Istanbul Stock Exchange Sustainability index project: what institutional investors want

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Presentation to Istanbul Finance Summit covering SinCo perspective on what institutional investors want and the role of the ISE Sustainability Index project ISESI.

Presentation to Istanbul Finance Summit covering SinCo perspective on what institutional investors want and the role of the ISE Sustainability Index project ISESI.

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  • 1. Presentation to IFS 2010 Asset Management in 2010 and mapping sustainable investment for ISE Sustainability Index Project Graham Sinclair Principal + Sustainable Investment Architect SinCo graham.sinclair@sinclairconsult.com Istanbul Stock Exchange ISE Sustainability Index [ISESI] project Turkey September 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. ISE Sustainability Index Project 2010 - 2011 @ isesi.org Sustainable Turkey Business Istanbul Investment Council for Stock Architects Sustainable Exchange sinclairconsult.com Development ise.org tbcsd.orgREGULATORY 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. ISE Sustainability Index Project 2010 - 2011 Launch Briefing Istanbul Turkey, 10 August 2010 isesi.org
  • 4. What do investors want? 1/3: global marketplace • Global SIFs identified USD 6.7 trillion [2009] is invested in sustainable investment. But where is data for Turkey? • How may we define what the challenges are for investment integrating ESG factors in Turkey today? • “Institutional portfolios with Socially Responsible Investment (SRI) and environmental, social and governance (ESG) mandates have been obvious early adopters and climate change is likely to remain an important theme.”Sources: Investing in Climate Change: Strategic Asset Allocation Perspective, Deutsche Bank Climate Change Advisors, Jan 2010, AfricaSIF analysis, 2009. What is the state of responsible investment1 in South Africa in 2007? UNISA/UNEP Fi/NOAH Financial, Oct 2007. 4
  • 5. What do investors want? 2/3: mainstreaming through pension funds • 2009 influence survey: Asset Owners: do you expect to implement ESG policies in your emerging market investments within the next 3 years? Yes 81.5% No 18.5% 0 10 20 30 40 50 60 70 80 90 100 …however 80% also state that they are currently not able to find fund managers with the required capacity Source: IFC/Economist Intelligence Unit, 2009 international investor opinion survey, 2009 5
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  • 7. New thinking in asset management 1/4 • AM propositions: – PWC predicts Singapore will overtake London, Boston as 2nd-largest asset management hub in world by 2025. pwc: projections for assets domiciled in Singapore estimated an increase from $50bn (€38.2bn) 2010 to more than $250bn in 2040. – Fitch: asset managers need to improve: • transparency in product, processes, • communication to restore investor confidence in active management. 7
  • 8. New thinking in asset management 2/4 • SinCo research in frontier markets indicates active equity investors using ESG will identify company ESG issues that drive higher returns through increased EBITDA and mitigation of company headline risk. 2 factors most cited when investing in frontier markets today: – Attractive risk-adjusted returns – corporate governance standards • Our view is that, whether for political, business or moral cases, sustainability offers a more advanced investment proposition. With Steve Lydenberg in 2009, identified 3 key elements to resilient sustainable investment: – 1. long-term orientation, – 2. valuing utility beyond cash value; and – 3. Balancing the regulation between private vs public goods. Overcoming these barriers will deliver us from daydream to mainstream. 8
  • 9. New thinking in asset management 3/4 • AM learnings: – The financial crisis revealed severe shortcomings in corporate governance. When most needed, existing standards failed to provide the checks and balances that companies need in order to cultivate sound business practices. – Recent surveys have shown that four out of five financiers believe that compensation practices played a role in promoting the accumulation of risk that led to the crisis. There are clearly big problems with the "pay for performance" system. – UK Business Secretary, Vince Cable, has announced a "comprehensive review" into corporate governance and short-termism this autumn in a bid, he said, to put responsible shareholders "back in the driving seat". "We will look at the economic impact of takeovers, shareholder responsibility, corporate incentives and pay - all the factors that can help us build a framework founded on long-term economic logic," 9
  • 10. New thinking in asset management 4/4 • SinCo analysis reveals that investors and investment stakeholders have similar but different views on the most influential investors in the region. PE investors ranked the five most influential investors as: – International financing institutions e.g. IFC, World Bank; Regional Development Banks – Institutional investors with local country mandates; – Institutional investors with pan-regional mandates; – Institutional investors with global emerging markets mandates and PE investors. • Celent, 2010 on the growth of exchange traded funds, "ETFs - All Aboard! Are ETFs Gaining on the Mutual Fund Industry?". – The report shows ETFs growing to $2 trillion by 2010 - thats 33% growth every year for the next 4 years. – Growth is fueled by new products and wide applicability for a diverse group of investors. • Environmental, social and governance (ESG) factors are now integrated at $6.8trn (€5trn) of internally active managed assets worldwide, according to the United Nations Principles for Responsible Investment. The PRI has reported that such assets subject to integration by its 808 signatories now represents 7% of the total market, estimated at USD 121trn. • How to understand innovation in Asset Management in 2020… 10
  • 11. Sustainable Investment in 2020?•“We will vigorously develop renewable energy and nuclear energy. We will endeavor to increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020.” - Chinese President Hu Jintao, address at UN Climate Change Summit, September 22, 2009.•At least USD 10 trillion dollars of infrastructure investment overall, to be deployed globally into a variety of projects over the next 5-10 years, with a significant component going to water (50%), power (22%) and critical infrastructure for agriculture such as roads and rails (19%).” - Source: Investing in Climate Change: Strategic Asset Allocation Perspective, Deutsche Bank Climate Change Advisors, Jan 2010 Photo courtesy of The Guardian. View from the Shanghai World Financia 11
  • 12. Thank you Sustainable Investment Architects Graham Sinclair graham.sinclair@sinclairconsult.com sinclairconsult.com 12
  • 13. Who We Are: Sustainable Investment Architect • SinCo at a Glance • Experienced – SinCo is a boutique investment advisory firm – Established boutique in Boston in Q4 2006. specializing as an ESG investment architect Inaugural engagement for Wall St for sustainable investment in frontier and proprietary and third party manager with emerging markets. USD 900bn AUM, 200 analysts, mutli-asset – Bespoke investment advisory focused on classes sustainable investment architecture – Sabbatical to establish PRI in Emerging – Architect + 2 analysts with support team Markets Project for UN Environment operating projects with partners in Geneva, Programme Finance Initiative 2007/8. Seattle, London, Nairobi, Washington DC, Ramped membership in EM 57% Cape Town, Istanbul – Since 2006, SinCo has delivered sustainable – Word-of-mouth, below-the-radar approach investment architecture globally to pension funds, asset managers and international organizations integrating environment, social • Philosophy and governance (ESG) factors into – SinCo offers the domain knowledge and investment practice. global experience to help investors understand the threats and opportunities of the sustainability meta-trend. • Proven Project Leader – SinCo helps clarify questions, design & – Multi-year, multi-stakeholder, multi-country develop answers, and project manages project management experience. thinking into action. – Developed framework for 25 country rollout by PRI in EM project. Investment architect that believes sustainability + investment are integrated 13
  • 14. 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 130 investors. In PE and listed asset classes inside/outside Africa 2009-2010 • Developed investment map and index architecture for Istanbul Stock Exchange/ Turkish Business Council for Sustainable Development covering 100+ ISE-listed stocks on ESG profiles 2010-2011. 14
  • 15. 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 a hard-working, dedicated investment professional. He approaches his work with a creative pragmatism and is committed to promoting the importance of ESG thoughout the value chain. – - Project team member, Principles for Responsible Investment, Geneva.• "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. 15
  • 16. Who We Are: 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. 16
  • 17. About Project team Name Location Biography Formerly he was Product Manager at KLD Research & Analytics, Inc, based in Boston. In 2006 he started his eponymous investment advisory boutique SinCo, where he is a sustainable investment strategist, ESG architect, and global project leader. HeGraham Sinclair Cape Town currently leads the AfricaSIF Project building an independent, not-for-profit Africa Sustainable Investment Forum network. Mr. Sinclair received his M.B.A. From Villanova 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 Howard College School of Law. He holds diplomas in retirement funds and insurance law, and in 1998 he was one of the youngest ever dual-FILPAs.Pierre Taljaard Cape Town Mr Taljaard has been an analyst at SinCo since April where he conducts research and analysis for sustainable investment strategy, processes and indexes. He has since spent a year working as a fund administrator at Close Fund Services, a subsidiary of Close Brothers. He has also been pursuing his CFA Charter and in June 2010 passed the Level III exam. He received his Bachelor of Business Science [Finance Honours] from the University of Cape Town in 2007.Roselyne Yao Dakar Ms Yao is a analyst at SinCo on special projects. Formerly, she was a Research Analyst for JPS Global Investments [a California- based money management company focusing on sustainable investing] and an Intern in the Social Research and Advocacy Team at Walden Asset Management [a Boston-based socially responsible investing company]. She is currently an AfricaSIF Steering Committee member. Ms Yao received her M.B.A. [Finance and Marketing] from the University of Illinois in 2009. She passed the CFA level I exam in June 2009 and plans on sitting for the CFA level II exam in June 2011. 17
  • 18. 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 18