Sustainable investing

SRI products offer access to equities and bonds of companies which fulfill certain criteria with respect to ecological, social and corporate governance standards.

Photo: Erik Drost

Sustainable investing with ETFs

Sustainable Exchange Traded Funds (ETFs) give you access to stocks and bonds of companies which fulfill certain standards with respect to the environment, society, and corporate governance.

When you choose to invest sustainably with us, we put together a portfolio of ETFs which replicate sustainable indices, such as the SRI indices from MSCI. These SRI indices consist of only the top 25% of companies with respect to sustainability.

When choosing companies for the SRI indices, MSCI screens the companies for criteria from the following three pillars: Environmental, Social, and Governance (ESG). The goal is to eliminate companies with destructive or harmful behaviour, and assign metrics to positive effects. The criteria are made up of:

Environment - Does the company invest in renewable energy? Does it use energy and natural resources efficiently? Are its products safe for the environment? What kinds of air and water emmissions does it produce? Does the company have a comprehensive strategy for climate change?

Social - Does the company observe labour laws, such as the prohibition of child and forced labour, or uphold non-discrimination regulations? Does it uphold high standards of occupational health and safety? Does the company ensure fair working conditions, pay, and empower employees to do further training? Does the company observe freedom of assembly and trade union freedom? Does the company enforce sustainability standards with its suppliers?

Governance - Does the company take transparent measures against corruption and bribery? Is sustainability management core to both management and the board of directors? Are board compensation and sustainability goals coupled? How does the company deal with whistle blowing?

Before evaluating the companies according to these criteria, companies in harmful or controversial industries are eliminated. These consist of companies whose revenue is predominantly obtained from: weapons, alcohol, gambling, nuclear power, tobacco, pornography, or genetically modified organisms.

Naturally, no company is perfect. Whether stocks or bonds, the assets in the index are merely the best behaved companies. This ranking is relative, and doesn't mean that all included companies have a spotless record. Nonetheless: With SRI indices you invest in the most sustainable companies in the world.

Impact on Return and Costs

Sustainable ETFs aim to generate long-term returns comparable to their conventional counterparts. In our sustainable portfolios, we use ETFs which replicate strict SRI indices. These indices use the market weight of their constituent companies, as a result the returns have historically been similar to their conventional counterparts.

Performance comparison of selected MSCI SRI equity indexes (annualized net performance in CHF)

Source: Bloomberg, MSCI, True Wealth AG, end of August 2018

September 2014 to August 2018: The sustainable SRI indices outperformed their traditional counterparts in many markets.
Note: Past performance is not an indicator of future returns. There will also be periods in which SRI indices do not perform as well as their traditional counterparts.

Due to the additional criteria that need to be evaluated, sustainable ETFs are slightly more expensive than their conventional counterparts. On average, the fees are around 0.15 percent higher. Our wealth management fee remains unchanged for sustainable portfolios: 0.5 percent per year. For the first time you have access to individual and sustainable investment, without compromising on costs or returns.

How can I choose a sustainable investment strategy?

First you need to make a fundamental decision: whether you would like your portfolio to use ETFs selected from a universe of conventional, or sustainable ETFs.

In the logged-in area, you can switch between different investment "universes" at any time. In the top right area of the "Investment Mix" tab you will have the choice between our "Sustainable Universe", or the "Global Universe".

Once you switch universes, you will be assigned an optimal investment mix for the new universe. You can evaluate and adjust the investment mix to your liking.

The investment universe switch is only final when you click on the "Confirm investment mix" button. In the meantime you can explore the effect of the new universe on the product costs, and liquidity. If at any point you decide that you don't want to switch universes, a click on "Discard Changes" puts you right back where you were.

Whether you make a fundamental change by switching investment universe, or a small change to your personal investment mix: we implement the change with no added fee. The costs are covered by our wealth management fee. Do note that a portfolio rebalancing will reduce your return due to the bid-ask spread.

Transparent, naturally

Whether you have a real money account, or a virtual test account, you can easily see how to switch between universes, and the effect on product cost and liquidity. Transparent, naturally.