Building lasting value through sustainable and impact investment

SUSTAINABILITY is critical to a good business strategy. Due to the widespread economic and social disruption caused by the Covid-19 pandemic, environmental, social, and governance (ESG) considerations have grown significantly in interest and importance.

Despite the challenges posed by the pandemic, observations show that funds which observe ESG factors have largely outperformed their benchmarks. Our experience has shown that effective management of ESG factors is a hallmark of long-term enterprise quality.

In fact, companies that take ESG seriously are generally better-managed and do business in a more sustainable and future-ready manner. Companies with high ESG ratings are also observed to be more crisis-resistant and achieve better performance compared to their peers - this could be clearly observed during the pandemic.

Against this backdrop, we see investors increasingly moving toward sustainable investing, driven in part by a rising societal commitment to sustainability. We have also observed that the Covid-19 pandemic has heightened our clients' resolve to direct their investment dollars toward positive environmental and social outcomes.

HOLISTIC APPROACH: ACCELERATE CORPORATE TRANSFORMATION AND ACHIEVE PERSONAL WEALTH APPRECIATION

Looking back, it is clear that sustainable finance has come a long way. When we first embarked upon the sustainable investment journey with our clients nearly two decades ago, there were limited sustainable options available in the market and even fewer that proactively sought to address climate change.

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We have seen a significant shift over the past decade, with significant growth in sustainable and impact investing, driven in part by a greater recognition from the world's leading investors that exciting opportunities exist to tackle systemic challenges while also generating attractive returns.

We also see consumers, clients and investors calling on companies to help preserve natural capital and finite resources. Businesses across all sectors are seeking to create more sustainable businesses that address the risks and leverage the potential of this sustainability shift.

As a leading global wealth manager with strong investment banking capabilities, Credit Suisse not only advises ultra-high-net-worth (UHNW) entrepreneur clients on their personal sustainable investments, but also supports them in adapting their business models and joining the transition to a more sustainable economic system.

Leveraging our differentiated market access and global connectivity, as well as our team of dedicated coverage and product specialists, we are focused on delivering client-focused solutions.

In 2020, the bank established its Sustainability, Research & Investment Solutions unit to help clients capitalise on growing opportunities in sustainable investments and to generate attractive investment returns over the long term.

We have also committed to providing at least CHF 300 billion (S$445.1 billion) worth of sustainable financing over the next 10 years to support transition strategies, such as renewables, Green/Blue/Transition bonds, low-carbon energy solutions and financing in line with the United Nations' Sustainable Development Goals (SDGs).

Credit Suisse continued to work on its ambition to become a leading provider of sustainable solutions in financial services in 2Q21.

As of the end of 2Q21, Credit Suisse's assets managed according to sustainability criteria (Sustainable AUM) were CHF 133 billion, up from CHF 118 billion at the end of 1Q21.

INCREASING CAPITAL INFLOWS FOR SUSTAINABLE INVESTMENTS

According to Morningstar statistics, the inflow of European capital into sustainable open-end funds and exchange-traded funds reached 233 billion euros (S$372.1 billion) in 2020. This demonstrates that investors increasingly recognise the importance of incorporating ESG factors into their portfolios.

On the back of this demand trend, financial institutions now offer a multitude of funds and single instrument options that capture the broad climate thematic.

Our goal is to continue to expand our investment suite to provide our clients with an increasingly larger, diversified set of options.

Our sustainable investment framework outlines three primary approaches to sustainable investing:

1. Exclusions: Provide clients with investments that do not cause harm or that align with their values.

2. ESG integration: Integrate material ESG factors into investment processes with the goal of delivering superior risk-adjusted returns.

3. Sustainable thematic and impact investing: Mobilise capital into companies that offer solutions to society's challenges. Within this category, there are two sub-categories:

• Thematic and impact-aligned: Examples in recent decades include sectors such as education, healthcare and clean energy.
• Impact investing: Impact investments refer to a subset of sustainable investing strategies that have the intention to deliver measurable impact.

EXPANDING SUSTAINABLE AND IMPACT THEMATIC OFFERINGS TO MEET EVOLVING NEEDS

In Asia-Pacific, we anticipate a more systematic roll-out of and focus on impact investment and sustainability-related solutions that many clients, especially next-generation clients, are interested in.

This includes supporting Asian small- and medium-sized enterprises to become market leaders in agriculture, healthcare, affordable housing and education, or investing in companies that work towards environmental, and more specifically, ocean improvement.

We believe financial institutions will continue to expand their investment suite to provide clients with a larger and more diversified set of options across the spectrum of sustainable investing.

On the alternatives front, we have also seen innovative new solutions such as venture capital strategies that back disruptive technologies aiming to reduce carbon emissions and in turn limit climate change.

For example, we successfully closed the Climate Innovation Fund at US$318 million in May. Such strategies enable investors who have larger risk appetites (given the illiquid nature of the asset class) to seek attractive returns through investments that are less correlated to the markets.

Our clients have continuously demonstrated their appetite to invest sustainably. In the last two years, the growth in our Sustainable AUM shows that sustainability is not only becoming increasingly important to our clients, but also that ESG-related products and solutions have become an integral part of our offering.

We have also observed our investor base for such sustainable solutions broadening, and now including ultra-high-net-worth individuals, corporates, family offices and many next-generation clients. In addition, the pandemic has generated more client interest in professional and dedicated portfolio advice to manage investments at times of heightened volatility.

A POST-PANDEMIC WORLD NEEDS SUSTAINABLE INVESTING

The Covid-19 pandemic has exposed structural and fundamental weaknesses of our world and showed how many issues are globally intertwined.

It also exacerbated many climate and societal challenges defined by the UN's SDG framework.

The virus will leave us with even greater financing gaps, which cannot be closed without engaging private capital.

Bridging climate and social inequities and the associated funding gaps can be a strong incentive for purpose-driven investors and one that boosts sustainable finance and impact investing in particular.

Against a backdrop of increased regulatory support, continued market uncertainty, and better resilience of sustainable investments, the demand for sustainable investing will only continue to accelerate.

• Benjamin Cavalli is CEO Singapore, Head of Private Banking South Asia, and APAC Sustainability Leader at Credit Suisse