Understanding Responsible Investment" podcast S2E2: Investment preferences: the sustainable business approach
Dorothée Chapuis: Hello and welcome to the second episode of our podcast “Understanding Responsible Investment” — season #2. I'm Dorothée Chapuis, Head of CSR for Societe Generale Private Banking Europe. In our last episode, we presented the latest European regulations on sustainable finance, and found out why private bankers should ask investors about their sustainable investment preferences. In this episode and the two episodes that follow, we’ll take a closer look at different ways that these preferences can be implemented. Today, we’re going to focus on the sustainable business approach. Stéphanie Agrefilo, Head of Advisory, is here with us to talk about it. Hello Stéphanie!
Stéphanie Agrefilo: Hello Dorothée!
Dorothée Chapuis: Stéphanie, before we start looking at how investors implement their sustainable investment preferences, I wanted to make it clear that our clients first have to decide between our three main profiles: either they have no preferences regarding sustainable investment, or they want a personalized profile, or they want a standard, or what we call a “generic” profile, that fits with Societe Generale Private Banking’s range of sustainable products. So let's say I care about sustainable development and choose the personalized or the generic profile. What does that mean in practical terms?
Stéphanie Agrefilo: That means that you’ll have to decide on one or more approaches to sustainable investment. ITo sum up,first, there’s the approach we call the “sustainable business approach”, which consists of investing in issuers selected for their ESG performance. In this case, that means looking at their performance on ESG issues as a whole, which means, without focusing on a single, specific theme, such as their environmental, social or governance aspects. In contrast, the second approach focuses on businesses with operations that contribute toward the environmental theme, through "green businesse", according to the European Taxonomy - which will be the theme of the next episode. Finally, the third approach, that we call the negative screening, consists of choosing one or several sustainability issues, on which one wishes to reduce negative impacts. For example, it can be the issues related to biodiversity, or water or raw materials resources. Today, we’ll talk about the first approach, which is the sustainable business approach.
Dorothée Chapuis: Can you tell us precisely what you mean when you say “sustainable business”?
Stéphanie Agrefilo: Yes, of course. These are companies that, through their activities or behaviours, contribute to achieving one or more of the UN’s 17 Sustainable Development Goals, also known as SDGs.
Dorothée Chapuis: The SDGs were also discussed in season 1, episode 1 of this podcast.
Stéphanie Agrefilo: That’s right! Some sustainable businesses contribute through their business models, such as a company that specialises in waste recycling or provides healthcare. And there are some whose business model isn’t necessarily based on a sustainable activity, but that act sustainably. For example, their human resources policy could promote inclusion or gender equity, or maybe they minimise both their water consumption and waste production. Of course we also have to make sure that the selected businesses don’t have a negative impact on ESG issues. So if a client chooses to take the sustainable business approach, they should indicate how much of their financial assets they want to allocate to it, without having to decide between the environmental, social or governance themes.
Dorothée Chapuis: I see. But if the client is interested in this approach, won’t they want to apply it to all their assets?
Stéphanie Agrefilo: That's highly likely, Dorothée, but we also have to keep in mind that it may not always be possible with their assets and risk appetite. Let me give you an example. Let's say a client wants to take a conservative approach with some of their investments. That means that portion of their portfolio will have little to no exposure to equity markets: it will be in the money market or the bond market. Well, in most cases, as the market currently stands, instruments of this kind rarely indicate how much they have invested in sustainable business activities. Similarly, if a client wants to invest in small caps, the information available on small cap companies’ contributions to sustainable development goals is minimal.
Dorothée Chapuis: I see. So it could be a good idea to have only a moderate degree of alignment to SDGs so they have more investment options?
Stéphanie Agrefilo: Exactly, Dorothée. And that’s precisely what we've chosen to do with Societe Generale Private Banking’s generic approach, which maintains an average degree of exposure to sustainable businesses. The main reason behind this decision is that what’s currently possible doesn't allow for more alignment. But that may change.
Dorothée Chapuis: Well, I hope so. Thank you, Stéphanie, for telling us more about how our preferences can be implemented using the sustainable business approach.
Stéphanie Agrefilo: My pleasure, Dorothée! Until next time.
Dorothée Chapuis: Talk to you soon, Stéphanie! Our next episode will focus on the approach that invests based on environmental concerns, known as the “green business approach,” and in the episode after that we’ll look at negative screening. Stay tuned! You just listened to the second episode of the second season of our podcast “Understanding Responsible Investment”. This podcast is brought to you by Societe Generale Private Banking. You’ll find it on Spotify and Apple Podcasts though our channel “#PrivateTalk by Societe Generale Private Banking”. Subscribe to be informed of the release of the next episode... and tell people about us! You can also find the full series on the Societe Generale Private Banking website at www.privatebanking.societegenerale.com.
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