H.S.H. Prince Max von und zu Liechtenstein, Chairman LGT, talks about his outlook for sustainable investments, his core values, and the need for greater standardisation and transparency when it comes to sustainability.
Thinking and acting sustainably has always been important to the Princely Family. Why is that?
H.S.H. Prince Max von und zu Liechtenstein: Our family legacy has certainly influenced us, and much of what we appreciate as a family today is the result of the holistic and long-term-oriented thinking and actions of our ancestors. Creating and preserving long-lasting values and building relationships over generations has served my family well and is therefore deeply anchored in our values. This is also why we like to see these family values being upheld in our family businesses. Many of our most pressing global problems have their root causes in short-termism and egoism, which is why we strongly believe that we need to act with a much more holistic and long-term oriented mindset in business and politics, and as private consumers.
The finance industry can make an important contribution to climate protection - eg by redirecting capital flows or directly influencing companies. What kind of changes are you seeing in this area?
There is a growing realisation that our historical approach to business, politics and consumption has been too narrow, not sufficiently considering the long-term environmental, social and economic consequences. The resulting behaviour led to enormous environmental damages, government debt levels and social and political polarisation. In business, the prevailing philosophy over the last 40 years was to narrowly focus on maximising shareholder value - often with a very short-term mindset. This has not only contributed to our huge environmental and social challenges, it has also promoted narrow and egoistic thinking that has become quite widespread and damaging.
A growing share of the financial industry has learned from past mistakes and is increasingly promoting a more holistic investment approach whereby businesses are also assessed based on their broader social and environmental impact. We strongly support a truly holistic approach, as we are convinced that it will lead to superior long-term value creation. And frankly, in the context of our enormous global challenges, this is no longer just an economic conviction, but also a moral one.
What kind of developments do you expect to see in the future and where do you think financial institutions and investors should start in terms of climate protection?
To win our fight against climate change we need to accomplish two things. First, we need to decarbonise our economies as much as we possibly can, and second, we need to maintain and restore the natural carbon sinks on our planet, which are embedded in our oceanic and land-based ecosystems, and are also in decline. There are four major leverage points where banks and investors can engage:
People often complain that sustainable investing is not quantifiable or transparent enough. How do you respond to that?
This critique is partly justified, but it is also dangerous, as it is being used as an excuse for sticking to the old modus operandi that is not working well enough. The search for too much perfection is often the enemy of progress. Measurements exist and while the transparency is not perfect, I think there is sufficient knowledge available to engage with high impact. I would also welcome more standardisation when it comes to assessing the social and environmental impact of businesses – being fully aware that no measurement methodology will ever be perfect. The difficulty of assessing and measuring is not unique to the impact dimension – it also applies to the risk dimension, where Moody’s and S&P often struggle to assess the risk profile of businesses and fixed income securities. While we are fully aware that the risk rating agencies can sometimes get it wrong, we have nevertheless learned that their risk assessments are helpful and improve our capital allocation process. I hope that we will soon all agree that sensible impact assessments of businesses will help us to make our capital allocation processes more sustainable.
Consistently taking a sustainable approach is a challenge for any company. How does LGT deal with that?
Realigning a business to a megatrend inevitably gives rise to both opportunities and challenges. The best companies will take advantage of megatrends and align themselves to their benefit. Others will fail to recognise them and miss opportunities, and there are, of course, also those who will fight against a megatrend, which might work in the short-term, but typically leads to failure in the long term. For us at LGT it has been quite natural to align ourselves early around the sustainability megatrend as we pride ourselves on pursuing our business with a long-term and holistic perspective. That’s why we established a group-wide sustainability committee in 2010 and launched some very targeted initiatives even earlier - initiatives that we have since successively scaled and refined.
I formed LGT Venture Philanthropy in 2007, which then led to our first impact investment in 2009. The impact investing portfolio that originated out of LGT Venture Philanthropy then became the basis for forming Lightrock. And while Lightrock and LGT Venture Philanthropy remain very high impact initiatives that provide fairly unique investment access and insights to our clients, we have increasingly adapted all of our larger efforts to reflect an impact mindset. Naturally, the ambition to become more impactful never stops, as new technologies and solutions become available and as we continue to learn and become smarter.