- At Metzler, sustainability is practiced as an economic concept that caters to the improvement of risk-return profiles in our investment strategies
- To cope with the rising complexity of ESG (environment, social and governance) integration into investment processes, we have developed QbrickS – a modular tool-box that enables clients to build portfolio strategies around their individual sustainability preferences
- Backed by 20 years of experience in sustainable investing, QbrickS will support our active engagement with companies we invest in as well as our internal risk management processes.
The relevance of ESG aspects (environment, social and governance) for portfolio management has increased significantly in recent years. Sustainability has proven to be an effective factor, not only in terms of social responsibility but also economically. ESG approaches are proven risk management tools for identifying litigation, reputation and event risks, among others. Investors are also confronted with increasing regulatory requirements. The need for systematic consideration of sustainability aspects has increased, especially since the European Union decided to integrate sustainability aspects more strongly into investment decision-making processes to realign capital flows.
“We have never seen sustainable investing as just a trend, but have always believed that integration of sustainability aspects into portfolio management will establish itself as a market standard in the foreseeable future. Nevertheless, the consideration of sustainability aspects in portfolio construction has not yet been sufficiently discussed in all facets,” said Dr. Rainer Matthes, CIO at Metzler Asset Management, at a press conference on October 10, 2019 in Frankfurt/Main. “A coherent analytical framework is required to make the interdependencies between ESG-centric preferences, risk premiums and thematic allocation transparent and, at the same time, allow simultaneous control of these components. With QbrickS, we are making such an instrument available to our clients for the first time. The aim is to lower turnover and optimize the risk-return profile while avoiding unintended tilts in our investment strategies.”
Metzler Asset Management has been managing sustainability mandates for 20 years and, in 2012, it was one of the first German asset managers to sign the United Nations Principles for Responsible Investment (UN PRI). In line with updated regulatory and political conditions, Metzler’s sustainability approach has been continuously updated and today it comprises not only client-specific advisory services but also tailor-made implementation and a comprehensive reporting system. “We don’t want to predefine sustainability for our clients. We believe that client’s needs must be met and we integrate the various aspects of sustainability into the investment process accordingly. QbrickS enables holistic client advisory services that help us identify alternative courses of action,” explains Daniel Sailer, ESG advisory officer at Metzler Asset Management.
In their current “concept document” on ESG integration, the ESG experts at Metzler Asset Management describe in detail how ESG aspects can be properly implemented and how this optimizes the risk-return profile of the portfolios. Embedded in a consistent macroeconomic outlook across asset classes, QbrickS is a multi-stage process that uses a central investment logic to combine tangible financial elements of sustainable investment (1) with the potential of risk premiums (2) and thematic allocation based on sectors and countries (3). The focus is always on identifying value drivers that help increase and stabilize excess returns at a higher level than the relevant benchmark. This process provides important information to be taken into account in the discretionary selection of securities for a client portfolio.
As Jan Rabe, officer for ESG integration, sums up, “QbrickS can be flexibly adapted to a client's sustainability profile to systematically combine client requirements with discretionary investment decisions. In this way, long-term strategic ESG preferences can be reconciled with short-term tactical investment decisions. Ultimately, this multidimensional approach to ESG integration is designed to bridge the gap between overly simplistic ways of considering associated ratings or key performance indicators in isolation and gaining an economic understanding of sustainability that relates to the productivity of capital. Only when a company’s earnings profile can be sustained while doing good, can we truly incentivize corporate managers to re-think business models.”
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