As a buy-side Sustainable Investment Analyst for Bank J. Safra Sarasin Ltd, Viara Nedeva Thompson researches investments in electric and water utilities. The bank is a pioneer in sustainable asset management in Switzerland, and Viara's work incorporates ESG in the financial analysis for client portfolios and thematic funds focused on water, new power and sustainable living.
When she graduated in 2008 with an MBA from MIT Sloan Viara wanted to work for a company that had a positive environmental impact. She initially worked in business development for the solar energy sector and then in private equity. There she helped fund early-stage wind, wave and solar power companies.
I learned from the experience that renewables need the whole system to work with them--the grid must be able to handle intermittent power, regulators must allow renewable energy producers to sell electricity directly to end-users, and end-users must agree to pay a premium for it and for a stable grid.
Now Viara looks at the opportunities and risks that renewable energy brings to utilities. She credits her MIT Sloan MBA training for further developing her analytical abilities and for teaching her to search for logical and pragmatic solutions. MIT Sloan also taught her to listen to people with different interests, values and backgrounds. “That’s where we learn about our mistakes and find shortcomings in our own or other’s logic,” she says.
"The goal in sustainable investing is to make a return that is comparable or better than the market’s” Viara says, “but it's also to use your money in a way that minimizes environmental and social harm." Her team uses ESG data from several well-established sustainability data providers and integrates it into company and industry analyses, but MIT Sloan taught her that it is not enough to rely on someone else’s opinion or on an easy answer.
You have to understand the processes for calculating the ESG metrics. If a data point is missing for a given company, does the provider automatically assign the industry average or do they adjust the weights so as to ignore the missing data?
From the investor's perspective, companies must address ESG-related risks and capture ESG-related opportunities better than their competitors to be considered “sustainable.” That's why Viara looks at a firm’s sustainability performance relative to its peers.
“There is no absolute sustainability champion and a company’s sustainability ranking will change over time. Some transitions may take years.” An exciting part of her work is to identify companies in transition. She looks at them with a mid-term investment horizon.
Her team uses the UN Global Compact Value Driver Model as framework for linking a company’s sustainability information to its expected financial performance. A good example of aligning financial benefit with environmental objectives is a water utility reducing pipe leakage to preserve water. Another is a company building a sustainable supply chain or implementing sustainable work practices. This reduces their long-term risk, and in the investment world, that adds value. While every industry has its relevant ESG metrics, some companies also have their own specific ESG challenges and there is often a degree of variation among them. “In many cases, past results, management’s goals and ability to execute, as well as relevant external factors are good predictors of a company’s financial profitability, as well as its sustainability ranking.”
Photo by Gabriel Garcia Marengo