The chairman of a $275 billion dynasty unveils what he calls the best investment opportunity of the past 25 years - and explains how you can get in on the action
- Trillions of dollars have been poured into an area of investing that was passed off as an afterthought just a few years ago.
- In an exclusive interview with Business Insider at the World Economic Forum's Annual Meeting in Davos, Switzerland, Patrick Odier - the chairman of Lombard Odier - outlined why it's the biggest investing opportunity of the last quarter century.
It's hard not to notice the explosion of sustainable investing on Wall Street.
More widely known as Environmental, Social, and Governance (ESG) principles, companies and investors are jostling to find a place for them. Up to 40 exchange-traded funds dedicated to ESG were launched during 2016 and 2017, nearly double the number launched in the prior 10 years, according to data compiled by BlackRock.
Patrick Odier firmly disagrees that sustainable investing is just a fad, as some critics have said. In fact, the chairman of Lombard Odier, a Swiss private bank founded in 1796 with over CHF 274 billion ($275 billion) in assets under management, sees sustainability trends as having a long shelf life.
"If we do interpret those trends correctly, we believe that we have one of the most interesting performance opportunities for our clients than we have ever had for the last 25 years," Odier told Business Insider at the World Economic Forum's Annual Meeting in Davos, Switzerland.
Money managers have $23 trillion earmarked with an ESG mandate, Morgan Stanley research showed last year.
As ESG investing has garnered popularity, so has the perception that Wall Street is hyping it without genuine interest for the issues it addresses.
There's also understandable skepticism over whether an ESG overlay can produce superior investment returns. Odier disputed this, saying that it's too early to definitively judge that ESG criteria trump other strategies in terms of performance. He said, however, that investors have rewarded companies on the MSCIs and other global indexes which adhere to sustainable policies.
A 2017 MSCI study on the relationship between ESG characteristics and stock performance helps to corroborate his view. The study found that from 2007 through 2017, companies in the bottom fifth of ESG ratings experienced drawdowns that were three times higher than those in the top fifth. This didn't imply a causal link, but showed that that a consideration of ESG principles can give investors insight into a stock's risks.
Paradoxically, company CEOs are downplaying these risks, Odier said.
He referred to PWC's annual survey of CEOs, released during the WEF gathering, which showed that executives' biggest concerns were more related to the ease of doing business and less to sustainability. Over-regulation, policy uncertainty, and job skills were seen as the top three threats to growth, while climate change and terrorism ranked 13th and 23rd.
If such issues relating to humankind's actual survival aren't top of mind for CEOs, regulators will find ways to push them higher and consequently curtail business freedom, Odier said.
To avoid that, the financial community needs to do more to incorporate non-financial information with the metrics on balance sheets and income statements, he said.
"This is the quintessence of our profession: You can do well in terms of performance as well as do good in terms of societal impact, while safekeeping your fiduciary professional responsibility."
For the trader looking to invest in companies that think more critically about sustainability, Odier provided a three-part checklist:
- Is the company financially robust?
- Does the company have sustainable policies and does it enact them in line with the best practices of its industry peers?
- More importantly, do these policies have an impact?
Odier said some forms of impact are easy to gauge, like CO2 intensity and gender equality. But others require a judgement call.
With all of that established, what's a good example of such a company? Odier highlights Total, the French oil and gas giant that offers intriguing investment opportunities from a renewable-energy perspective.
- Best HP laptop in India 2022: Which one is for you?
- Towards 'zero hunger': Odisha tops 'State Ranking Index' first under under National Food Security Act; UP, Andhra, and Gujarat also score high
- Best face creams and lotions for men in India
- Monsoon rain wreaks havoc in Himachal and Karnataka, orange alert in Gujarat
- Apple’s MacBook Air with M2 chip will go on sale from July 15, pre-orders starting July 8