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An innovative approach to sustainability – interview with Jean-Pascal Porcherot
Article published in Allnews, 23 December 2023
Jean-Pascal Porcherot became a Managing Partner of Lombard Odier in January 2022, and has been head of Lombard Odier Investment Managers (LOIM) since 2021. Having worked within LOIM since 2009, he played a key role in developing and managing the Group’s hedge fund business from New York. Today, he oversees the management of over CHF 63 billion in assets. LOIM’s business is based around three pillars: the first is core management, the second is alternative management (including private markets) and the third is sustainable investment. Today, the latter comprises holistiQ Investment Partners, a partnership unveiled in June 2023 between Lombard Odier and Systemiq, a major player in the environmental transition and system changes.
How is Lombard Odier Investment Managers organised?
According to three pillars. The first is what I would call core management, known for its expertise in bond markets in general, but also in Swiss and Asian bonds as well as convertibles. This pillar equally covers our All Roads multi-asset strategies. The second is alternative management, which comprises our 1798 hedge fund as well as private assets. The third is formed of holistiQ, our partnership with Systemiq, a leading sustainability consultancy founded by two former McKinsey employees. This final pillar focusses purely on sustainable investment.
Read also: Sustainability is at the heart of our investment approach
Could you say a few words about private assets?
These amount to approximately USD 8 billion and have shifted from a “nice-to-have” to a “must-have”, due to a major reduction in the number of listed companies and, conversely, increased investment opportunities in companies held by private equity funds. Companies are therefore increasingly slow to obtain stock exchange listings. In the United States, unlisted companies represent over 50% of GDP. Moreover, private assets are an excellent option for providing diversification within a portfolio. It’s an asset class that has delivered strong returns and has proven to be resilient. We provide access to these investments via franchises on the secondary and risk capital markets. Moreover, investing in private markets generates many opportunities in terms of sustainability. We have therefore launched strategies focussing on plastic and on US private credit.
The launch of holistiQ, in partnership with Systemiq, indicates that sustainable investment is a priority for you. In what way?
In terms of sustainability, not everybody is speaking the same language. I’ll illustrate by distinguishing between two approaches. The first involves looking at the history of various companies, giving them an ESG rating and investing on the basis of this rating. This impacts neither performance nor sustainability. The second way of approaching the matter is to concentrate on the future outlook: to understand what the environmental transition means for the company, and how it will lead business models to adapt over the next 10-30 years. In other words, to understand that the economy will be reshaped in a context as yet unseen. By way of example, we estimate that the energy systems transition will involve capital expenditure of USD 3,500 billion per year, i.e. a total of USD 25,000 billion from now until 2030. This method is the one we have chosen. We’ve dropped the traditional, vertical approach of financial analysis in favour of a transversal and multidisciplinary analysis, with a sustainability research team of over 50 people. The objective is to combine scientific forecasts, economic outlook and company analysis, with the aim of defining transition roadmaps that allow us to establish strategies in public and private markets.
How does this kind of research team operate?
Unlike a traditional team, it consists of scientists, engineers, consultants and financial analysts, each of them an expert in their field – energy, nature, materials, carbon, etc. This explains why we founded holistiQ in June and, in particular, recruited a Chief Nature Officer and a Chief Carbon Officer. The team and the fund managers work together, which is not always easy because they have had to learn to speak the same language. In terms of transversality and partnerships, we work with the University of Oxford and E4S in Lausanne, and have based our approach on the Stockholm Resilience Centre’s Planetary Limits model since 2021. We have also got closer to the business world, and have, for example, launched a plastics circularity fund in collaboration with the Alliance to End Plastic Waste. We are part of many organisations, such as the Forest investor Club, and are a founding member of the Circular Bioeconomy Alliance.
You also focus on nature. But how do you invest in it?
If you consider our anthropogenic emissions to be around 50 gigatons of CO2, about half is absorbed by nature. Preserving nature is therefore an absolute priority. But as it isn’t monetised, it’s difficult to identify associated investment opportunities. We dedicate a 20-strong team to it.
Read also: re-NATURE Hub – putting nature at the heart of climate action
What are your thoughts on temperature trajectories?
On the basis of strategic announcements by various governments, we should reach 1.8-2 degrees by then. Yet sadly, taking into account what has actually been achieved, we are instead on track for between 2.6 and 2.9 degrees. With a view to measuring progress towards an average decrease in temperature, we have designed a proprietary tool, LOPTA (Lombard Odier Portfolio Temperature Alignment), which allows us to estimate how a portfolio is aligned with a given temperature.
It seems that Europe has a very big lead over the United States in terms of sustainability.
Yes and no. Texas, an oil state par excellence, is in the process of converting to green energy. Today, solar power is the world’s cheapest energy. The Americans are pragmatic. As soon as an alternative is economically attractive, they are very quick to deploy it.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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