries and why we are actively involved in the “Nachhaltige Geldanlagen” (“Sustainable Financial Investments”) forum, to which around 150 companies and other organizations belong. For institutions in our immediate vicinity we have also initiated the “Sustainable Finance” series of meetings in Zurich. And we are helping the Liechtenstein Bankers Association to establish sustainability as a strategic issue for the financial market here.

Kaiser Partner Privatbank is one of the first financial institutions in Liechtenstein to give such a systematic role to Responsible Investing and make it such a high priority. We feel very comfortable in this pioneering role, but also believe that sustainable investment can be a competitive advantage for the whole of the Liechtenstein banking industry.

As a sign of our commitment, in 2010 we provided conceptual and financial support for the Congress on Sustainable Development and Responsible Investing at the University of Liechtenstein.

And how will things continue in 2011?

Ingeborg Schumacher-Hummel: We will of course continue to work on implementing the Principles for Responsible Investment. We’ll also carry out interviews with more fund managers. Our strategy has proved very successful so far and we’ll continue to follow it.

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* Dr. Ingeborg Schumacher-Hummel is the Director in charge of Responsible Investing Business Development at Kaiser Partner. She heads the group-wide Responsible Investing Competence Center and sits on the private bank’s investment committee.

Dr. Ingeborg Schumacher-Hummel is a recognized expert in Responsible Investing. She has been working on the subject since her student days, and her doctoral thesis at the University of St Gallen was entitled “Socially Responsible Investing (SRI) and Pension Funds”. She co-founded and built up the Socially Responsible Investment Team within the Asset Management department at UBS. She has sat on the Management Board of the German-language “Forum Nachhaltige Geldanlagen” (“Sustainable Investment Forum”) since its foundation in 2001.

Dr. Ingeborg Schumacher-Hummel and her Competence Center for Responsible Investing have gradually introduced the United Nations Principles on a broad basis to Kaiser Partner’s portfolio management, so that all clients can benefit from the advantages. On request, the Competence Center will also review the environmental and social sustainability of individual portfolios and take on mandates according to clients’ personal preferences.

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