In a world in which the traditional ways of valuing investments have proven less-than-reliable in recent months, Swiss investment firm Pictet Asset Management is gaining traction with a new type of bond fund: one which rates countries based on their ability to provide a high quality of life at a minimal ecological cost.
Over the last several years, there has been a growing interest in “Socially Responsible Investment” (SRI) as people think not only about their financial legacy but also about the type of world they will leave to future generations, says Pictet Sustainability Expert Christoph Butz. Yet, while interest in SRI has grown, there are a limited number of SRI bond and fixed-income products on the market.
Pictet is expanding those offerings with a bond-rating system that aims to value countries based on their ecological return-on-investment. The countries that receive the highest bond ratings are those which, according to Butz, are able to create “the highest standard of living per unit of nature.”
For sustainable development to work, a country must have a stable government, so the first part of Pictet’s rating system takes governance quality into account, evaluating such factors as rule of law, freedom of speech, public accountability and political stability, as measured by the World Governance Indicators used by the World Bank.
The second part of the rating system, unique to Pictet, evaluates investments through an entirely new lens. This rating is based upon a ratio of resource consumption – as measured by the Ecological Footprint -- to standard of living as measured by United Nation’s Human Development Index, a measure that compares countries on its citizens’ achievement of long lives, literacy, income and other factors.
With Pictet’s system, “You see very different countries emerging as the best rated,” Butz says.
While traditional bonds tend to flow investment to countries whose citizens have the highest incomes and place the greatest per-capita pressure on global resources, this fund directs capital to those countries that are developing along a sustainable path, Butz says. “These are investments which, in the long run, best further the natural and social capital.”
The new sustainable bond rating is not just for a few green outsiders, Butz says, but is already fully implemented in client portfolios, for instance for Geneva-based Ethos, an investment foundation that regroups over eighty small and large Swiss pension funds.
Learn more about Pictet’s investmeents in sustainable development
Coupling SRI Investments with Human Development Index (HDI) with sustainability is incompatible, as HDI itself contributes to non-sustainability due to fact that HDI is based on a “Newtonian worldview”. A better Index would be Human Sustainability Index (or a similar Index) which is based on the “Thermodynamic Paradigm”