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Microsoft PowerPoint - Presentation for Lila Preston - Oxford ... Microsoft PowerPoint - Presentation for Lila Preston - Oxford ... Presentation Transcript

  • Generation Investment Management Lila Preston, Generation Investment Management Presentation for ESRC Social Investment Seminar – 25 March, 2008
  • Agenda > About Generation > Sustainable Investment Overview > Examples > Trends in Capital Markets > Enhanced Analytics Initiative > Conclusion
  • Firm Generation is dedicated to the principles of long-term investing, integrated sustainability research and client alignment. > Established in April 2004; Independent, private, owner-managed partnership; Offices in London, and Washington, D.C.; Plans for Melbourne in 2008 > Comprised of a global, integrated team of 27 people, including 14 investment professionals > Dedicated to thought leadership on sustainability and capital markets ~5% of our profitability is allocated to the Generation Foundation > Generation’s Advisory Board consists of global thinkers who help us anticipate the changing context for business
  • Embedded Sustainability Investment Philosophy: Sustainability Traditional Expertise Equity Analysis • Long Term Focus • Integrated Sustainability Research • Concentrated Approach (High Conviction Investing) Portfolio management & stock selection
  • Investment Research Sustainability research is systematically integrated into our fundamental equity analysis where an issue is a material risk and/or opportunity. > We research sustainability themes that have the potential to impact the long-term operating context for business such as: > Climate Change > Lobbying > Pandemics / HIV/AIDS > Corporate Governance > Poverty / Real Needs > Stakeholder Engagement > Water > Bribery / Corruption > Human Capital > Demography / Urbanization
  • We only “see” a portion of what is really going on… Visible Light Radio Microwaves Infrared Ultraviolet X - rays Gamma Waves rays
  • Capital markets also rely on a limited financial view This fuels further Financial Perspective Financial Perspective term- short term-ism Radio Microwaves True Infrared Information Spectrum Ultraviolet Waves True Information Spectrum X - rays Gamma rays
  • Identifying material issues - both traditional and non-traditional Food Manufacturing Sector Traditional Themes Sustainability Themes > Retail Consolidation > Sustainable Agriculture > Rise of discounters > Organic Food > Rise of private labels > GMOs > Tightening price environment > Fair Trade > JVs & partnerships > Obesity Oil & Gas Sector Traditional Themes Sustainability Themes > Reserve replacement rate > Reducing CO2 footprint > Country risk > Stakeholder engagement > Finding and development costs > Leadership on climate change > Transparency and reporting > Carbon capture and storage > Talent attraction and retention > Renewable Energy R&D
  • What we look for in companies? We buy high quality businesses with high quality management teams at the right price Generation’ Generation’s definition of Quality: • (1- Business Quality (1-5) • Management Quality (1-5)(1- – Dominant market position – Culture of Integrity – Strong entry barriers – Long term strategy – Pricing power – Respect for shareholders – Secular growth trends – Well managed for the – Strong free cash flow long-term Our definition of quality includes the ability of a company to understand the changing operational context and be prepared for it.
  • Example in Industrials Sector climate change focus Johnson Controls Inc: Portfolio of businesses, including automotive interiors, building efficiency and batteries for hybrid vehicles. Business Quality: Management Quality: • Strong market for demand-side • Recognized as sustainability leader efficiency (rising energy costs, with LT mindset increased regulations) • Educate customers on energy • Boom in green building design, efficiency urbanization trends (esp. in China) • Hold annual energy efficiency • Growth in the hybrid car market conference
  • Trends in capital markets • Capital Markets Waking Up – IPCC 4th Synthesis Report - Nobel Prize – McKinsey Vattenfall Cost Curves – Stern Report • Growth of Clean and Green Investing – $4bn+ into clean technology in 2007 (up significantly from 2006) – Partnership with Kleiner Perkins • Maturation of Carbon Markets – Regulated markets growing from $30bn in 2006 to ~$60bn in 2007 – Developments in US re: cap and trade – pending legislation – Growth in voluntary market • Strengthening of Investor Interest in Sustainability – Launch of Carbon Disclosure Project’s CDP5 (300+ investors, $40tr AUM, 2400 companies) – Institutional Investor Group on Climate Change – The Enhanced Analytics Initiative
  • Enhanced Analytics Initiative EAI membership total assets ~ EUR 2.1 trillion • Full Members: ABP Investec AM Allianz Global Investors France La Banque Postale AM AXA IM Mn Services BNP Paribas AM PGGM CPP Investment Board RCM Generation IM Robeco Governance for Owners SNS REAAL Groep Hermes PM USS • Associate Members: Bâtirente Mistra Foundation BT Pension Scheme NYCERS CalSTRS PME Calvert Group PMT HESTA Super Fund TUC Superannuation Society London PFA UniSuper MetallRente VicSuper
  • Enhanced Analytics Initiative Example from Enhanced Analytics Initiative -- Universe covering 158 reports from 26 Research Providers (May-October, 2007) • Bear Stearns - “Vantage Point - Doing Well By Doing Good - Corporate Social Responsibility and the Bottom Line” Jan 07 • Credit Suisse – “Being Green Ain't Easy (or Cheap): A Look at Renewable Portfolio Standards and Implications” Dec 06 • Goldman Sachs – “Global Food & Beverages: Integrating Environmental, Social and Governance Issues” Feb 07 • Oddo Securities – “Air Transport - Human Resources: clear skies or turbulence ahead?” Apr 07 • JP Morgan - “Obesity: Re-Shaping the Food Industry” Jan 06 • Citigroup - “Climate Change and the ASX100 - An Assessment of Risks and Opportunities” Nov 06 • Deutsche Bank - “Food for Oil: A love-hate relationship” Dec 06
  • Enhanced Analytics Initiative This is only 2006 data, but there has been growth in the number of relevant research reports Growth in reports and Research Providers since beginning of EAI Evaluations 180 33 35 Reports qualifying 31 160 Research Providers 30 140 24 23 25 120 Research Providers Reports qualifying 21 100 20 173 80 15 145 60 8 10 92 40 5 20 21 24 16 0 0 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06
  • As a % of reports in Evaluation C ar bo n co M ns ul tra tip in l e ts 0% 5% 10% 15% 20% 25% 30% 35% 40% EF /c .c Ia ha nd ng m e is C ce or lla po ne D ra ou ep te s le G tio ov n er of na na nc tu e Lo ra ng lr En -te es v. rm ou is rc su m es es ar ke :p ta ro na du ly ct si s, s su pp ly N ch ai ew n C on te su ch m no Em er lo an gi pl d es oy pu ee bl re ic la he tio al ns th ,h Bu um s. St an et ak hi eh ca cs ol p. ,c de om rc pl on ia ce G nc rn eo e, s po br lit an ic d al m an gm M d t. &A se ,c cu There has been strong growth in attention to climate change considerations Enhanced Analytics Initiative – Issues Covered or rit po y ra ris te ks re st M ru ct Dec-07 et ur ho in do g lo gy as pe ct s Jun-07
  • What we wish we saw more of… • Move away from focus on the short term – 78% of financial executives surveyed said they would give up economic value in exchange for smooth earnings and 55% of managers would avoid initiating a project with a very positive return if it meant falling short of the current quarter's consensus earnings. (National Bureau of Economic Research) – The average mutual fund in America turns over 100% of its portfolio every 11 months • Talk about long term strategy, and about non-financial drivers of performance non- – Analysts will follow the company lead – A long-term focus is better for the economy and society – The ability of companies to address the changing context for business, to us, is a sign of strong Management Quality
  • Thank you!
  • Regulatory Information This communication has been issued in the United Kingdom by Generation Investment Management LLP ("GenerationIM") which is authorised and regulated by the Financial Services Authority of the United Kingdom and is made to and directed solely at (i) existing customers of GenerationIM and/or (ii) persons who would be classified as an intermediate customer or market counterparty under the FSA Handbook of Rules and Guidance if taken on as customers by GenerationIM and/or (iii) persons who would come within Article 19 (investment professionals) or Article 49 (high net worth companies, trusts and associations) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2001 and/or (iv) persons to whom this communication could otherwise be lawfully made in the United Kingdom. Any recipient of this communication who is not one of the intended recipients as set out above should disregard the communication and may not rely on or take any action in relation to the communication. Recipients of this communication in jurisdictions outside the United Kingdom should inform themselves about and observe all applicable legal or regulatory requirements. Whilst GenerationIM has taken reasonable care to ensure that the information in this communication is accurate at the time of its preparation, it should not be construed as the giving of advice or the making of a recommendation. In particular, actual results and developments may be materially different from any forecast, opinion or expectation expressed in this communication.