Why Investing in the SDGs Is Not Only Possible, but a Really Good Idea
An Interview With Florian Esterer
Florian Esterer, Head of Core Equities, at his desk in Zürich
Can you invest in UN’s Sustainable Development Goals?
As surprising as it may sound, the answer is actually “yes”. At J. Safra Sarasin, we recently launched an SDG fund entitled SDG Opportunities. In what is now becoming a colleague interview series, I wanted to learn more about how this fund works, and if it pays off. And so, I did an interview with Florian Esterer who’s the Lead Portfolio Manager of the new SDG fund. Speaking in-depth with Florian made it clear how special the SDG investment approach is. Or as Florian told me: “In my long investment experience, I have rarely seen such a good overlap between the interest of investors and the interest of society.” Well, you should make up your own mind about it. Below is the transcript of my interview with Florian, edited for clarity and length.
Sasja Beslik: Florian, tell me a bit about yourself and your background?
Florian Esterer: I’ve been an equity investor for almost 20 years. Before that, I did do some consulting and was involved in some software start-ups. For the past seven years at J. Safra Sarasin, I have been working with sustainable investments.
I must confess… to begin with I was actually a climate sceptic. But today, I have become a fervent believer. Much of what is captured under the ESG topic is just really good business practice, such as governance, employee relations and environmental risk management.
SB: Why do you work with investments?
FE: There are two main reasons. Firstly, it is the most interesting job I have ever had. I’m working with a very diverse and highly motivated team. I meet interesting business leaders. And I get to be highly analytical.
Secondly, there is an overlooked, but important social function to our job. We’re directing capital flows by setting cost of capital. By valuing and investing in companies, we can direct capital to better businesses.
SB: What do you see in the world we live in today from a development perspective?
FE: The world has made great strides over the past century in reducing poverty, prolonging life spans and integrating different segments of society into the political and industrial processes.
However, there has been some costs associated with that process which start to create problems for society at large. Climate change is already at the forefront of political discussions, and many efforts are being undertaken to counteract the problems related to that.
However, other problems remain and are still somewhat overlooked. For example, the divergence in economic fortunes of poor and rich people. The still significant lack of integration of females into productive processes. And the lack of educational opportunities in many developing countries, as well as in some developed countries.
SB: You have recently launched an interesting SDG fund? Why?
FE: Because we believe the framework of the UN SDGs is useful in thinking about these challenges. In addition, it offers an opportunity for investors. In my long investment experience, I have rarely seen such a good overlap between the interest of investors and the interest of society.
In order to achieve the SDGs, we are looking at a financing gap of about USD 2.7 trillion. We think that financial markets have a clear role to play in closing that gap.
In our case here at J. Safra Sarasin, we use the framework to identify companies that create products and services essential to achieving the SDGs.
So how is it going, you might ask. Well, the current portfolio is generating 2.5x more revenues per investment than the broader market. And these products and services are growing faster. If everybody invested this way, we would easily close the gap by 2030.
SB: Does it have to do with COVID-19 and is linked to how we can manage that?
FE: Not as such. But I think COVID-19 exposed some of the underlying tensions which have existed for a long time. Mortality rates differ widely across the socio-economic spectrum with poorer people being more at risk. Learning opportunities differ widely in a remote learning environment if you do not own a computer or have a high-speed internet connection—or if you do not have parents which can offset some of the individual coaching done by teachers. Also, it is the more vulnerable, lower paid service sector employees who have been hit the hardest by COVID-related layoffs.
All of these things make the achievement of the SDGs even more pressing than before COVID-19 hit.
SB: What is the most interesting thing about investing in SDG-related companies?
FE: When we’re looking for products and services which might be applicable for the fund, we come across many exciting companies. Some of the products and services are produced by large companies. An example would be the efforts of Microsoft which has made their Teams product freely available to all schools.
But the most interesting examples are smaller companies which are offering very specialised solutions. One example is Befesa, which is the leading recycler for the residuals of steel mills. Another on is Bavarian Nordic, which is a vaccine provider, a market most of the large pharma companies have left. And there’s also Kahoot, which offers an online learning platform.
SB: What about sustainability? Are these companies sustainable as well? How?
FE: As I said before, sustainability is a somewhat separate issue. We use sustainability data to complement our financial analysis and get better and deeper insights into their businesses. Most of what is classified as sustainability represents for us just a different view on management.
We are very fundamental, long-term investors. And sustainability is just a representation of that long-term focus of the management. In that sense, all of our investments are sustainable.
SB: What makes this investment great?
FE: This is a really great alignment of getting attractive returns and creating value for society. As the demand for the SDG product rises, our companies should benefit and generate better growth. And as these products are an essential part of this transition towards a more equal, more open, more sustainable society, this is a clear win-win.
SB: Are you investing your own money in this?
FE: The team and I spend so much time analysing companies and putting together our best ideas in our portfolios. So why should I invest in anything but our products? In particular, the new fund SDG Opportunities is a really interesting combination of exposure to global equity markets and smaller companies with great growth opportunities.