“Nature is probably the most underpriced asset class”

 

 

Elise Beaufils, there are accusations against the financial services industry of increasing greenwashing when it comes to sustainable investment offerings. What do you as a researcher in sustainability think of these criticisms? Are they justified? Do they have an impact on the demand for sustainable investments?

 

It’s really the burning topic at the moment. We are seeing more and more anti-greenwashing regulation coming up. We’ve got the UK, the EU, and Switzerland as well. Most of these regulations really focus on more transparency and better disclosure, which we welcome very much. But it’s probably not enough, in the sense that these regulations do not look into defining what makes a sustainable investment.

At Lombard Odier, if we look into broad economy indices such as MSCI World with our framework, we find that there is only 26 percent sustainable investment. In our view, this relatively low number reflects the current unsustainable state of our economy. Others might have much higher numbers, and that could sometimes lead indeed to greenwashing accusations.

 

What criteria do you use in your sustainability research then?

 

Our sustainability research is split into two dimensions – or rather two questions, if you will. The first one is what I was just explaining: It's looking into what makes a company a sustainable investment. Is the company accelerating the transition? Is it significantly contributing to it ? In the end, it is a question of understanding if a company is aligned to the transition. Then you have a second question that is quite different and needs to be treated quite distinctly. You need to consider whether a company, as the transition unfolds, is going to face risk or opportunities. And it's very important to keep these two questions separate because you can have very different answers to the alignment and to the opportunity question.

 

What are the most interesting sustainable investment opportunities in your view? Are there new asset classes to be considered by investors?

 

We're currently working on an exciting project at Lombard Odier. We're looking into a new asset class called “nature-based solutions”. We know that nature is critical for the fight against climate change, but it's probably today the most underpriced asset class. Just to give you an idea, if you set a carbon price of 150 dollars per tonne, you would have to capitalize nature at roughly the same size as the real estate market. So we really could see an attractive investment case in acquiring monocultures and transforming them following agroforestry and regenerative farming practices so that in the end we can deliver net zero and nature-positive agricultural commodities.

 

How well positioned is the Swiss financial center as a whole, in your view, when it comes to sustainable investments?

 

There are lots of initiatives in Switzerland. I can think of a few of them. You have Building Bridges, which I think is in its fifth edition, that really has become an international milestone in accelerating sustainable finance. Then you also have federal initiatives; you have the Swiss Climate Scores that are pushing for more standardisation in climate reporting for investments. So I really think that the Swiss financial center is quite advanced in that space, and clearly the topic remains a top priority in Switzerland.

 

If we were sitting here in five years looking at statistics on sustainable investments, what would they show us?

 

I truly wish I had a crystal ball to answer this question. We can never be sure of what the future holds, but if I look back in time, five years ago, sustainable investment was mostly looking into ESG business practices, whereas today we are looking into the business model, and we are looking into new asset classes such as nature. So clearly there has been an acceleration. I believe it's going to keep on accelerating and that sustainable investment is here to stay.