Investment Portfolio Review and Improvement

Partner Organization: Fondation Leenaards

With capital as a central and steering force in contemporary societies, great power lies in the hands of those organizations allocating it. Yet with great power comes great responsibility, as originated from the tale of Damocles, and it is the extension of this societal responsibility that has manifested itself in the recent advent of ESG into finance. With this shift comes the need to question established practices, both at a systemic and a portfolio level, and to engage into new ones. It is in this context that four students applied ESG indicators to Fondation Leenaards (FL)’ financial portfolio with a view to providing a new tool for including sustainability considerations in financial decisions.

However, there is a strong divergence in the ESG scoring of different providers, as shown in the literature and confirmed by the students’ score aggregations on the FL’s portfolio. In this context, and with the need for the Foundation to focus its limited time towards the most impactful initiatives, the students have developed the Worst-in-Class approach, moving the world forward one investment at a time. While the best-in-class method drives investments on the level of assets, Worst-in-Class is designed for the level of the asset manager. The methodology developed by the students helps to efficiently deal with sustainability considerations and attack-related issues throughout all asset classes of a portfolio.

By aggregating ESG data sources and applying the Worst-in-Class methodology to the FL’s positions, the students proposed steps for engagement as well as alternatives for four financial products in the bonds and public equities asset classes, while on real estate assets we similarly developed a ranking and provided a procedure to engage. In commodities, they compiled a literature review of sustainability impacts and proposed two alternative asset categories. Finally, in private markets, the students developed a comparison and ranking of ESG frameworks, to be used by the FL in the next selection of funds.

Altogether, by designing the Worst-in-Class approach and applying it to the FL’s portfolio, they have uncovered the low-hanging fruits to be harvested by the Financial Commission and laid the basis of a method that could be applied by other similar foundations.

Students: Janes Spranger, Sybille Roemer, Max Haenssler, Eric Bolliger

Fondation Leenaards’ supervisor: Serge Ledermann

Academic supervisors: Jean-Pierre Danthine, Florence Hugard

Transformative Projects’ Lead: Samuel Wicki