Investment

SMI companies stand out for their ESG commitment

by Marie-Caroline Fonta

SMI companies stand out for their ESG commitment

The SMI has been awarded the highest rating of AAA by MSCI ESG Ratings. The 20 components of the index have ratings ranging from A to AAA.

Investors are paying increasing attention to environmental, social and governance (ESG) criteria when making investment decisions. They are also motivated by the various regulations in force and pressing issues such as climate change. For their part, companies now recognise the fundamental importance of sustainability and issue reports to demonstrate their commitment to it.

WHAT IS THE SITUATION IN SWITZERLAND?
Switzerland is fully committed to the Paris Agreement, whose central objective is to limit global warming to less than 2°C above pre-industrial levels, with the aspiration of limiting the increase to 1.5°C. Our country is determined to reduce its greenhouse gas emissions, while strengthening its resilience to the consequences of climate change. Switzerland’s ambition is to achieve carbon neutrality by 2050. Switzerland’s main source of renewable energy is hydropower, which is favoured by its mountainous terrain and the presence of numerous rivers. In fact, in 2022, 53% of our total electricity production will come from hydropower. This makes a significant contribution to the production of electricity without greenhouse gas emissions. However, the growth of this source is now reaching a limit, prompting Switzerland to promote the use of other forms of renewable energy such as solar and wind power, which are constantly expanding.

INTEGRATION OF ESG CRITERIA BY SWISS COMPANIES
Sustainability and corporate social responsibility issues are increasingly important in the governance of SMI (Swiss Market Index) companies, which are encouraged to adopt sustainable business practices. At the same time, Switzerland generally enjoys an excellent reputation for corporate governance.

The integration of ESG criteria is therefore becoming increasingly important in Switzerland. Companies are increasingly recognising the importance of disclosing ESG data, not only to meet investor expectations, but also to ensure sustainable and responsible management.

Looking at the 20 largest companies on the SMI, the flagships of the stock market, it is notable that each of them provides a detailed sustainability report, either as part of their annual report or independently. These companies have set targets, particularly for carbon neutrality, with deadlines ranging from 2025 to 2050. In addition, most of them are committed to the 17 United Nations Sustainable Development Goals (SDGs) and have signed up to the 10 Principles of the UN Global Compact, which encourages companies to adopt responsible and sustainable business practices.

The approach to sustainability is transparent and proprietary within these companies, with a focus on gender equality and reducing their environmental impact.

ESG ASSESSMENT OF SWISS COMPANIES
The composition of the SMI gives it a rating of AAA, the highest according to MSCI ESG Ratings. The 20 components of the index have ratings ranging from A to AAA, putting the index at the top of the MSCI universe. Most of these companies are leaders in terms of ESG criteria in their respective industries. As for carbon emissions, these depend on the sector, with Holcim and Nestlé the biggest emitters, and Sonova and Partners Group the smallest. For the vast majority of SMI companies, there has also been a significant improvement in governance or solidity. If we broaden our analysis to include criteria such as controversies, recent developments and the ability to rank in the top quartile of their industry in terms of the three pillars E, S and G, we can see that Novartis, Givaudan, Kuehne + Nagel and Zurich Insurance seem to stand out in particular.

We can therefore conclude that the Swiss companies in the SMI stand out for their remarkable commitment to sustainability and corporate social responsibility. This approach reinforces Switzerland’s reputation as an investment destination of choice. Over the last 5 years, the SMI has outperformed the global market (MSCI World Index in CHF) by 543 basis points.

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.

© NS Partners Group

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