Barclays has an ambition to be a net zero bank by 2050 to support the transition to a low-carbon economy. Wealth Monaco has recently interviewed Gérald Mathieu – Head of Private Bank Europe, Switzerland and Monaco – and Damian Payiatakis – Head of Sustainable and Impact Investing – to discuss Barclays Private Bank sustainable methodology and how it is helping their clients to make their portfolios more sustainable.
Sustainable investing is next evolution for investing and how families are putting their money to work. It is not a trend, an asset allocation, or investment sector, but a fundamental shift in how we serve our clients and invest for them.
Starting that journey can be daunting though, so we’re helping in three ways:
– first of all is certainly education, clients need assistance to understand and navigate this rapidly evolving field, and most importantly how it matters to their existing portfolios and family businesses;
– second, clients need to articulate what matters to them uniquely as a family and as investors. As we support clients starting to plan for intergenerational wealth transfer, sustainable investing is linking different generations around shared values and vision for their family wealth.
– finally, investors want to find high-quality investments and avoid the risks of greenwashing. Clients who know they want to make a difference and financial returns wonder how to find “good” sustainable investments. Given our connectivity with our investment bank and wider global networks, we’re uncovering exciting companies with long term growth prospects and real impact on the world.
Every company makes an impact on the world. As investors we want to evaluate two key aspects of this impact – how companies operate, and the goods and services they provide.
First we have to assess companies’ internal operating practices. Are they well run specifically in terms of non-financial factors that will affect their profitability and their valuation? ESG data provides indicators about these internal aspects of a company’s environmental, social, and governance practices.
Whether companies, for example, are efficiently using natural resources or have good human resources practices, or have good board governance can provide insight into how well the company operates today and how profitable it may be in the future.
Importantly, these ESG factors have to be considered in relation to their specific sector. Some factors are more material, that is financially consequential, for some industries than others. For example, efficient water usage is critical for a drinks company, but not for an insurance company.
In the past these factors were viewed as fairly static, however the pandemic has demonstrated the relative importance of specific E, S, and G factors may change at certain points in time. This is being called “dynamic materiality”. To illustrate further, prior to last year health and safety of employees was a central concern for some sectors like industrials, but not for retail or leisure. With COVID, how well a company manages its employees, and even customers, health and safety is a material factor for many more sectors, and therefore material for investors to consider.
Beyond this, investors are also starting to consider double materiality – so assessing the impact the company has on the world as well as how external issues, such as climate change, affect the company. Companies are increasingly being required to disclose and report on their environmental and social impact on stakeholders outsider their firms. So investors are looking at the implications of the impact companies make in their investment selection.
Usefully this also highlights the second aspect of what we consider – the impact of the goods and services a company provides on the world. While using ESG primarily focuses on internal aspects of the company, it’s only part of the equation. By selecting companies providing commercial solutions to some of our biggest social and environmental challenges, we are helping investors tap into large growth markets and see that their wealth helps to address issues that matter to the family. More and more investors want to know if “Is our wealth helping to solve global problems or contribute to them instead?”
ESG ratings provide a useful shorthand summary of a company’s operating practices. But we have fundamentally decided not to rely solely on third-party ratings for our investment process. Instead, because our investment teams do fundamental, bottom-up analysis, they want access tothe underlying data to inform their discussions and decisions.
To cover a wide range of issues, we use multiple providers such as Sustainalytics, MSCI, Bloomberg as well as multiple investment research providers and our own investment bank.
Additionally, the teams don’t want to rely on the different methodologies that each data provider uses to construct their ratings. For example, one company, which does not disclose all ESG information, could eventually get a worse score than a company that discloses more information, even if their actual performance is better. While this does encourages companies to be more transparent, if we relied on the rating alone, it wouldn’t be reflective of the reality of both companies.
As a Group, Barclays has an ambition to be net zero bank by 2050. This is across not only for our own operations (Scope 1 and 2 emissions); but also the emissions of the clients we finance, (Scope 3). This greater ambition means we are committing to help our clients to navigate their own transitions to a lower carbon economy.
At a Group level we have developed our own methodology called BlueTrack™ to help our clients in this process. Within our Private Bank, the investment teams are assessing risks around carbon exposure and identifying attractive companies providing solutions, For any investment, we want clients to be thinking more actively about risk or externalities that a company is generating.
We have not targeted and promoted one specific UN Sustainable Development Goal (SDG) for our investors.
The SDGs are a useful organising framework and a very motivating one. But they were never intended to be an investment framework. Some investments can touch multiple SDGs. For other industries, it is a stretch to say it will solve one, or more, SDG.
In the financial sector, they generally have been used more to rally capital rather than to deeply underline how to catalyse capital addressed to the seventeen particular challenges.
Across all of our clients, climate breakdown is considered as a systemic and global factor. Without a doubt, for us, climate is one of the critical issues for our clients’ portfolios and the world.So we are highlighting both risks and opportunities for them.
Transfer of Knowledge
The core idea of sustainable development is “to meet the needs of the present without compromising the ability of future generations to meet their own needs”
Each family has different interests and passions, meaning that we have a pivotal role in helping them find the best investment approach for each of them, educating on sustainable issues, or dealing with the transition to next generations.
We also try to be very responsive when clients want to move their assets towards sustainability. We are trying to answer their demands as they have to decide for themselves what does a structural change in their asset allocation means, and how to integrate this change in their family priorities and in their portfolio.
We have definitely seen the momentum towards sustainable investing increase as a result of the COVID crisis and the current economic environment. While we often talk about risks and opportunities, investors must think how to mitigate risks in their portfolio. This can be achieved by, for example, selecting high-quality companies from an ESG perspective, which have in general been performing well recently, or focusing on opportunities for longer term horizons, which may help them to endure short-term volatility and find growth.
A long-term vision is a core value for many Family Offices and we see younger generations influencing all the other generations to be more active in sustainability. They are what we actually call the “bridge”. And as investors think more on a longer term basis and are more aware of new generation and transfer of wealth, we do see that sustainability is a deep concern for them.
Article: Joana Foglia – Interview Gérald Mathieu – Head of Private Bank Europe, Switzerland and Monaco – and Damian Payiatakis – Head of Sustainable and Impact Investing, Barclays Private Bank.