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Focus on sustainability and take advantage of new opportunities.

The future is sustainable. Many institutional investors know this already, which is why they are increasingly focusing on investments that set environmental, social, and governance (ESG) criteria. The growing demand for sustainable investment solutions is leading to a sharp increase in the banks' offerings.

Sustainable investment offering is growing fast

Sustainable investments are becoming increasingly important when making investment decisions. A current market survey by Swiss Sustainable Finance (SSF) shows that, in 2020, the volume of sustainable investments based on ESG criteria grew by 31% overall, to CHF 1,520.2 billion. At the same time, the volume of sustainable funds rose to CHF 694.5 billion, thereby overtaking conventional investment funds for the first time. Sustainable investments come in different forms, however – ranging from those with relatively mild exclusion criteria to those with tightly focused ESG strategies.

The strong growth makes it clear that the trend toward sustainable investments is likely to become more pronounced in the future. Institutional clients are also playing an important role in this development, because around 72% of all ESG assets can be attributed to them. Institutional investors are thus in a position to play a pioneering role in responsible investing.

Motives for ESG investing vary

There are many reasons why institutional investors are increasingly deciding to make ESG investments. On the one hand, the growing interest in sustainable investments can be attributed to increasing regulation. This also includes, for example, the "Amendment to Agenda 2030 for Sustainable Development," a 2019 regulation of the European Parliament and of the Council regarding EU climate transition benchmarks.

On the other hand, there is also growing awareness among investors and insured about ESG issues. Institutional investors are taking sustainability criteria into account in order to make sound investment decisions, to mitigate ESG-related risks, and to be able to take advantage of opportunities. Examples of investments that present opportunities in the ESG area are those in renewable infrastructure or in new technologies that are spearheading the decarbonization of industry.

ESG leaders popular with institutional investors

No less importantly, growth in the area of sustainable investments is also due to the positive performance of ESG assets. Often, ESG leaders indices even outperform their parent indices. For this reason, this asset class is now very popular among institutional investors.

Stocks are included in ESG leaders indices, such as MSCI ESG Leaders, that show above-average performance compared to competitors in the same industrial sector in terms of environmental protection, social responsibility, and good corporate governance. Despite this reduction in the investment universe, there is only a slight risk of ESG leaders deviating from the standard indices as the sector allocation is maintained. And so they represent the golden mean, so to speak, between sustainability and diversification.

Meeting growing demand with new solutions

Owing to increasing demand for ESG investments, the range of corresponding funds has grown exponentially over the last three years. But rapid growth and the wide range of approaches in the field of sustainable investing have also made the market more complex.

To meet the high demand for sustainable solutions, the SIX Swiss Exchange has developed a three-stage selection process for its ESG indices. This avoids investments in controversial sectors and in laggards in the relevant industry, which can help to improve the risk/return characteristics of investment portfolios.

For the introduction of the SIX ESG indices, Credit Suisse Asset Management promptly offered its clients two new funds – a Swiss equity fund and a CHF bond fund – that replicate these new indices.

New methodology with indexed ESG solutions

With its sustainable equity index funds, Credit Suisse Asset Management relies on the MSCI ESG Leaders indices. MSCI ESG continuously expands its range of ESG data, for example in the climate area, so that the sustainable Credit Suisse Asset Management index funds have been able to further reduce their ecological footprint.

In addition, ESG methodologies such as exclusion, impact rating, or weight tilting are used in Credit Suisse Asset Management's indexed ESG solutions. These are applied as follows in the case of passive ESG products:

ESG methodologies for indexed solutions

ESG investing

An overview of the various methodologies
Source: Credit Suisse Asset Management (Switzerland) Ltd.

With 28 sustainable index funds, Credit Suisse Asset Management meanwhile offers the widest range for institutional investors in Switzerland. And the range of funds is continually being expanded and adapted to clients' changing needs.