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Home > Asset Management Viewpoints > A Silver Lining to the Credit Crisis

Asset Management Viewpoints

A Silver Lining to the Credit Crisis

by Peter Zollinger and John Schaetzl

Introduction

Peter Zollinger, Senior Vice-President at the environmental and social governance consultancy SustainAbility, believes the best way for companies to enhance their reputation and achieve business success is through responsibility, fairness, and integrity. Here he argues that there is a silver lining to the financial crisis, that investors will in future be more likely to align their thinking with human needs. Zollinger’s clients include Aracruz (Brazil), Credit Suisse, MasterCard, Rabobank, Standard Chartered Bank, and UBS. Before joining SustainAbility, he was involved in the setup of the Business Council for Sustainable Development (now WBCSD) and AVINA, which invests in sustainability and social entrepreneurs in Latin America. He was educated at the University of St.Gallen, Switzerland, and speaks five languages.

John Schaetzl has a breadth of experience within the healthcare sector. Most recently, he was a portfolio manager at GE Asset Management, where he had a broad research responsibility in this sector. Prior GE, he held marketing and planning roles at Bayer/Miles Laboratories. He was a consultant to the pharmaceutical industry at Healthcare Forecasting Inc. and Scott Levin Associates. He has taught and held administrative positions at several universities. He is a non-executive director of SustainAbility and Columbus House. He is the co-author of Practical Politics and American Government (MacMillan, 1976) and Project 18: Effectively Influencing Political Decisions (Edinburgh 1973). Schaetzl has an MA from the University of Pennsylvania and a BA from Harvard College.

How Current Pain Can Become Investors’ Gain

Maps will be redrawn once the current trembling in the financial system subsides. All around the capitalist world continents have been shifting, and releasing massive pent-up pressure. Volcanoes have been erupting everywhere, covering cities and redirecting financial flows. But the citizens of this disturbed world will overcome their shock and their pain and learn a valuable lesson.

As we start to rebuild, we will see a huge opportunity to do better. We will not place our cities in the same locations as before, nor will we design the same faulty edifices and infrastructure.

The current crisis offers the world an opportunity to rethink how to invest for the long term. The era of cheap and supposedly risk-free money is over. Investors—private and institutional—who strived for ever-higher returns and were told that their related exposure can be limited through the use of derivatives and structured products suffered painful losses.

As a consequence, it is again acceptable to pay a lot more attention to the sort of fundamentals which were deemed old-fashioned until not long ago, including the valuation and quality of underlying assets, and long-term financial health of relevant business models. The false promise of spectacular returns through clever financial engineering is being replaced by the quest for sound investments which offer modest, but real, steady and surer, returns.

What could be more promising than the returns on investments fuelled by global mega-trends affecting all societies and the environment? On the economic front, and as we have moved into a global recession, with the ghost of this worsening into a genuine depression, strengthening the demand is the economic paradigm of the hour.

The roots of such additional demand can be found where challenges, such as climate change, access to health care or affordable and healthy nutrition, are being effectively addressed.

This is our argument. But let us explain before you shout and object that the valuations in fields like energy, water, or clean-technology are currently sinking faster than your stomach.

“It will be different this time,” is one of the most dangerous phrases in the investor’s lexicon. But we cannot help wondering if it may not actually be true this time. For are we not witnessing a long overdue transformation, or at least the end of a 30-year anomaly, and a return to a more sound period of investing?

How did we get where we are? Beginning with Bretton Woods and the opportunity to trade currencies, through three decades of global deregulation and a golden period for investment in which the financial community prospered enormously.

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Further reading

Books:

  • Krosinsky, Cary, and Nick Robins (eds). Sustainable Investing—The Art of Long-Term Performance. London: Earthscan, 2008.
  • Lye, Geoff, and Francesca Muller. The Changing Landscape of Liability: A Director’s Guide to Trends in Corporate Environmental, Social and Economic Liability. Zurich, Switzerland: SustainAbility, 2004.

Reports:

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