As early as 1989, Bank Sarasin wisely identified the growing importance of environmental and social issues in asset management. In September 2007, the bank appointed Burkhard Varnholt as the CIO and head of the asset management, products and sales division. In an exclusive interview with Earthwitness, Varnholt explains why the ‘green economy’ will happen and succeed.Bank Sarasin, was founded in 1841 and is one of Switzerland’s leading private banks today; its core activities include investment advisory and asset management services for private and institutional clients, as well as an investment funds business. Bank Sarasin’s headquarters is in Basel, with offices in Zurich, Geneva and Lugano in Switzerland. The Sarasin group has offices in Dubai, Guernsey, Hong Kong, London, Munich, Paris and Singapore.
Banks and Financial institutions are jumping into the green bandwagon; the cynics have been wondering rather aloud, whether this is just another public relations circus. When faced with the question a banker would rather dodge, Varnholt is quick to respond, “It is an emerging industry which requires capital to start and which is of intriguing interest to investors to end with. So there is obviously an important intermediation role for the banks to bridge the gap between demand and supply of capital.”
Varnholt is quite candid, as he adds, “It’s funny to see how the banking industry breeds new climate change and clean energy experts overnight. People who were up until two weeks ago analysing banks or utilities or what you have are reinventing themselves as clean technology experts.”
“That’s the nature of the banking industry which one should sometimes take with a bit of a smile,” admits Varnholt.
There are very clear signals that a new economy is emerging, the green economy. Companies would owe their success in the green economy to how fast they can adapt to new market conditions, which will heavily be governed by various environment and sustainable protocols. Varnholt emphasises that the banks have a very important and crucial role to play in this emerging economy.
The markets know this truth very well, if the banking industry supports a new system, hardly does it fail to deliver. Listening to Varnholt, a top-notch banker should provide us clear indications to whether the green economy is for real or just a marketing mantra.
His words are more than reassuring; Varnholt exudes confidence as he says, “The green economy will happen but I don’t think it will be called green because of the greenery. The main selling point is not going to be greenery; I think the main selling point will be it is cheaper to run on renewable technology. What will need to happen therefore is more scientific and technological processes to improve the efficiency of power sources, which already is further ahead than most people think.”
Varnholt is of the opinion that many people underestimate the speed of change, “Scientific and technological progresses typically accelerate and it doesn’t come in the same quantities every year; there are quantum leaps that occasionally takes you years ahead.”
Talking about the acceleration of technological change, Varnholt mentions the observations made by the noted US futurologist Ray Kurzweil, "In the first 20 years of the 20th century, we saw more advancement than in all of the 19th century. And we won't experience 100 years of progress in the 21st century - it will be more like 20,000 years of progress at the current rate."
Varnholt puts Kurzweil’s observation into perspective, “It sounds like a daunting challenge or comparison but I think it’s very true and what underlies this statement is really the acceleration principle that triggers the scientific and technological progress. And that’s what investors and many observers still underestimate.”
As the conversation progressed, the intellectual capacity of Varnholt, who has authored four books, and also taught at the famous Massachusetts Institute of Technology, became a bit too obvious. With the measured calmness of a professor, Varnholt says, “The Stone Age didn’t come to an end because the world ran out of stones; it came to an end because people developed better technologies than stones. And that will happen at some point with fossil fuels. At some point Brazil will be to the biofuels industry what Saudi Arabia is to the oil industry.”
Millions of poor people in third world countries, especially in the continent of Africa are starving to death, with no access to clean drinking water or food. Helpless people live in economies decimated by civil war or simply without the support of a state. In this context, we have heard pledges to write off their loans, and rock concerts to raise money and awareness of this human tragedy in Africa. The very idea that food grain will be used not to feed the poor but to produce biofuels to drive cars and trucks goes against the grain of decency and humanity.
Varnholt’s views on the subject are very candid, “We have been very critical of generating ethanol which has a negative energy balance. You need to put in more energy than what you get out of ethanol when driving a car on it, and also because of the food versus fuel issues. This is just a matter of science and technology progress. At some point we will see technologies that will allow us to transform virtually all kinds of bio-waste into ethanol and at that point you will no longer have competition on ‘food versus fuel’. I think the food versus fuel debate is one that is highly politicised and I entirely sympathise with those who find out that it makes no sense to burn food. But I think no one will be talking about it in two years and surely in four years we will be much further ahead.”
Varnholt says that a pro-environment approach has been at the heart of Sarasin policy for many years. “In contrast to most in the industry, we do actually have a team which has been focussing on clean energy for over a decade.” Sarasin built what was then the largest solar platform in Switzerland, on top of its headquarters building in Basel, to provide itself with clean energy. “Sarasin has been very keen on investing in the solar and related industries and as a consequence today, we can look back on the longest investment track record in this industry that I am aware of.”
On whether the big industries are doing enough, to provide the leadership, to make a positive change to the environment, Varnholt is of the opinion, “The industry will always take the leadership role when there is money to be made and frankly that is the only way to resolve some of the current pollution issues.” Industry needs large amounts of energy; the current electricity prices are high, and presumably will be higher in the future. Varnholt notes, “There is a very significant economic gain for the industry to be very interested in renewable energy and electricity.”
Varnholt explains the market realities rather bluntly, “It is not a matter of wanting the industry to take the leadership, and the industry will only do what serves it well. It doesn’t do a thing out of dogma but really out of mercantile considerations. But I think those mercantile considerations are already there.”
Sarasin has been astutely investing in renewable energy. On Sarasin’s power fund, which has been operating for more than 10 years, Varnholt confirms that the fund only invests in renewable power sources and related industries such as solar, wind, water and other renewable energy. “The fund always comes up in industry comparisons as the top performing fund not only in terms of performance but also in terms of risk management, and also in length of its track record; its been running for 10 years.”
He adds, “Sarasin’s power fund has been outperforming even the second best performing fund; typically outperforming it by more than 50% over the last two to three years. It’s probably one of the best performing funds we have, especially given length of the track record.”
Talking about the green economy, Varnholt is emphatic, “This is one of the fastest growing industries that I can see worldwide, which is going to continue to surprise investors and bankers to the upside, courtesy of its growth.”
In spite of his extremely busy schedule as a Swiss banker, writer, and academic, Varnholt finds it necessary to invest time in the humanitarian work in the African continent. In 2004, Varnholt set up the charity, Kids of Africa –The Swiss African Orphanage (www.kids-of-africa.com). The charity has built and maintains a home for up to 100 orphaned and abandoned children in Kampala, Uganda.
It is not a grand success story that is often discussed in banking magazines and journals; Varnholt’s work with Kids of Africa is not one of monetary rewards, but one that gives him a sense of accomplishment, one that he can cherish for the rest of his life. It is also a wonderful example of commitment to best practice in social responsibility.
“It’s something that I came across accidentally. A good 10 years ago I received a letter from a Ugandan asking me for help to bring up himself and his siblings. I sent him some support and I was intrigued by his writings and wrote to him that I would like to meet him in person.”
“That was a good eight to nine years ago, and ever since we have stayed friends. I helped him and his siblings get through their education. When they were ready to leave college, there weren’t jobs around in Uganda. We started to wonder what he should be doing with all the education he has. That’s really where the idea came up because he studied civil engineering. Why not buy a plot of land build some houses which gave him something to do and set up children’s village for other abandoned orphaned children, of which there are woefully too many in the country.”
“It was three years ago when we decided to put the idea into reality, I did the registration and bureaucratic work and he began to build the houses. We then hired the staff and today the village has grown wonderfully into a little big children’s village called ‘Kids of Africa’ which is an enormous challenge and responsibility but also a great source of happiness.”
Throughout the conversation with Varnholt, one couldn’t miss the feeling that here is a man, who is not your typically-sophisticated-banker – talking in numbers and percentages. About his African experience, Varnholt says, “It has been a wonderful experience seeing that one can actually do things even without a lot of professional experience and material, but by applying a lot of energy and common sense to it.”
It is hard to find high profile bankers like Varnholt, who take a simple approach to life. Here is a man who understands the significance of a green environment and sustainable business practices. The truth is we need many more Burkhard Varnholts, to make that ‘green difference’ in the banking sector, for the green economy to work and succeed.
(By Santhosh Shyamsundar, February 2008 edition)
