Laurent Ramsey : The evolution of ESG and “the power of engagement”

Laurent Ramsey was just 23 when he joined Pictet back in 1993. “It felt like I was entering the temple of private banking,” he says, recalling that, as a young graduate coming in from the outside, the firm had “a certain mystique”. He was immediately struck by how close the owners, the Partners of Pictet, were to the business; after all, he was actually interviewed by Charles and Nicolas Pictet themselves. “Very early on, I also saw the strong culture and the pride of the employees working at Pictet,” he adds. “That hasn’t changed.”

A lot has changed over the past three decades, though. Laurent is now a Managing Partner of the Pictet Group and has been responsible for Pictet Asset Management since 2016, for the past four years alongside Sébastien Eisinger. Pictet itself has evolved too. “The group has become much more international than it was and much more investment-led than 30 years ago,” says Laurent. Its footprint outside of Switzerland has grown, so that now it has 30 offices in financial centres worldwide; and, as Laurent elaborates, there is an even more intense focus on “what our job is, which is generating performance for our clients”.

Within Pictet and externally, Laurent has long been a champion of ESG and, again, he has seen this area of investing transform over the past 30 years. When he started his career, ESG was a discussion very much limited to the fringe of a bank’s operations. “Conversations were specific to particular products or opportunities,” he says, “whereas now there is a recognition that ESG are dimensions you need to take into account wherever you invest.”

A key part of this is the risk element, which has only become clear more recently. “ESG factors have a material impact on the price of financial assets,” Laurent explains. “Our day-to-day job is to manage risk for our clients through investing and generating better risk-adjusted returns. So you need to take into account these non-financial factors in order to conduct your fiduciary duty.” Nowadays, there is also far more trustworthy data to lean on than in years gone by. “Today, information on ESG factors is available, visible and immediately sanctioned by the market,” says Laurent. “Twenty years ago, whether you were polluting, had bad governance or poor social practices, it was not really transparent.”

All of this has led to a shift in perceptions around ESG. While some investors still relegate ESG to a side issue, any investor with a long-term view simply cannot ignore it. “Bad ESG practices, whether they are on the social side, the governance side or the environmental side, will have an impact over the long term on the performance of your company,” says Laurent. “Good companies will have better predictability and better-quality earnings in the future.”

Does Laurent feel that all three of those words encapsulated in the abbreviation are still equally prominent? Or does he believe Sustainability has overtaken the others? His answer is: yes and no. He points out that in recent years we’ve seen both a geopolitical crisis (the war in Ukraine) and a health crisis (Covid-19), both of which you could argue fall under the banner of Social challenges; and we’ve also experienced a banking crisis, which cast a light on the importance of Governance. Despite this, Laurent does believe the environment is the most challenging of them all. “You are telling people to change their behaviours today for the benefit of the next generation,” he says. And yet, he’s convinced that the “E” of ESG is the most important. “Without a well-functioning planet, we won’t have a well-functioning economy, and we won’t have a well-functioning society,” he says. “So everything is linked.”

Laurent also explains how investors in the ESG space have shifted from a framework built around excluding companies to one built around engaging with them. Over the years, he has himself become a passionate and vocal advocate for engagement. This has followed on from a recognition that, as an investor, if you really want to have an impact, you need to use your influence to reshape the strategic orientation of a company and force a transition. “Exclusion is like throwing your garbage on your neighbour’s lawn,” he says. “There will always be another speculator willing to buy the stock for short-term profits. So you’re not solving anything.”

Engagement in the listed world is not dissimilar to how private-equity firms operate in the private markets, where they buy a company, then transform it and capture the transformation premium. It might not be the most appealing idea, but engaging with the world’s biggest polluters is often the way to have the biggest impact. And Laurent is realistic about this. “The energy transition isn’t going to happen unless the big polluters are actually transitioning,” he says. “By moving a company that has a big environmental footprint to have better practices and changing, you can have a massive influence on the pace and the scale of the transition. That’s the power of engagement.”

As for Pictet itself, you only have to look at the bank’s record to understand how seriously it takes ESG, both internally and in its investing. Firstly, through the Pictet Group Foundation, it offers grants to social and environmental initiatives, focusing on Water and Nutrition, with a view to improving the lives of the most vulnerable and the wellbeing of future generations. Internally, the company has also set a target to cut its direct greenhouse gas emissions by 55% by 2030, compared with 2019 levels, through an approach that includes removing carbon from the atmosphere. And yet, by far the biggest impact the bank can make is through its investments. “If you look at our total emissions, 99% come from the capital we deploy on behalf of our clients,” Laurent says. Pictet has therefore embraced a shift towards a more responsible form of capitalism and has become a champion of sustainable finance across the industry.

Perhaps the most important record of all, however, is Pictet’s own history. “The firm has lasted since 1805, through good times and bad, because the Group itself has been managed sustainably,” says Laurent. “The key success factor in doing well and doing good at the same time is having that long-term- oriented mindset.” The partnership structure of Pictet, the fact that it is manager-owned, the fact that it isn’t listed and doesn’t have debts – all of this makes it conducive to being a responsible investor. As Laurent puts it, “It has always been in our DNA”.