In November we visited Switzerland to meet with companies in the Evenlode Global Income portfolio and investable universe with an aim of gaining a more detailed understanding of the businesses, how they operate and their internal culture.
A year on from Switzerland ratifying the Paris Climate Change agreement, it was evident in the conversations we had, not just the companies we engaged with but with the general public, that sustainability was becoming a key priority.
As well as focusing on the companies’ research and development strategies for the coming year, we wanted to get the perspective at Novartis and other big-hitting pharma companies on what ESG factors they deem to have the potential to hurt their business models in the medium to long term.
Understandably, product quality emerged in our analysis to be the most material ESG risk for Novartis as well as for the broader pharmaceutical and healthcare sector. Novartis is striving towards creating a strong culture and a more robust prioritising process of the drugs being manufactured, mainly driven by its recently-appointed chief executive Vas Narasimhan.
The incentive structure has now changed for project leaders to encourage plans to be scrapped if they do not look effective in their early days. At the same time, therapies that seem most promising are provided with the most resources to bring them to market fastest.
Labour relations
The Institute of Management Development compares a country’s ability to attract and retain a highly skilled workforce.
The assessment is based on investment and development, appeal and readiness, taking into consideration employees’ education, workplace training, remuneration and other key social issues.
Switzerland once again beat Denmark and Norway to retain the number one position in 2018, for the fifth year in a row.
At a meeting with VAT Group’s head of investor relations Michel Gerber, we discussed the governmental insurance fund, which pays the salaries of flexible workers for two days a week at 80% of their full-time salary.
This means the company can flex its cost base and staff welcome the change as they get to work for three days a week at 92% of their full-time salary.
Labour laws in the country are designed to help smaller companies like VAT Group man manage their cost base during an economic downturn.
Managing labour relations, retaining talent and keeping a positive employee morale is an imperative for such cyclical companies, which require specialised expertise from their employee base.
Broader obligations
According to the Swiss Sustainable Investment Market Study 2018, the demand for sustainable investing was heavily influenced by institutional investors, which now make up 86% of all sustainable investments in Switzerland.
This, coupled with the two new international development policy guidelines – the UN Sustainable Development Goals and the Paris Climate Change agreement – will continue to drive strong growth in the area for the financial sector.
The Swiss equity market is characterised by the presence of a large number of high-quality and high-tech businesses, particularly compared with the size of the country’s population.
It is encouraging to see that these businesses are concretely acting upon their broader obligations to society and are using their position to effect positive change on social and environmental matters.
Sawan Kumar is a stewardship analyst at Evenlode Investment
