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ESG Integration Shorex Wealth Management Forum Geneva, December 6th, 2012 Marc-Olivier Buffle, PhD
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SAM at a Glance
Investment boutique focused exclusively on Sustainability Investing since 1995
Develop and manage investment solutions for institutionals, as well as retail funds
EUR 9.2 billion total assets (30.09.2012)
Joint venture with S&P Dow Jones to power the DJSI (since 1999)
Unique access to companies. In 2012 > 30% of the total world capitalization responded to SAM sustainability questionnaire
Member of Robeco, with approximately 100 employees in Zurich, Switzerland
Servicing a global and diversified client base
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SAM Investment Philosophy
SAM fundamental investment philosophy is based on the premise that overarching sustainability megatrends such as demographic change, resource scarcity, pollution, and climate change shape the competitive landscape in which companies operate by introducing long-term sustainability risks and opportunities.
The impact of sustainability megatrends -term business and
financial outlook is under-researched, leading to market inefficiencies, which give SAM a competitive edge over mainstream asset managers who do not consider these sustainability factors.
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Global Trends and Public Awareness
The Economist, 26. November 2010
Newsweek, 06. June 2011
Michelle Obama - Newsweek, 22. March 2010
National Geographic, April 2010
-Kofi Annan, Former Secretary General of the UN
Time, January 2011
4
Global Risks Landscape
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Demographics, Resource Scarcity, Pollution, Climate Change, Scarcity of Arable Land
Investment Opportunities
Clusters Wind Solar Natural Gas Power Infrastructure Storage
Clusters Distribution &
Management Advanced Treatment Efficiency & Metering
Clusters Basic Materials Innovative Materials &
Technology Material Efficiency Recycling & Waste
Management
Clusters Transportation Reconstruction Building Infrastructure Agriculture
Clusters Nutrition Health Care Personal Care Activity
New Energy & Efficiency
Water Resources Materials & Resource Efficiency
Climate Change Solutions
Health & Wellness
From Global Trends & Risks to Opportunities
Source: SAM Research
Cluster Production Factors Producers Processing/Logistics Packaged Food &
Beverages
Agribusiness
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Recognition of Sustainability as Strategically Significant by Firms
Source: MIT SLOAN Management Review, Winter 2012
Poll among 3000 Executives
70%
Investors?
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Holcim Experience with Corporate Sustainability
Source: Adapted from Holcim Group Support, 2012
Compliance Reputation Risk Mitigation Integration into Business
TIME & COMPETITIVE ADVANTAGE
Regulatory compliance, legal license to operate
Societal license to operate,
recognition by regulators
Identifying and avoiding risk,
identifying opportunities,
providing societal value
Brand differentiation, new markets, products &
services, outperforming competitors, maximizing societal and shareholder
value
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SAM Definition of Corporate Sustainability
A company s capacity to prosper in a competitive and ever faster changing
global business environment by managing and anticipating current and
future economic, environmental and social risks and opportunities
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SAM Corporate Sustainability Assessment
Economic Dimension Corporate Governance
Code of Conduct, Compliance
Risk & Crisis Management
Customer Relationship Management
Innovation Management
Social Dimension Talent Attraction & Retention
Human Capital Development
Occupational Health & Safety
Stakeholder Engagement
Human Rights
,,,
Environmental Dimension Climate Strategy
Water related Risks
Environmental Management System
Environmental Performance
Product Stewardship
E S
E (G)
Assessment: ~3000 Companies annually (58 sectors) > 30 trillion $ total MCap 3 dimensions / 20 criteria / 130 questions > 1000 data points/firm
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Integration of Intangible Criteria into Valuation
Economic Criteria - Corporate governance - Risk & crisis management - CRM - ...
Revenues
Environmental Criteria - Operational eco-efficiency - Climate strategy - Product stewardship - ...
Social Criteria - Human capital development - Stakeholder engagement - Supply chain management - ....
Costs
Investments
Capital Structure
Risk premium
Earnings
Invested Capital
Weighted Ave. Cost of Capital
Return on Invested Capital
Financial Valuation
Liabilities
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SAM Research Capabilities
SAM Indexes Cooperation with S&P Dow Jones Indexes
SAM Asset Management Theme Equity Strategies Core Equity Strategies Clean Tech Private Equity
SAM Sustainability Services Company Benchmarking
SAM Publications Sector Studies Sustainability Studies
Robeco Robeco Products
3rd Party Cooperation Research Cooperation Product Cooperation
SAM Research Industry Expertise Sustainability Expertise Financial Expertise
Corporate Sustainability Assessment
Methodology Development
Industry and Sector Studies
Fundamental Company Analysis
and Modeling
Investment Recommendations
Sustainability Foresight
& Insight
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What Is ESG / Sustainability Investing? the Elephant in the Room
It creates returns!
It lowers volatility
It raises alpha!
It has impact!
It reduces risks!
It communicates!
It shuns vice!
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Defining Objectives & Core Beliefs: Sustainability Investing Framework
Investment Policy
Risk
Man
agem
ent &
Rep
ortin
g Asset Allocation
Manager Procurement & Monitoring
D) Impact Promote Sustainability Themes Quantify/demonstrate ESG impact Create socio-economic impact Proxy voting Dialogue and Engagement
A) Financial Alpha Lower volatility Less drawdown Better return/risk profile
C) Ethical Avoid controversial industries Avoid negative headlines Avoid reputational risk
B) Communication Fulfill fiduciary duty Produce ESG report Meet UNPRI Assume responsibility as shareholder
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Sustainability Investing Solution Set E
SG
Inte
grat
ion
Investment Policy Asset Allocation & Manager Procurement
Private Equity Clean Tech / Growth Infrastructure
Real Assets Real Estate Timber / Forestry Commodities
Fixed Income Sovereign Credit Emerging Markets
Hedge Funds Equity & Credit
Equity Themes Indexes Low Vol / Beta Emerging Markets Fundamental & Quantitative
Risk Management Active Ownership
Reporting & Communication
Governance
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A) Financial Perspective: Sustainability Research as Added Value for Investors
SAM sustainability data is likely to have predictive power for stock-selection, reflected in the positive information ratio (0.5) of the portfolio consisting of sustainability leaders Added value is generated by selecting sustainability leaders and avoiding sustainability laggards Value creation tends to be consistent and stable for the entire time period
Source: SAM The graph does not represent returns of an actual portfolio. It depicts returns of sustainability investments as rated by SAM. Results are shown gross of fees. Results would be reduced by application of fees and expenses incurred in the management of the account. Returns shown do not represent the results of actual trading but were achieved by retroactive application f a model with the benefit of hindsight. If the strategy had been in existence during this time periods, actual results could have been different, and potentially lower than the hypothetical results that are presented.
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A) Financial Perspective: Out-performance of Sustainability Leaders (Harvard)
Leading Sustainability Companies out-performed significantly over the long term Sustainability Leaders out-performed on ROE and ROA during the time period
Source: Eccles, R. J., Ioannou, I., and Serafeim, G. 2011 The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance. Harvard Business School Working Paper. Past Performance is not an indication of future results. The graph does not represent returns of an actual portfolio. It depicts returns of sustainability investments as rated by SAM. Results are shown gross of fees. Results would be reduced by application of fees and expenses incurred in the management of the account. Securities are chosen based on sustainability assessment questionnaires submitted by the issuers.
Evolution of the stock price performance of $1 invested in the 90 component Market Capitalization-weighted portfolios
Evolution of $1 of assets invested in the 90 component Low and High- Sustainability portfolios based on Return-on-Assets
Low sustainability: adopted sustainability more recently High sustainability: adopted sustainability policies early on (i.e. in the early 1990s when CSR was still at nascent stage) VW = value-weighted (Market Capitalization Weighted) EW = equal-weighted
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B) Communication Perspective: External Reporting and/or Internal Monitoring
CalPERS first stand alone Sustainable Investment Report in 2012
Sustainability is Essential is one of PPGM s investment beliefs. PGGM publishes a RI AR Its RI Policy is based on six pillars:
18 18
C) Ethical Perspective: Defining an Exclusion Approach
Avoiding or selecting companies or sectors that engage in a variety of activities, such as:
Socially Destructive Weapons Tobacco Pornography Alcohol
Environmentally Destructive Oil extraction Mining
Economically Destructive Gambling
Socially Constructive Labor welfare and rights Diversity and inclusion Risk Management
Environmentally Constructive Supply clean/potable water Sustainable global food supply Sustainable energy supply
Economic Impact Corporate Citizenship & philanthropy Transparency Stakeholder engagement
Avoiding companies with single negative incidents in the area of E, S or G
Avoiding companies that refuse to enter into engagement discussions with shareholders