@GRIAusConf_Linking Sustainability Data To Value - Maria Balatbat
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  • While there is a consensus that sustainability is now a mainstream issue, it is not always well defined in such a way that the information provided assist investors in decision making. For example the definition of sustainability in the Brundtland Report 1987. From a business and investor perspective the definition of corporate sustainability is most relevant as defined by the DJSI. Socially responsible investing ( SRI ), also known as sustainable, socially conscious, green or ethical investing, is any investment strategy which seeks to consider both financial return and social good . In general, socially responsible investors encourage corporate practices that promote environmental stewardship , consumer protection , human rights , and diversity . Some avoid businesses involved in alcohol , tobacco , gambling , pornography , weapons , and/or the military . The areas of concern recognized by the SRI industry can be summarized as environment, social justice , and corporate governance -- as in environmental social governance (ESG) issues. In addition to stock ownership either directly or through mutual funds, other key aspects of SRI include shareholder advocacy and community investing. The term "socially responsible investing" sometimes narrowly refers to practices that seek to avoid harm by screening companies included in an investment portfolio. [1] However, the term is also used more broadly to include more proactive practices such as impact investing , shareholder advocacy and community investing . [2] Amy Domini , a prominent member of the socially responsible investing community and the founder of Domini Social Investments, has stated that shareholder advocacy and community investing are pillars of socially responsible investing and that doing only negative screening is "not what I would consider adequate." [3]
  • There is a growing interest in socially responsible investing ( SRI ), also known as sustainable, socially conscious, green or ethical investing, is any investment strategy which seeks to consider both financial return and social good . In general, socially responsible investors encourage corporate practices that promote environmental stewardship , consumer protection , human rights , and diversity . Some avoid businesses involved in alcohol , tobacco , gambling , pornography , weapons, and/or the military. The areas of concern recognized by the SRI industry can be summarized as environment, social justice, and corporate governance -- as in environmental social governance (ESG) issues. In addition to stock ownership either directly or through mutual funds, other key aspects of SRI include shareholder advocacy and community investing. The term "socially responsible investing" sometimes narrowly refers to practices that seek to avoid harm by screening companies included in an investment portfolio. [1] However, the term is also used more broadly to include more proactive practices such as impact investing, shareholder advocacy and community investing. [2] Amy Domini, a prominent member of the socially responsible investing community and the founder of Domini Social Investments, has stated that shareholder advocacy and community investing are pillars of socially responsible investing and that doing only negative screening is "not what I would consider adequate." [3] The areas of concern recognised by socially responsible and ethical investors include: environment, social justice, and corporate governance – or better know as environmental social governance (ESG) issues. Socially responsible investing also refers to practices that seek to avoid harm by screening companies included in an investment portfolio (whether it is fund manager or a business decision maker for an organisation) For example: negative screening of investments, evaluating ESG performance and making investment decisions on the basis of high ESG scores, or simply making capital investment decision
  • Responsible investment screening Best of sector Thematic investment Impact investing ESG integration Engagement with companies on ESG issues Shareholder activism In the conventional investment process, screening is used to reduce the investible universe based on preferred financial criteria such as leverage metrics and valuation ratios. In the case of responsible investment, however, screening also includes environmental, social, governance (ESG) and ethical factors as well as financial criteria. Responsible investment screening is used in many ways: it can be applied to select investments based upon relative performance on specific issues (such as carbon emission benchmarks or governance standards) or to exclude entire sectors or activities (such as gambling or those who abuse human rights); it can be used for equities as well as property, fixed income and infrastructure; it can be employed either before or after the financial analysis has taken place; and it is usually supported by a pre-determined methodology that is clearly defined and transparent. The competitive performance of screened investments depends on both the screening methodology and the final portfolio construction which seeks to minimise correlation and volatility and maximise diversification and risk-adjusted return potential. Negative screening is the term used to describe the exclusion or avoidance of an investment based upon environmental, social, governance or ethical factors, while positive screening is the favourable consideration of an investment opportunity based upon these issues.

Transcript

  • 1. Linking SustainabilityData To ValueChair: Eszter Vitorino Füleky, Network Relations Manager,Global Reporting InitiativeDr Maria Balabat, Senior Lecturer, University of New South WalesAnnabelle Bennett, Account Director, TrucostDr Lara Jefferson, Manager, Environment and Approvals, CrosslandsResources Limited co-presenting withKylie Ashenbrenner, Principal Consultant Strategic Projects at ERM
  • 2. Australian School of BusinessLinking Sustainability Data to Value Dr Maria Balatbat
  • 3. Sustainability defined“…development which meets the needs of the present without compromising the future generations to meet their own needs” (Brundtland Report, 1987)“Corporate sustainability is a business approach to create long- term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.” (Dow Jones Sustainability Indices)Many companies get caught up with Triple Bottom Line Reporting. Although transparency is an important aspect of sustainability, embedding the concepts internally to add shareholder value is the most imporatant issue (The Mays Report, 2003).
  • 4. Business Case for embedding and accountingsustainability and climate changesWinning and retaining customers• Competitive advantage, innovation and new products• Attracting, motivating and retaining staff• Managing risk and opportunity• Driving operational efficiencies and cost reduction• Maintaining licence to operate• Accessing capital• Reputation and brandSource: adapted from the Princes Accounting for Sustainability Project (2007)
  • 5. Sustainability ‘accounting’ anddisclosure frameworksPrinciples• – United Nations Global Compact (UNGC)• – United Nations Principles for Responsible Investment (UNPRI)Accounting and disclosure frameworks• – Corporate Responsibility Index (CRI)• – Global Reporting Initiative (GRI)• – Accounting for sustainability (A4S)• – International Integrated Reporting Committee (IIRC)• – Carbon Disclosure Project (CDP)• – Good Business Register (GBR)
  • 6. Sustainability ‘accounting’ anddisclosure frameworksStandards and regulations– Greenhouse Gas Protocol– National Greenhouse Energy Reporting Scheme (NGERs)– ISO 26000 – Social Responsibility– ISO 14001 – Environmental management systems– ISO 14064 – Climate change– OHS 18001 – Occupational, health and safety– AA1000 Series – Accountability and assurance
  • 7. Current ResearchSiew, Balatbat and Carmichael, 2012 “Influence of ESG Scores on Firm Performance: Australian Evidence”, Working Paper- This research is partly funded by CPA Australia- Top 300 ASX listed firms in 11 industry sectors- Evaluated and Obtained ESG Scores of firms using the database provided by CAER, Australian provider of EIRIS- Use best of sector methodology to examine correlation between ESG scores and firm performance (financial, share market and analysts forrecasts)
  • 8. Current initiatives in SRI• United Nations Principles for Responsible Investment (UNPRI)• Carbon Disclosure Project (CDP)• ESG Research Australia• Investor Group on Climate Change• Responsible Investment Association Australasia• Reporting schemes using data from sustainability reports and other engagement by specialised analysts (e.g. Bloomberg, Thomson Reuters, RiskMetrics)Indices– Dow Jones Sustainability Indexes (DJSI)– KLD/FTSE4Good– MCSI ESG Indices