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Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit
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Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio - Presentation by Dr. James Gifford at the European Pensions & Investments Summit

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For more information contact: emailus@marcusevans.com …

For more information contact: emailus@marcusevans.com

Dr. James Gifford, who is the PRI Executive Director gave his presentation titled "Bridging the Gaps: ESG Integration Across the Whole Pension Portfolio" at the European Pensions & Investments Summit on 16, May 2012.

Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today.

For more information contact: emailus@marcusevans.com

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  • 1. Bridging the Gaps: ESG integration acrossthe whole pension portfolioDr. James Gifford, PRI Executive Director16 May 2012
  • 2. About responsible investment What is responsible investment? • Integration of environmental, social and governance (ESG) factors into investment processes • Shareholder dialogue with companies • Engagement with policy makers • Investing in the green economy, microfinance, impact investing • Various forms of portfolio screens • Not undermining the system1
  • 3. About responsible investment Why? • Protect and enhance investment returns • Risk management, help identify ‘red flags’ and ‘black swans’ • Climate change & corporate governance are material financial issues • Stewardship is necessary to make the agency chain work • Greater pressure and focus from clients, beneficiaries, stakeholders, regulators • Protect your reputation2
  • 4. Some academic findings • Companies with high ESG scores are found to have less company specific risk (Boutin-Dufresne and Savaria, 2004; Lee and Faff, 2009; Bauer, Derwall and Hann, 2009). • Corporations with better employee relations or proactive environmental management practices are found to have lower cost of debt and higher credit ratings (Bauer et al., 2009; Bauer and Hann, 2011). • ESG criteria are found to provide an insurance like protection for firms in legitimacy crisis (Godfrey, Merrill and Hansen, 2009). • Shareholder engagement on corporate governance and strategy can deliver abnormal returns (Becht et al., 2008)3
  • 5. Principles for Responsible Investment What is the PRI? • The PRI is a partnership between the UN and investors that promotes responsible investment within all areas of investment • A framework of six principles which guide ESG integration • Grounded in fiduciary duty • Voluntary and aspirational • Shared learning, implementation support and engagement • A forum for discussion and action4
  • 6. The PRI Initiative The PRI is not: About sacrificing returns to save the world About philanthropy About exclusion of “unethical” stocks from portfolios A prescriptive/compliance-based standard5
  • 7. The PRI Initiative From niche to mainstream Over 1000 signatories with greater than USD $30 trillion AUM 1200 35 1000 30 25 800 20 600 15 400 10 200 5 0 0 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Number of signatories Assets under management (US$ trillion)6
  • 8. The PRI Initiative The six Principles7
  • 9. Implementation support: ESG integration across the whole pension portfolio Fixed income Listed equity Property Private equity Infrastructure Inclusive Investing Small Commodities Hedge funds finance with impact investors8
  • 10. Fixed Income Corporate and Sovereign Fixed Income work streams Challenges to confront: • How does analysis of ESG issues reduce default risk? • How do you engage when you don’t have voting rights? • Can ESG issues impact the creditworthiness of countries? • Should ratings agencies do more to integrate ESG risks? • Can ESG analysis improve understanding of risks associated with fixed income derivatives? Asset Owner sovereign fixed income assets subject to ESG integration has risen from 38% in 2010 to 50% in 2011.9
  • 11. Fixed Income Corporate bonds • Assess companys management of ESG risk – focus on downside or risks of default, and integrating into investment decisions • Consider the extent credit ratings reflect ESG risks • Monitor issuers for ESG risks and raise them • Screen issuers based on ESG / ethical criteria • Look at new areas such as environmental bonds Sovereign Bonds: Assessing country risk from an ESG perspective: • Natural capital, human rights and how it is changing • Commitment to standards – ILO, the EITI, World Bank • Emissions profile in light of a price on carbon10
  • 12. Listed Equity Responsible investment in passive management • Exercising ownership rights in pooled passive funds – Environment Agency Pension Fund • ESG criteria for RFPs and mandates – FRR, HESTA • Appointing a specialist engagement and voting overlay provider – National Reserve Pension Fund of Ireland • Use of enhanced passive investments – VicSuper • Tilted indices – Northern Trust Global Investments • Implementing an international voting strategy – LGIM • Active dialogue with passive managers – Lothian Pension Fund11
  • 13. Listed Equity Active ownership through the Energy PRI Engagement Clearinghouse efficiency Examples of ongoing collaborative Board diversity shareholder dialogue coordinated by the PRI: • Annual collaborative engagement with UN Global Compact companies on disclosure Executive • Anticorruption practices pay/bonu Carbon • Emission reductions targets s emissions • Pilot project to implement the UNGC/PRI guidance on responsible business in high risk and conflict-affected countries12
  • 14. Property Property working group • Links between environmental performance of buildings and financial performance of investments • Strategic allocation: regional diversity of impacts due to environmental, demographic and consumer trends • Stock selection: energy efficiency, tenant engagement or labour strategies Ongoing dialogue with investees: significant influence as a direct investor13
  • 15. Property 2011 Property Report on Progress • Property popular among PRI signatories with 40% investing in non-listed real estate and 23% investing in listed real estate. • Non-listed real estate has shown the most improvement – compared to other asset classes in the area of translating RI policy into practice – increase from 28% in 2010 to 36% in 2011. • In non-listed real estate 42% of signatories who integrate use ESG research and 38% apply it to portfolio construction. • Requests for ESG disclosure are becoming more common within both listed and non- listed real estate. In 2011, 55% of survey respondents made standardised and/or systematic requests for ESG disclosure in non-listed real estate, up from 45% in 2010. For listed real estate this figure was 46%, up from 39% in 2010.14
  • 16. Private Equity GP Support, PE in Emerging Markets, Exits Research • PE is well-suited to active ownership and consideration of ESG issues • Dialogue between GPs and LPs is growing • LPs consider ESG in mandates with intermediaries, internal due diligence and fund selection process • GPs take into account ESG risks and opportunities when making decisions on investment in portfolio companies • Rise from 69% to 84% among PRI Investment Managers integrating ESG into private equity15
  • 17. Private Equity Responsible Investment In Private Equity: A Guide For Limited Partners Guide outlines how LPs, GPs and portfolio companies each have a role in promoting better and more consistent integration of ESG factors into private equity investment decisions. Substantive guidance for how an LP might integrate ESG considerations into: • investment policy and investment decisions • ownership activities, i.e. monitoring and engagement • the disclosures sought from a GP and underlying portfolio companies16
  • 18. Infrastructure Infrastructure Best Practice and Case Studies working groups • Investments (and ESG) risks include environment (carbon risk), labour relations, leverage, regulation, demand risk, sovereign risk and capital growth • ESG issues are part of long term risk management but if well managed ESG can be a source of value creation17
  • 19. Infrastructure Responsible investment in infrastructure: A compendium of case studies • ESG and the long-term ownership of infrastructure assets – AustralianSuper • Formulating an ESG policy and integrating it into the due diligence process – IFM • Developing an infrastructure ESG toolbox - AMP Capital Investors • Developing a process to integrate ESG in investment-decisions - PGGM Investments • ESG training for direct infrastructure investment teams - Colonial First State18
  • 20. Commodities • The relevance of responsible investment policies to the commodities asset class is a widely discussed topic. • Academic and practitioner debate regarding responsible investment in commodities is ongoing. • A wide range of ESG issues involved in the production and trade of commodities, e.g. local pollution and human rights issues • Investor concern about speculative trading of soft commodity derivatives19
  • 21. Hedge Funds Hedge Funds working group • Responsible investment in hedge funds is only just emerging as a practice • Engagement from asset owners and fund of hedge funds is critical to encourage single hedge fund managers to consider ESG issues in investment process • Challenges for RIs to consider: fund governance, transparency, derivatives, short selling and leveraging • RI helps mitigate some of these risks, support sustainability, build trust and integrity in the industry and align interests between AOs and hedge fund managers20
  • 22. Hedge Funds Responsible investment and hedge funds discussion paper Questions: • How can investing in hedge funds be used to implement an overall RI strategy? • How does a hedge fund fit into the context of a universal owner? • How can signatories collectively apply the six PRI Principles to bring further developments for RI in the hedge fund context? • What is the fiduciary duty of a hedge fund manager and how can this be aligned with the fiduciary duty of the asset owner?21
  • 23. Principles for Investors in Inclusive Finance • Investor-led response to industry challenges such as loan defaults and over- indebtedness. • Framework for responsible investment in inclusive finance, intended to protect long- term returns and the reputation of this young industry. • Principles launched in January 201122
  • 24. Principles for Investors in Inclusive Finance Principles for Investors in Inclusive Finance case studies Principles: 1. Range of services responsAbility 2. Client protection Oikocredit International & SNS Impact investing 3. Fair treatment Grassroots Capital Management 4. Responsible investment Finance in Motion 5. Transparency Incofin 6. Balanced returns Orchard 7. Standards Triodos Investment Management23
  • 25. Small and resource constrained signatories Asset Owner Toolkit: how to integrate ESG criteria in manager selection, agreements and monitoring • At the head of the investment chain, asset owners have a key role in promoting RI. • This toolkit offers asset owners on how to drive the RI agenda forward by Integrating ESG analysis in the manager selection, agreement and monitoring processes.24
  • 26. Small and resource constrained signatories Asset Owner Toolkit • How FRR (France) incorporates RI/ESG-related issues into their process for selecting both passive and active mainstream equity managers. • How StatewideSuper (Australia) worked with consultants to help them assess the ESG capacity of potential IMs • Questions to assess a fund manager’s ESG management systems form the CDC toolkit (UK) • How ChristianSuper (Australia) include ESG criteria in the IM selection and monitoring process. • Five questions that AOs can ask of IMs during the due diligence process from Dr. Andreas Hoepner of St Andrews25
  • 27. Implementation Support Upcoming research and tools: • Implementation Support tool for GPs: Due diligence questions • Fixed Income: The business case for RI in FI Corporates and Sovereigns • Case study compendium on how signatories are supporting the green economy • Case study compendium on how signatories are managing ESG issues associated with investment in farmland26
  • 28. Questions and Answers27
  • 29. www.unpri.orge: info@unpri.orgt: +44 (0) 207 749 1940

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