Balazs Magyar

Sustainable Swiss Private Banking since 1841.

Sustainability and Performanceof Sovereign Bonds

Balazs Magyar, Bank SarasinTBLI Conference™ EuropeNovember 2012

Agenda

Sustainable investment at Bank Sarasin

Sustainability rating of sovereign bonds

Effects of sustainability on performance

2

Our Bank – Facts at a glance

Leading Swiss private bank – founded in 1841.

Investment advice and asset management for private and institutional clients as our core business.

Active asset management with a sustainable investment philosophy based on more than 20 years of experience and an integrated approach based on the analysis of financial, social and ecological opportunities and risks.

Represented world wide at more than 20 locations in Switzerland, Europe, the Middle East and Asia.

3

Sustainability research since 1989 Continuous build-up of staff Very low fluctuation Responsible for CHF 12,7 billion / EUR 10,5 billion assets

The team:

74 employees 30 portfolio manager 10 sustainability analysts

On average: 40 years of age 15 years of work experience

Number of employees working in sustainable investment

Sustainable Investment at Bank Sarasin –Significant Resources & Experience

Source: Bank Sarasin, as at 30.06.2012

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Agenda




5

6

Sovereign Bonds

Investor Government

one-off payment

today

EconomicActivities

tax revenue

government spending

Debt repayment requires sustainable tax revenues

interest and principal payments

in the future

7

Economic Activities

Sustainable tax revenues require sustainable economic activities

(Limited) Resources

Qualityof life

Economic system

Transformation efficiency

Process efficiency

8

Sustainability Ratingof Sovereign Bonds

Assessment of emerging and developed countries on the basis of the same indicators:

Over 150 countries About 50 indicators in the fields of:

– Environment– Economy– Social

Focus of analysis:– Availability of resources

• mainly natural resources• but also human and financial res.

– Efficiency• in transforming resources into quality of life• of the economic, political and social processes

Sarasin Sustainability-Matrix®

Res

ourc

e ef

ficie

ncy

Availability of resources

Investmentuniverse

9

Availability of Resources –Horizontal Axis

Environment Biocapacity (absolute and relative to

the Ecological Footprint of production) Nuclear power Water scarcity Biodiversity Climate change risks

(extreme weather events, agriculture, sea level rise)

Society & economy Demography Wealth (tangible and intangible capital) Public debt Net foreign assets


Res

ourc

e ef

ficie

ncy

low high

low

high

not covered directly bythe Ecological Footprint

Availability of Resources –Global Biocapacity

Natural resources are being overused

10

Source: Global Footprint Network, WWF

Ecological deficit

Availability of Resources –National Biocapacity

Most of the developed countries have an ecological deficit*

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Source: Global Footprint Network, Sarasin * Biocapacity minus Ecological Footprint

Reserve

Deficit

Guy

ana

Bra

zil

Aust

ralia

Rus

sia

Chi

na

Sw

itzer

land

Irela

nd

Pola

nd

UK

Gre

ece

Ger

man

y

Spa

in

Japa

n

US

A

Qat

ar

-15

-10

-5

0

5

10

15

Glo

bal h

ecta

res

per

pers

on

2005 2007

59.5

Availability of Resources –Demographic Change

Human resources might also become scarce

12

Source: United Nations, Sarasin

0102030405060708090

100110

0% 2% 4% 6% 8% 10%

Age

(5-y

ear

grou

ps)

Share of population

JapanGermany

OptimumUSA

China

2050

South Africasolid lines:WPP 2010 edition

dashed lines:WPP 2008 edition

Availability of Resources –Demographic Change (PIIGS)

Human resources might also become scarce

13

Source: United Nations, Sarasin

0102030405060708090

100110

0% 2% 4% 6% 8% 10%

Age

(5-y

ear

grou

ps)

Share of population

Portugal

Italy Optimum

Ireland

Greece

2050

Spain

solid lines:WPP 2010 edition

Availability of Resources –Debt Levels

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Source: IMF, OECD, CIA, Sarasin

Debt levels are rising in many countries

Empty dots represent 2008 levels,filled dots represent 2011 levels.

Japan

JamaicaItaly

Greece

USA PortugalGermany

NLNorway

UK

SpainSwitzerland

Brazil

SwedenChinaAustralia

RussiaQatar

Ireland

0

50

100

150

200

250

-150 -100 -50 0 50 100 150

Publ

ic d

ebt

(gro

ss, %

of

GD

P)

Foreign debt (net, % of GDP)

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Resource Efficiency –Vertical Axis

Transformation efficiency Quality of life

– Material well-being (GDP)– Education– Health

Resource consumption– Ecological Footprint of consumption– Nuclear power– Water consumption

Process efficiency Economic structure

(industrial heterogeneity, inflation, adj. savings, etc.) Governance

(political stability, corruption, etc.) Social conditions

(income equality, gender empowerment, etc.)

deviation from the norm


Res

ourc

e ef

ficie

ncy

low high

low

high

16

Resource Efficiency –Transformation Efficiency

Source: SarasinEmpty dots represent 2006 levels,

filled dots represent 2008 levels.

Australia

Brazil

China

Cyprus

Germany

Greece

Japan

Congo (Dem.) Niger

Peru

Poland Portugal

Russia

Switzerland

South Africa

Sudan

USA

UK

Norway

Spain

Ireland

Italy

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

Qua

lity

of li

fe

Resource consumption

17

Resource Efficiency –Process Efficiency

0%

20%

40%

60%

80%

100%

Sw

itzer

land

Nor

way

Ger

man

y

Aust

ralia

Irel

and

UK

Japa

n

US

A

Ital

y

Pola

nd

Gre

ece

Bra

zil

Sou

th A

fric

a

Chi

na

Rus

sia

Zim

babw

e

In %

of

the

high

est

ratin

g Social

Governmental

Economic

Source: SarasinEmpty bars represent 2008 levels,

filled bars represent 2011 levels.

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USA

UK

Switzerland

Sweden

Netherlands

Germany

Spain

Australia

Japan

Poland

China

Peru

Brazil

South Africa

Greece

Russia


Res

ourc

e ef

ficie

ncy

AAAAAABBBBB and lower

Credit rating*:

low high

low

high

Final Sustainability Ratings inComparison to Credit Ratings

risk ofcredit

downgradesin the

long run

* Lowest assessment of the rating agencies Moody’s, Standard & Poor's and Fitch for long-term foreign-currency bonds as of March 18, 2010.

Agenda




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Sustainability Ratings as an Indicationfor Changes to Credit Ratings?

Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 30.06.2011

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21

Sustainability Ratings as an Indicationfor Changes to Credit Ratings?

Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 31.10.2012

Sustainability and Performance –Developed and Emerging Markets

Citigroup World Government Bond Index15 sustainable and 10 non-sustainable countries*

JPMorgan Government Bond Index-EM9 sustainable and 11 non-sustainable countries*

Source: Datastream, Sarasin

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80

100

120

140

160

180

12/05 12/06 12/07 12/08 12/09 12/10 12/11

Tota

l ret

urn

(inde

xed

in U

SD

)

sustainable non-sustainable WGBI

80

100

120

140

160

180

200

220

240

12/05 12/06 12/07 12/08 12/09 12/10 12/11

Tota

l ret

urn

(inde

xed

in U

SD

)

sustainable non-sustainable GBI-EM

* The actual constituents might change over time.

Sustainability Studieson Sovereign Bonds

The world in a dilemma betweenprosperity and resource protection

Sustainable fulfilment ofsovereign obligations

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Both reports are available at: www.sarasin.ch/internet/iech/en/index_iech/sustainability_iech/sustainable_investments_iech/sustainability_publications_iech.htm

Summary Update of Both Studies –Coming in January 2013

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Important Information

This publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) for information purposes only. It contains selected information and does not purport to be complete. This document is based on publicly available information and data (“the Information”) believed to be correct, accurate and complete. BSC has not verified and is unable to guarantee the accuracy and completeness of the Information contained herein. Possible errors or incompleteness of the Information do not constitute legal grounds (contractual or tacit) for liability, either with regard to direct, indirect or consequential damages. In particular, neither BSC nor its shareholders and employees shall be liable for the opinions, estimations and strategies contained in this document. The opinions expressed in this document, along with the quoted figures, data and forecasts, are subject to change without notice. A positive historical performance or simulation does not constitute any guarantee for a positive performance in the future. Discrepancies may emerge in respect of our own financial research or other publications of the Sarasin Group relating to the same financial instruments or issuers. It is impossible to rule out the possibility that a business connection may exist between a company which is the subject of research and a company within the Sarasin Group, from which a potential conflict of interest could result. This document does not constitute either a request or offer, solicitation or recommendation to buy or sell investments or other specific financial instruments, products or services. It should not be considered as a substitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor.This document is intended for persons working in countries where the Sarasin Group has a business presence. BSC does not accept any liability whatsoever for losses arising from the use of the Information (or parts thereof) contained in this document. © 2012 Copyright Bank Sarasin & Co. Ltd. All rights reserved.

Sustainable Swiss Private Banking since 1841.

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