Sustainable                                                                                                               ...
Sustainable Investment Architects                                                                   sinclairconsult.comREG...
Who We Are: Sustainable Investment Architects•   SinCo at a Glance                                •   Experienced     –   ...
Who We Are: SinCo helps leading clients tackle challenges            •    Developed strategy for assessing innovative finan...
About ISE Sustainability Index   SinCo ROLE: INVESTOR STAKEHOLDERS                   ARCHITECTURE   • SinCo contracted to ...
ISE Sustainability Index Project 2010 - 2011 Launch Briefing               Istanbul Turkey, 10 August 2010                ...
7
Emerging Markets Basics   • EM originally brought into fashion in the 1980s by then World Bank     economist Antoine van A...
What Do Global Emerging Markets Investors Want From SustainableInvestment?  • Investment opportunities for new returns [un...
Investor Stakeholder Mapping                   Consumer                                                   NGO             ...
Investment context: global                             11
EM Investors Appetite Grows, Opportunities at Differential Rates                                                          ...
EM Institutional investors: CalPERS and Dimensional/KLD   CalPERS   • USs largest public pension fund + retirees.     •   ...
EM Institutional Investors: Actis PE   •   Actis   •   Leading private equity investor in                 •   Policy Impac...
Contents  • Global SI Market Snapshot  • SI in Europe  • SI in the United States  • SI in Emerging Markets      • Brazil  ...
Global SI Market Snapshot      Global SI Market is Growing and Regional Influence is Shifting                   2006      ...
Contents  • Global SRI Market Snapshot  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      • Braz...
SRI in Europe: Market Size Total EU SRI assets under management have reached               €4.986 trillion as of 31/12/09 ...
SRI in Europe: Market Characteristics           Core SRI - €1.2 trillion                        Broad SRI - €3.8 trillion ...
SRI in Europe: Market Drivers / Barriers   Demand from institutional investors remains a key driver, along with   internat...
Contents  • Global SRI Market Snapshot  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      •    B...
SRI in the United States: Market Size   • “Sustainable and socially responsible investing (SRI) in the United     States h...
SRI in the United States: Market SizeSource: Social Investment Forum Foundation. “2010 Report on Socially Responsible Inve...
SRI in the United States: Market Characteristics    • “The total assets managed under policies that explicitly      incorp...
SRI in the United States: Drivers and Barriers• “Over the past decade, SRI growth within US financial markets has been  sh...
Contents  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      • Brazil      • India               ...
SRI in Emerging Markets: Market Size         • “(Although) further research on the business case is welcome, the two      ...
SRI in Emerging Markets: Drivers/Barriers            •    “Seen from a policy perspective, the pressure to improve corpora...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emergi...
Contents  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      • Brazil      • India               ...
SRI in Brazil: Market Size & Characteristics•   “Sustainable” investment could therefore be at    least 10 per cent of mar...
SRI in Brazil: Drivers and Barriers–    “Brazil has an advanced framework of environmental legislation and     inspection ...
Contents  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      • Brazil      • India               ...
SRI in India: Market Size“TERI-Europe estimates that the total stock of investment in Indian equitieswhere the investment ...
SRI in India: Market Characteristics• “India has limited domestic sustainable investment market or  infrastructure in the ...
SRI in India: Drivers & Barriers        • DRIVERS:              – ESG transparency and disclosure by Indian companies in t...
Contents  • SRI in Europe  • SRI in the United States  • SRI in Emerging Markets      • Brazil      • India               ...
Defining SI/ESG space: both investor and investee perspectivesFund strategy determines for whom sustainability must be def...
Key challenges to EM investing    Countries identified making most                                            70%        p...
45
What Do Global Emerging Markets Investors Want From SustainableInvestment?  • Investment opportunities for new returns [un...
Sustainable Investment Architects                                                                sinclairconsult.comREGULA...
Credentials: testimonials for SinCo…•   “Graham is an exceptional professional in all that he does. His work is at the cro...
About Graham Sinclair       •   Graham Sinclair is a sustainable investment strategist, ESG architect and global          ...
About Project team: Roselyne Yao         Roselyne Yao is an Analyst at the sustainable investment architecture firm SinCo, ...
SinCo vision of the world tomorrow“Together, we can partner on behalf of our planet and prosperity and help countries incr...
Marketplace: ESG/SI trends, new drivers of supply and demand                   Goldman Sachs Research GSSustain philosophy...
Sustainable Investment ArchitectsREGULATORY INFORMATIONNo part of this proposal suggests or should understood to suggest e...
Contact Details                  Graham Sinclair                  graham.sinclair@sinclairconsult.com                  +27...
SAMPLE: Investor Workshop Key Questions   • DEFINITION:      – How does the EM investor/investment stakeholder define “sus...
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Isesi project em_8_dec2010.ppt

  1. 1. Sustainable Investment Architects ISE SUSTAINABILITY PROJECT SUSTAINABLE INVESTMENT in EMERGING MARKETS Graham Sinclair Principal, SinCo graham.sinclair@sinclairconsult.com Istanbul, Turkey Wednesday 8 December 2010CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission is strictly prohibited. SinCo | Sustainable Investment Architects | The Leading ESG Investment Architect in Emerging Markets | sinclairconsult.com ©2010 1
  2. 2. Sustainable Investment Architects sinclairconsult.comREGULATORY INFORMATIONNo part of this proposal suggests or should understood to suggest endorsement or advice on any investment approach, strategy or offering. Therights and obligations of the investor are set out in the relevant policy contract. Market fluctuations and changes in rates of exchange or taxationmay have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not getback the full amount invested. Past performance is not necessarily a guide to future investment performance.SinCo | Sustainable Investment Architects | The Leading ESG Investment Architect in Emerging Markets | sinclairconsult.com ©2010 2
  3. 3. Who We Are: Sustainable Investment Architects• SinCo at a Glance • Experienced – Bespoke investment advisory focused – Established boutique in Boston in Q4 on sustainable investment architecture 2006 : Inaugural engagement for – Architect + 2 analysts with support Wall St proprietary and third party team operating projects with partners manager with USD 900bn AUM, 200 in Geneva, Seattle, London, Nairobi, analysts, mutli-asset classes Washington DC, Cape Town, Istanbul – Sabbatical to establish PRI in – Word-of-mouth, below-the-radar Emerging Markets Project for UN approach Environment Programme Finance Initiative 2007/8: Ramped membership in EM 57%• Philosophy – Since 2006, SinCo has delivered – SinCo is a boutique investment advisory sustainable investment architecture firm specializing as an ESG investment globally to pension funds, asset architect for sustainable investment in managers and international frontier and emerging markets. organizations integrating ESG – SinCo offer the domain knowledge and factors into investment practice. global experience to help investors understand the threats and opportunities of the sustainability meta- • Proven Project Leader trend. – Multi-year, multi-stakeholder, multi- – SinCo helps clarify questions, design & country projects develop answers, and project – Developed framework for 25 manages thinking into action. country rollout by PRI in EM project Investment architect that believes sustainability + investment are integrated. Risks and opportunities for ESG appear in every investment decision. 3
  4. 4. Who We Are: SinCo helps leading clients tackle challenges • Developed strategy for assessing innovative financing mechanisms to attract new capital in new ways 2008-. Designed global ESG index architecture for developed, emerging and frontier markets covering nutrition sector 2009-2011. • Prepared strategy and lead the Africa Sustainable Investment Forum (AfricaSIF) project team developing pan-African network for investment stakeholders 2009-. • Supported stakeholder engagement connecting investors, analysts and companies assessing practice of investment valuation globally in 2008 • Designed sustainable investment ESG architecture across trillion-dollar AUM, 200 analyst private equity, equity, fixed income and global real estate asset classes. Provided peer benchmarking for ESG strategy and developed change management program for global ESG roll-out 2006-2009. • Developed strategy for 25 emerging markets in 2007 and launched EM project for sustainable investment by institutional investors. Created network infrastructure, stakeholder relationships and built PRI in EM through 2008. • Conducting seminal study of sustainable investment in sub-Saharan Africa [S.Africa, Nigeria, Kenya] across PE and listed equities in 2010 in partnership with RisCura; conducting primary research interviewing over 1100 investors. In PE and listed asset classes inside/outside Africa 2009-2010 • Chaired the Association for Savings and Investment South Africa Responsible Investment Sub-Committee Prudential Assets Working Group developing new policies for promoting ESG in investment 4
  5. 5. About ISE Sustainability Index SinCo ROLE: INVESTOR STAKEHOLDERS ARCHITECTURE • SinCo contracted to provide Sustainable • Universe of ISE-listed companies ranked Investment advisory services for the on financial fundamentals and ESG process design, development, facilitation factors e.g. energy efficiency, jobs and implementation of a sustainability creation, carbon footprint etc index project in Turkey, the Istanbul Stock • Index committee of Turkey /investment/ Exchange Sustainability Index (TBCSD sustainability experts. Third-party rating ISESI Project). method with verification, review. APPROACH KEY MILESTONES • Opportunities to attract capital • Project launch announced @ ISE on 10 • Identifying winners in sustainability meta- August 2010 by Presidents of ISE + TBCSD theme; competitive context drives • Briefing to companies, investors and changes stakeholders in Turkey on project; input • Indices will be used by investment on core ESG issues, Oct-Dec 2010 managers to integrate Environmental, – Further briefings and workshops to Social and Governance criteria into their develop relevant criteria. investment processes for benchmarking, – Regular updates and reporting online asset allocation. • Criteria finalized and first annual rating process begins; companies assessed on TEAM ESG factors; rating agency and company reporting. Index model tested • ISE seeking local and international with company ESG profiles based on partners: data/criteria/ranking – TBCSD/WBCSD - company initiative promoting sustainability, Cheryl Hicks – SinCo - sustainable investment architect LAUNCH – SAM - ESG ratings and indexes • Index modeled and launched by ISE + TBCSD around Dec 2011. 5
  6. 6. ISE Sustainability Index Project 2010 - 2011 Launch Briefing Istanbul Turkey, 10 August 2010 isesi.org
  7. 7. 7
  8. 8. Emerging Markets Basics • EM originally brought into fashion in the 1980s by then World Bank economist Antoine van Agtmael. – Political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets". • New terms have emerged to describe the largest developing countries – BRIC that stands for Brazil, Russia, India, and China – BRICET (BRIC + Eastern Europe and Turkey) – BRICS (BRIC + South Africa), – BRICM (BRIC + Mexico) – BRICK (BRIC + South Korea) – CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) – Big Emerging Market (BEM) economies are (alphabetically ordered): Brazil, China, Egypt, India, Indonesia, Mexico, Philippines, Poland, Russia, South Africa, South Korea[9] and Turkey. • Nations with social or business activity in the process of rapid growth and industrialization. • Lie at the intersection of non-traditional user behavior, the rise of new user groups and community adoption of products and services, and innovations in product technologies and platforms. 8
  9. 9. What Do Global Emerging Markets Investors Want From SustainableInvestment? • Investment opportunities for new returns [uncorrelated?] and diversification of risks/rewards • Investments in EM are made with – ESG-driven mandates with filter for ESG built into mandates and/or norms or values driven – ESG-agnostic but risk averse and prefer ESG “halo effect” – Cost-sensitive to research or execution costs; liquidity risks • Opportunity to deliver compelling investment proposition at country, exchange, sector or company levels 9
  10. 10. Investor Stakeholder Mapping Consumer NGO Popular Media ESG Trade Experts Associations Specialist Company Media Business Media Govt Investors Primary audiences 10
  11. 11. Investment context: global 11
  12. 12. EM Investors Appetite Grows, Opportunities at Differential Rates 12
  13. 13. EM Institutional investors: CalPERS and Dimensional/KLD CalPERS • USs largest public pension fund + retirees. • Three stages of EM investment USD. > 200b AUM policy development: • Board/investment committee structure: Board – < 2002: ¨passive/index based = fiduciary responsibilities & makes decisions, committee advises – 2002-2007: permissible countries • History of shareholder activism – > 2007: principles based – Apartheid, tobacco & global warming approach CalPERS in EM • EM principles applied from 2007 Dimensional: a stock picking specialist. Cf. 1. Politically stable Eugene Fama and: "There is a new model of 2. Transparency in information investing: a model based not on speculation 3. Abstinence from harmful labor but on the science of capital markets" practices http://www.dfaca.com/index.shtml. USD111b 4. Promotion of corporate social AUM responsibility and sustainability • KLD Research and Analytics, Inc.: investment 5. Market regulation and liquidity research firm specialized in SRI and a pioneer (early 1990s) in the development of U.S. & 6. Free market policies, openness, global indexes of ESG acceptable legal protection companies 7. Reasonable trading and • KLD provided analysis for Dimensional (e.g. for settlement in markets screening on labor practices) 8. Appropriate disclosure on ESG • KLD+Dimensional helped CalPERS implement its investment principles after 2007 • CNOC/Petrochina: difficult to apply CalPERS principles in China 13 13
  14. 14. EM Institutional Investors: Actis PE • Actis • Leading private equity investor in • Policy Impact: Actis specialists assess the emerging markets. Operating for 60 impact of all new investments in each of years the five policy areas as an integral part – $7.3 Bn raised, $3.1 Bn investd of the appraisal process and determines – Goal: to promote sustainable growth in the appropriate level of management emerging markets to ensure “a lasting and monitoring required. tangible and positive difference” in target – Agreement: Company management are countries. required to sign an agreement confirming • What is ESG code? that they will operate in line with the Five – Guidelines, policies and methods for Policies. monitoring the ESG approach in – Action Plan: Actis assists companies in companies within portfolio and under developing action plans to address areas consideration. of noncompliance with policies and oversees implementation. • Actis Five Policies – 1– Environmental • Reviewing – 2– Climate change – Annual reporting on the implementation of procedures. – 3– Health & safety – Summary: Actis provides a summary of – 4– Business integrity the development impact of each fund in – 5– Social issues the regions in which it is investing • Steps to implement the ESG approach: (including a statement relating to each – Policy specialization: Actis has internal funds carbon footprint). experts, advice throughout the lifecycle • Auditing – Negative Screening: Specific sectors are – Ongoing Auditing: Actis audits the excluded from investment. implementation of the Actis Five Policies and related procedures on an ongoing basis. 14 14
  15. 15. Contents • Global SI Market Snapshot • SI in Europe • SI in the United States • SI in Emerging Markets • Brazil • India 15 15
  16. 16. Global SI Market Snapshot Global SI Market is Growing and Regional Influence is Shifting 2006 2010 2008 Source: Eurosif Research 16
  17. 17. Contents • Global SRI Market Snapshot • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • India 17 17
  18. 18. SRI in Europe: Market Size Total EU SRI assets under management have reached €4.986 trillion as of 31/12/09 Source: Eurosif Research * Re-calculated according to the 2010 Core SRI definition 18
  19. 19. SRI in Europe: Market Characteristics Core SRI - €1.2 trillion Broad SRI - €3.8 trillion Core strategies consist of norms- and values- Broad strategies consist of simple exclusion, based exclusions as well as different types of engagement and integration, often in combination positive screens (Best-in-Class, thematic funds and with one another. others). Integration, the inclusion of ESG risk into traditional Norms- and values-based exclusions are the most financial analysis, is gaining ground with some popular Core strategies in Europe, driven by the European investors, encouraged by the PRI Initiative. Netherlands and Nordic countries. Source: Eurosif Research 19
  20. 20. SRI in Europe: Market Drivers / Barriers Demand from institutional investors remains a key driver, along with international initiatives, external pressure and demand from retail investors. Source: Eurosif Research 20
  21. 21. Contents • Global SRI Market Snapshot • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • China • India • MENA region • Sub-Saharan Africa 21 21
  22. 22. SRI in the United States: Market Size • “Sustainable and socially responsible investing (SRI) in the United States has continued to grow at a faster pace than the broader universe of conventional investment assets under professional management.” • “At the start of 2010, professionally managed assets following SRI strategies stood at $3.07 trillion, a rise of more than 380 percent from $639 billion in 1995, the year of the Social Investment Forum Foundation’s first Trends Report. Over the same period, the broader universe of assets under professional management increased only 260 percent from $7 trillion to $25.2 trillion.” • “As a result of this growth, nearly one out of every eight dollars under professional management in the United States today—12.2 percent of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson—is involved in some strategy of socially responsible investing.” Source: Social Investment Forum Foundation. “2010 Report on Socially Responsible Investing Trends in the United States.” 22 22
  23. 23. SRI in the United States: Market SizeSource: Social Investment Forum Foundation. “2010 Report on Socially Responsible Investing Trends in the United States.” 23
  24. 24. SRI in the United States: Market Characteristics • “The total assets managed under policies that explicitly incorporate ESG criteria into investment analysis and portfolio construction (ESG assets) are valued at $2.51 trillion. – Of these ESG assets, $691.9 billion were identified within specific investment vehicles managed by money managers, while at least $2.03 trillion were identified as owned or administered by institutional investors. – Of the institutional ESG assets, $206.3 billion were managed through investment vehicles captured in research on money managers.” Source: Social Investment Forum Foundation. “2010 Report on Socially Responsible Investing Trends in the United States.” 24
  25. 25. SRI in the United States: Drivers and Barriers• “Over the past decade, SRI growth within US financial markets has been shaped by numerous trends: – Money managers are increasingly incorporating ESG factors into their investment analysis, decision making and portfolio construction, awakening to the demand for ESG investing products and services from institutional and individual investors. Of the managers that responded to survey questions on their reasons for incorporating ESG criteria into investment management, more (85 percent) cited client demand than any other reason. – Institutions—particularly public funds—are incorporating ESG criteria in part because of legislative mandates. Among the institutions that responded to survey questions about why they incorporated ESG factors into their investments, more (52 percent) cited regulation or legislation than any other reason. – New products and fund styles are driving growth in ESG investment vehicles, especially among ETFs and alternative investment funds such as social venture capital, double- and triple-bottom-line private equity and responsible property funds. – Environmentally themed investment products and services are rapidly emerging to meet growing investor desire to manage environmental risks and seize opportunities in clean and green technology, alternative and renewable energy, green building and responsible property development, and other environmentally driven businesses.” 25 25
  26. 26. Contents • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • India 26 26
  27. 27. SRI in Emerging Markets: Market Size • “(Although) further research on the business case is welcome, the two surveys show that the majority of asset owners, fund managers and emerging market corporations are already convinced of the link between ESG behaviour and superior investment results.” • “Asset owners – arguably the most influential participants in the investment value chain – were more inclined to agree with the statement “ESG issues are an important part of our research, portfolio management and manager selection process” in 2009 than in 2007. Approximately 46% strongly agreed with this statement in 2009, up from 36% in 2007.” • 82% of surveyed asset owners say that ESG assessment will become significantly more important in their research, portfolio management and manager-selection process over the next three years.”Source: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 27 27
  28. 28. SRI in Emerging Markets: Drivers/Barriers • “Seen from a policy perspective, the pressure to improve corporate disclosure is key to moving forward on sustainable investing. Most emerging markets have made significant progress in improving corporate governance. Nevertheless, corporate governance advocacy programs could do more to help investors and issuers understand the value of transparent ESG reporting.” • “Finally, in both the 2007 and 2009 surveys, asset owners highlighted a scarcity of emerging-markets ESG talent among consultants and fund managers. This gap represents an opportunity – one that a number of investment banks, data providers and securities research organisations are moving to exploit. And there is little doubt that this lack of capacity will be needed: 82% of surveyed asset owners say that ESG assessment will become significantly more important in their research, portfolio management and manager selection process over the next three years. • The same group expects to increase emerging-market allocations by about 2% over the same period. The institutions at the top of the value chain are ready to move forward – and the advisors, managers and consultants who support them have received a mandate to help.”Source: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 28 28
  29. 29. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 29 29
  30. 30. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 30 30
  31. 31. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 31 31
  32. 32. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 32 32
  33. 33. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 33 33
  34. 34. SRI in Emerging Markets: Drivers/BarriersSource: International Finance Corporation (IFC). “Sustainable investing in emerging markets: unscathed by the financial crisis.” 34 34
  35. 35. Contents • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • India 35 35
  36. 36. SRI in Brazil: Market Size & Characteristics• “Sustainable” investment could therefore be at least 10 per cent of market cap. Taking a conservative approach, TERI‐ urope believes an estimate of US$40 billion (<7 per cent of total market cap) may be more useful for comparative and decision‐ aking purposes.”• “Today, ten asset managers offer retail SRI funds with combined assets under management of about US$315 million.”• “18 pension funds have signed the UN Principles for Responsible Investment (PRI). Together they represent combined assets of US$110 billion, or about 60 per cent of the country’s total pension fund corpus.”• “TERI‐ urope has used a working assumption that ESG investment styles account for about 1 per cent of foreign portfolio investment and investment in Brazilian ADRs, i.e. approximately US$2.2 billion.” Source: International Finance Corporation (IFC). “Sustainable Investment in Brazil 2009.” 36 36
  37. 37. SRI in Brazil: Drivers and Barriers– “Brazil has an advanced framework of environmental legislation and inspection at both the federal and state levels (see box). However, enforcement standards vary from state to state and between federal and state agencies for reasons ranging from lack of resources to the influence of corruption. In addition to federal and state environmental protection agencies, federal and state public prosecutors are able to take independent action to deal with environmental problems, and do so frequently and effectively.”– “60 per cent of the country’s pension fund assets are already managed by UNPRI signatories.”– “Brazilian companies have a relatively long tradition of non‐ inancial disclosure. The current emphasis in Brazil is on voluntary GRI reporting.”– “A growing number of Brazilian companies are producing annual sustainability reports, many using the Global Reporting Initiative (GRI) guidelines.” Source: International Finance Corporation (IFC). “Sustainable Investment in Brazil 2009.” 37 37
  38. 38. Contents • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • India 38 38
  39. 39. SRI in India: Market Size“TERI-Europe estimates that the total stock of investment in Indian equitieswhere the investment strategy includes a strong focus on environmental,social and governance (ESG) considerations is approximately US$1 billion atthe current time. This is almost entirely composed of investment by foreigninstitutional investors (FIIs).”Source: IFC & Teri Europe. “Sustainable Investment in India 2009.” 39 39
  40. 40. SRI in India: Market Characteristics• “India has limited domestic sustainable investment market or infrastructure in the listed equity space.”• “The country’s first and so far only retail SRI mutual fund was launched by ABM AMRO in March 2007 and raised the equivalent of approximately US$12 million.”• “In contrast to the situation in the listed equity market, there is a growing interest by the private equity industry in India to exploit opportunities in the sustainability space. The growth of PE funds in general and venture capital in particular is encouraging from a sustainability perspective since the ownership structure of this asset class has the potential to ensure that ESG issues can be successfully integrated into management systems provided of course that there is a willingness to do so.” 40 40
  41. 41. SRI in India: Drivers & Barriers • DRIVERS: – ESG transparency and disclosure by Indian companies in the form of corporate sustainability reports and responses to the Carbon Disclosure Project are slowly improving, but from a very low starting point. – There is relatively strong and growing interest in ESG risks and opportunities amongst India’s Foreign Institutional Investors. – There is a growing interest by the private  equity industry in India to exploit opportunities in the sustainability space. • BARRIERS: – There is little interest in sustainable investment in India’s rapidly growing mutual fund and life insurance market at the current time. – The enabling environment for sustainable investment in Indian listed equities is currently weak.Source: IFC & Teri Europe. “Sustainable Investment in India 2009.” 41 41
  42. 42. Contents • SRI in Europe • SRI in the United States • SRI in Emerging Markets • Brazil • India 42 42
  43. 43. Defining SI/ESG space: both investor and investee perspectivesFund strategy determines for whom sustainability must be defined globally and locally. • Investment perspective looking toward investment opportunities… – …Responsible Investment is an active asset management approach that takes financial, fundamental, and also environmental, social, ethical, and governance issues into account in the implementation of investment decisions. – …Definition of SI/RI/ESG/extra financials: Factors which are likely to have at least long- term effect on business results but which seldom get integrated into traditional financial analysis. These factors can include, but are not limited to; IP, human rights, occupational H&S, R&D, customer satisfaction, corporate governance, climate change and sustainable energy and other E&S impacts. • Corporate perspective looking toward investor opportunities… – Environmental, social, ethical, and governance issues are embedded in any firms corporate strategy. Anything that affects a firms business model can also affect the firms financial performance and therefore its valuation…these issues are no exception. • CFA Institute papers on ESG: – 2007 The Compensation of Senior Executives at Listed Companies: A Manual for Investors helps investors understand how boards develop and decide on compensation systems for the individuals hired to manage these companies. – 2008 Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors addresses key, non-financial risks and opportunities that investors may confront, and suggests ways to evaluate these issues. Focuses on the legislative and regulatory, legal, reputation, and operational ESG risks and opportunities shareowners need to consider to fully understand investee companies…incorporating those risks or opportunities into the analysis process. Sources: 1. The Relevance of Socially Responsible Investing to Research Analysts and Financial Markets, Julie Hudson, CFA, Managing Director and Analyst, UBS, Frank K. Reilly, CFA (Moderator), University of Notre Dame, Recorded on 21 May 2006, Presented by CFA Institute, 2. Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors, CFA Institute Centre for Financial Market Integrity, September 2008. 3. The Compensation of Senior Executives at Listed Companies: A Manual for Investors, July 2007. 43
  44. 44. Key challenges to EM investing Countries identified making most 70% progress towards ESG 60% disclosure 50% 1. Brazil % response 40% 2. South Africa 30% 3. China 4. South Korea 20% 5. India 10% 0% Key drivers for improved ESG Lack of company Language Corporate Culture Lack of inv estment Local market Other disclosure ESG disclosure research access • Development of national sustainability indices 80% • ESG listing requirements 70% • Influence of global 60% standards and norms % response 50% 40% Moving forward…… 30% • Poor ESG disclosure 20% undermines investor 10% confidence 0% • Communication needs to Lack of company Language Corporate Culture Lack of inv estment Local market Other improve in both directions ESG disclosure research access • Companies need feedback North America (n=20) Europe (n=20) on ESG efforts • EMD Project coordinatesNotes: Emerging Markets Disclosure Project (EMDP) 2009 survey assessed SRI in emerging markets: n=67 respondents; representing over USD130 bn AUM; 55% assetsupports EM and managers; years experience in EM. Source: EIRIS Senior Research Analyst Sonia Wildash presentation to SIRAN 21 July 2009, © EIRIS 44 engagement
  45. 45. 45
  46. 46. What Do Global Emerging Markets Investors Want From SustainableInvestment? • Investment opportunities for new returns [uncorrelated?] and diversification of risks/rewards • Investments in EM are made with – ESG-driven mandates with filter for ESG built into mandates and/or norms or values driven – ESG-agnostic but risk averse and prefer ESG “halo effect” – Cost-sensitive to research or execution costs; liquidity risks • Opportunity to deliver compelling investment proposition at country, exchange, sector or company levels 46
  47. 47. Sustainable Investment Architects sinclairconsult.comREGULATORY INFORMATIONNo part of this proposal suggests or should understood to suggest endorsement or advice on any investment approach, strategy or offering. Therights and obligations of the investor are set out in the relevant policy contract. Market fluctuations and changes in rates of exchange or taxationmay have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not getback the full amount invested. Past performance is not necessarily a guide to future investment performance.SinCo | Sustainable Investment Architects | The Leading ESG Investment Architect in Emerging Markets | sinclairconsult.com ©2010 47
  48. 48. Credentials: testimonials for SinCo…• “Graham is an exceptional professional in all that he does. His work is at the crossroads of business intelligence, finance and investments and sustainability. His ability to clarify objectives and execute on solutions has demonstrated the fruitful success of the business case for sustainability.” – Director and Senior Investment Analyst, global institutional asset manager, New York City.• Graham served as a strategic adviser to a large US Asset manager as we worked together on developing their sustainable investment strategy. He provided on-going support to their internal team and served as a knowledgeable and helpful sounding board as their staff tried to move sustainability forward – - Senior Client Relationship Manager, Global ESG ratings and research provider, London• Graham is a very focused, passionate and results driven promoter and believer in the change role that a shift to of Responsible Investments can and will effect in our globalising world. He is comfortable with holding a strong opinion yet cable of being a consensus builder – - Portfolio Manager, Responsible Investment equity portfolio, Cape Town.• "For many investors, getting to grips with ESG issues in emerging markets is a top priority. [He] was crucial in encouraging new partnerships in diverse markets..." – Clean tech private equity fund manager and former Executive Director, ASRIA, Hong Kong.• Graham has shown a fantastic drive and commitment to the PRI initiative. He clearly helped promote the ESG thematic to the top of our priorities. – - Chief Risk Officer, hedge fund-of-funds investment house, Zurich.• "Graham is one of our leading thinkers on SRI. The work that Graham is doing will transform SRI and take it to the next level." – Managing Director, equity investment manager, Boston.• "Graham Sinclairs work is excellent." – Executive Diretor, billion-dollar global foundation, Philadelphia. 48
  49. 49. About Graham Sinclair • Graham Sinclair is a sustainable investment strategist, ESG architect and global project leader at Sinclair & Company [SinCo]. Graham has eight years specialist experience in sustainable investment globally after eight years in pensions consulting and investment banking in Africa. Recent consulting engagements in sustainable investment include: – Leading IFC-funded research into private equity and liquid equity ESG strategies in sub- Saharan Africa in South Africa, Kenya and Nigeria to be published in Q2 2010. – Developing innovative financing mechanisms strategy and ESG index architecture for developed, emerging and frontier markets for a Swiss-based international organization. – For a global institutional investment firm in New York with a USD 1 trillion AUM portfolio, designing ESG architecture across private equity, liquid and global real estate portfolios covering philosophy and process innovations and investment strategies. – As consultant to the UN, developed strategy for 25 emerging markets and launched PRI in Emerging Markets project in Q3 2007 for UNEP FI, creating a network infrastructure, building relationships with 108 investor stakeholders including in Africa through 2008. – Lecturing on ESG in investment strategies at investment practitioner symposia and leading business schools in Europe, Africa and the US. Currently developing case studies on ESG investment in emerging markets for his forthcoming book. • Before starting his eponymous investment advisory boutique SinCo in 2006, he was Product Manager at KLD Research & Analytics, Inc, based in Boston. He is a former contributor to the CSR Initiative at Harvard Kennedy School, Distinguished Member of Net Impact, alum of WWF One Planet Leaders programme and the Tallberg Forum New Leaders Program. He holds diplomas in retirement funds and insurance law, and in 1998 he was one of the youngest ever dual-FILPAs. He currently leads the AfricaSIF Project building a not-for-profit Africa Sustainable Investment Forum network. • Graham earned his MBA on scholarship at Villanova University USA where he co-managed the Arnone-Lerer SRI Fund equity portfolio in 2004. He holds a B.Com from the University of Natal and LL.B from its Howard College School of Law as well as numerous industry specialist certifications. 49
  50. 50. About Project team: Roselyne Yao Roselyne Yao is an Analyst at the sustainable investment architecture firm SinCo, where she conducts sustainable investment strategy research and analysis. Roselyne joined SinCo in October 2010 as Analyst on the IFC-commissioned research project, Sustainable Investment in sub-Saharan Africa 2010. She previously was a Research Analyst for JPS Global Investments (a California-based money management company focusing on sustainable investing) and an Intern for the Social Research and Advocacy team at Walden Asset Management (a Boston-based socially responsible investing company). Roselyne is also an AfricaSIF Steering Committee member. Roselyne passed the CFA level I exam in June 2009 and plans to sit for the CFA level II exam in June 2011. She holds a Master in Business Administration (with a double concentration in Finance and Marketing), a Certificate in Global Business Culture, and a Certificate of Excellence in Sustainable Management and Technology from the University of Illinois. She currently resides in Dakar, Senegal. 50 50
  51. 51. SinCo vision of the world tomorrow“Together, we can partner on behalf of our planet and prosperity and help countries increaseaccess to power while skipping - leapfrogging - the dirtier phase of [invest]ment”. - Barack Obama, 44th president of USA in address to Ghanaian parliament, Accra, 11 July 2009 51
  52. 52. Marketplace: ESG/SI trends, new drivers of supply and demand Goldman Sachs Research GSSustain philosophy is used to identify sustainable alpha in a changing world, focus on emerging sectors; emerging industries. Infrastructure Urbanisation Consumer markets Human capital BRICs competitors investment accelerating diverging shortages New sources of The world is changing more Healthcare systems capital strained rapidly than ever before… Natural resource New technologies constraintsWhere do we Reduced find FUND Climate change availability of credit philosophystacking up in 2010? Political case: what Business case: where Moral case: what are legislators and are leading firms have business and regulators driving positioning for civic leaders identified companies and competitive as worthy of action projects toward in advantage in ESG despite the current frontier/emerging issues today for future economic markets today? market leadership? arguments? Source: SinCo adaptation from Goldman Sachs Investment Research, March 2009 1 52
  53. 53. Sustainable Investment ArchitectsREGULATORY INFORMATIONNo part of this proposal suggests or should understood to suggest endorsement or advice on any investment approach, strategy or offering. Therights and obligations of the investor are set out in the relevant policy contract. Market fluctuations and changes in rates of exchange or taxationmay have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not getback the full amount invested. Past performance is not necessarily a guide to future investment performance. 53 53
  54. 54. Contact Details Graham Sinclair graham.sinclair@sinclairconsult.com +27.82.712.1925 | +1.484.802.9908 54
  55. 55. SAMPLE: Investor Workshop Key Questions • DEFINITION: – How does the EM investor/investment stakeholder define “sustainable investment” in Turkey? • ESG IMPORTANCE: – What environmental, social and governance (ESG) issues are important to EM investors? • CONTRAST: – What similarities and differences between international vs local investors have regarding investing in EM? • EXAMPLES: – What examples of ESG issues impacting investments or market capitalization [e.g Enron-corporate governance or BP-environmental disaster] are famous in EM in the past 20 years, and what lessons have investors learned? • DRIVERS/BARRIERS: – What do you think are the main reasons why investors in EM today DO or DO NOT include environmental, social and governance (ESG) factors in their investment decisions. 55
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