Cécile de Lasteyrie
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TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland

TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland

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  • The goal of the country Best-in-Class Analysis is to select countries that are well managing their sustainable development, i.e. ensuring their present welfare and economic prosperity without compromising the ability of future generations to ensure their welfare and economic prosperity. In order to achieve this objective, Dexia AM has developed a structured approach based on the principle that a country is a portfolio of assets that encompasses: Economic capital: is the most well-known and generally only assessed form of capital; it gathers real (produced) capital and financial capital; Human capital: is embodied in individuals in the form of labour, knowledge, and health; Natural capital: consists of all types of environmental resources; and Social capital: consists of the interactions between individuals and gathers democratic and well functioning institutions, equity and peace. Hence, we analyse the sustainable development of a country as the process of successfully managing its portfolio of assets in the long term, which means ensuring current welfare without compromising future welfare. As economic capital of countries is already assessed in traditional macro-economic and financial analysis, our country Best-in-Class sustainability analysis focuses on the management by countries of the remaining three forms of capital: human , natural and social .
  • Dexia AM’s core SRI Best-in-Class funds intend to finance only public issuers of countries that manage their human, natural and social capitals in the most sustainable way. This Best-in-Class methodology relies on the conviction that investing in their human capital (labour, knowledge and health) while properly managing both natural resources and social capital (norms, institutions and social cohesion) enables countries to develop themselves in a sustainable way, finally resulting in stronger economic growth on the long term. Besides this Best-in-Class analysis, countries are also assessed according to a norms-based screening founded on the principle of democracy and on the main international conventions (e.g.: Human Rights and International Labor Organisation conventions…).
  • The quality of democracy of sovereign issuers is assessed on two levels, political rights and civil liberties. Political rights enable people to participate freely in the political process, including the right to vote freely for distinct alternatives in legitimate elections, compete for public office, join political parties and organizations, and elect representatives who have a decisive impact on public policies and are accountable to the electorate. Civil liberties allow for the freedoms of expression and belief, associational and organizational rights, rule of law, and personal autonomy without interference from the state. Dexia Asset Management makes use of the Freedom House Index (FHI) for assessing the quality of democracy of sovereign issuers. The Freedom House organisation, a non-governmental organisation established in the United States, has attributed on the basis of a well tough methodological process 192 countries with a grade reflecting the quality of democracy since 1972. Only issuers from countries with a well-rated democracy are eligible for investments in the SRI funds.
  • The goal of the country Best-in-Class Analysis is to select countries that are well managing their sustainable development, i.e. ensuring their present welfare and economic prosperity without compromising the ability of future generations to ensure their welfare and economic prosperity. In order to achieve this objective, Dexia AM has developed a structured approach based on the principle that a country is a portfolio of assets that encompasses: Economic capital: is the most well-known and generally only assessed form of capital; it gathers real (produced) capital and financial capital; Human capital: is embodied in individuals in the form of labour, knowledge, and health; Natural capital: consists of all types of environmental resources; and Social capital: consists of the interactions between individuals and gathers democratic and well functioning institutions, equity and peace. Hence, we analyse the sustainable development of a country as the process of successfully managing its portfolio of assets in the long term, which means ensuring current welfare without compromising future welfare. As economic capital of countries is already assessed in traditional macro-economic and financial analysis, our country Best-in-Class sustainability analysis focuses on the management by countries of the remaining three forms of capital: human , natural and social .
  • The goal of the country Best-in-Class Analysis is to select countries that are well managing their sustainable development, i.e. ensuring their present welfare and economic prosperity without compromising the ability of future generations to ensure their welfare and economic prosperity. In order to achieve this objective, Dexia AM has developed a structured approach based on the principle that a country is a portfolio of assets that encompasses: Economic capital: is the most well-known and generally only assessed form of capital; it gathers real (produced) capital and financial capital; Human capital: is embodied in individuals in the form of labour, knowledge, and health; Natural capital: consists of all types of environmental resources; and Social capital: consists of the interactions between individuals and gathers democratic and well functioning institutions, equity and peace. Hence, we analyse the sustainable development of a country as the process of successfully managing its portfolio of assets in the long term, which means ensuring current welfare without compromising future welfare. As economic capital of countries is already assessed in traditional macro-economic and financial analysis, our country Best-in-Class sustainability analysis focuses on the management by countries of the remaining three forms of capital: human , natural and social .
  • For each theme, countries’ actions are assessed on two dimensions: First, we assess the commitments that countries take with regards to the management of their assets and the policies they implement to fulfil those commitments (creation of institutions, definition of policies, allocation of budgets). Second, we assess countries’ performance over time and relative to other countries. Countries can either build and reinforce their assets or weaken and ultimately destroy them. In carrying out this analysis, 200 to 400 quantitative indicators are used (depending on the available data) as a starting point in the process of scoring at theme level. We subsequently review publicly available qualitative information, most notably reports from different international organisations, so as to set a definitive score for each theme. To avoid any bias, it is necessary to take into account the specific geographic and demographic conditions a country is facing. We then synthesise the theme scores at a sub-domain level and then domain level, in order to obtain the overall score for a country (between 0 and 100).
  • For each theme, countries’ actions are assessed on two dimensions: First, we assess the commitments that countries take with regards to the management of their assets and the policies they implement to fulfil those commitments (creation of institutions, definition of policies, allocation of budgets). Second, we assess countries’ performance over time and relative to other countries. Countries can either build and reinforce their assets or weaken and ultimately destroy them. In carrying out this analysis, 200 to 400 quantitative indicators are used (depending on the available data) as a starting point in the process of scoring at theme level. We subsequently review publicly available qualitative information, most notably reports from different international organisations, so as to set a definitive score for each theme. To avoid any bias, it is necessary to take into account the specific geographic and demographic conditions a country is facing. We then synthesise the theme scores at a sub-domain level and then domain level, in order to obtain the overall score for a country (between 0 and 100).

Cécile de Lasteyrie Presentation Transcript

  • 1. Dexia AM SRI country analysisOne step ahead…October 2012 Human Capital Natural Capital Social Capital Economic Sustainability
  • 2. SRI country analysis Agenda 1. SRI country analysis o Objective & Framework o Norms-based Analysis o Best-in-Class Analysis 1. Conclusion2 Dexia AM SRI Country Analysis - October 2012
  • 3. Country SRI Analysis • Why we believe it is relevant to analyse countries through an SRI analysis:  Countries are concerned by ESG challenges  Countries that keep in mind the next generations interests are keen to perform better  Investments only based on financial assessment is not enough in actual context • How can a relevant analysis be done?  Compliance with recognized international norms is a first indicator of level of sustainability  Has to be completed with an in depth analysis of how a country manages its wealth3 Dexia AM SRI Country Analysis - October 2012
  • 4. Country SRI Analysis Framework 1 - Compliance with recognized international norms Non compliant countries are excluded Countries show their commitment to ESG issues:  Check that countries sign and ratify a selection of 18 international conventions  Check on Democracy and Political Freedom through Freedom House Index 2 – A best in class analysis on relevant criteria  A countries wealth is composed of its capitals  Natural  Human  Social  Economic  Our best in class approach scores countries on their ESG strategy and performance.  Comparison is then done to identify the investable SRI universe that is sent to the financial analysts4 Dexia AM SRI Country Analysis - October 2012
  • 5. Country SRI Analysis Framework AUS AUSTRALIA EST ESTONIA JAP JAPAN POL POLAND AUT AUSTRIA FIN FINLAND KOR KOREA POR PORTUGAL BEL BELGIUM FRA FRANCE LAT LATVIA ROM ROMANIA BGR BULGARIA GER GERMANY LIT LITHUANIA SVK SLOVAKIA CAN CANADA GRE GREECE LUX LUXEMBOURG SLV SLOVENIA CL CHILE HUN HUNGARY MAL MALTA SPA SPAIN CRO CROATIA ICE ICELAND MEX MEXICO SWE SWEDEN CYP CYPRUS IRE IRELAND NLD NETHERLANDS CH SWITZERLAND CZE CZECH REPUBLIC ISR ISRAEL NZD NEW ZEALAND TUR TURKEY DEN DENMARK ITA ITALY NOR NORWAY UK UNITED KINGDOM USA UNITED STATES Norms-based Analysis Best-in-Class Analysis Check countries compliance Analysis countries’ ability to with major international treaties manage their human, natural, and conventions social and economical assets in order to ensure sustainable welfare A « Must Have » for all SRI Managers 2012 Dexia AM Innovation: - Takes better account of whether public Initiated by Dexia AM in 2005 finance are sustainable - Looks at the economic fundamentals behind countries’ economic activity Country SRI Universe5 Dexia AM SRI Country Analysis - October 2012
  • 6. Norms-based Analysis Check country’s compliance with international treaties • Adherence to and compliance with 18 major international treaties such as: • Human Rights  International Covenant on Civil and Political Rights  International Covenant on Economic, Social and Cultural Rights  International Convention on the elimination of all forms of racial discrimination  International Convention on the elimination of all forms of discrimination against women • Labour Rights  Convention against torture  IC138 - Minimum age  Convention on the rights of the child  C182 - Worst forms of child labor  Participation in the Ottawa Convention (Anti-personnel landmines)  C29 - Forced labor  C105 - Abolition of forced labor  C87 - Freedom of association and protection of the right to organize  C98 - Right to organize and collective bargaining  C111 - Discrimination (employment and occupation) Environmental Rights •  C100 - Equal remuneration  Kyoto protocol (climate change)  Cartagena protocol on bio-safety  Convention on Biological Diversity • Exclusion of the country if…  …the government has not ratified one or more international conventions  …there is case of proven and repeated breaches of one or more conventions by governments, even if all conventions were ratified • And / Or if the country is considered ‘non free’ by Freedom House •6 Dexia AM SRI Country Analysis - October 2012
  • 7. Best-in-Class Analysis Objective & Framework  Favour investments in countries that are best positioned regarding sustainable development  For each country, scoring of their ESG strategies & performance  How?  Based on a capital approach  Assess countries‘ ability to manage their sustainable development  Complete, structured and objective analysis based on:  To ensure the present welfare without compromising the ability of future generations to ensure their own welfare, countries have7 Dexia AM SRI Country Analysis - October 2012
  • 8. The management of sustainable development: A capital based approach  to manage their portfolio of assets in the long term  … but also to ensure their economic sustainability8 Dexia AM SRI Country Analysis - October 2012.
  • 9. The management of sustainable development Our analytical tree9 Dexia AM SRI Country Analysis - October 2012
  • 10. The management of sustainable development Human Capital THEMES EXAMPLES OF INDICATORS Basic Labour Rights Number of labour inspectors / total workforce Participation Total employment rate Labour (35%) Job quality Share of involuntary part-timers in total employment Productivity GDP per hour worked Percentage of population without access to improved services - Basic needs Sanitation Preventable risk factors / Environmental health Percentage of adult population who are daily smokers Occupational health & safety Number of accidents per 100,000 workers Cancer Deaths from cancer Health budget Percentage of expenditure on health in the gross domestic product Health outcome Life expectancy at birth / total population Health (25%) Medical infrastructure Hospital beds / 1,000 inhabitants Percentage of one-year-olds fully immunized of the poorest 20% Infectious diseases households Number of lab-confirmed cases of H1N1 for the years 2009 and Epidemics 2010 Famine / collapse of food-supply Percentage of population undernourished Percentage of births attended by skilled health personnel of the Fertility management poorest 20% households Financial sustainability of health system Public healthcare deficit in percentage of GDP Percentage of graduates to the population at the typical age of Knowledge Education & training graduation (40%) Innovation Number of patents granted to residents, per million people10 Dexia AM SRI Country Analysis - October 2012
  • 11. The management of sustainable development Natural Capital Total environmental THEMES EXAMPLES OF INDICATORS impact (10%) Total environmental impact Ecological footprint of consumption (hectares per capita) Transportation Transportation policy Transport by mode passengers share of rail policy (10%) Atmospheric concentrations Particulate air pollution in the largest cities in micrograms per m³ Non GG atmospheric Emissions GDP per unit of non GHG emissions (eg. VOC, particulates) emissions (10%) Economical impact Estimated economic cost of particulate emission damage (in % of GNI) Ozone layer depletion Consumption of ozone-depleting CFCs per capita Energy & climate Climate change Carbon dioxide emissions (CO2), kg CO2 per $1 GDP (PPP) change (30%) Energy intensity Energy use (kg oil equivalent) per $1,000 GDP (PPP) Dependency to fossil fuels Share of carbon fossil fuels in national energy production Ecosystems & Biodiversity Proportion of known species threatened with extinction biodiversity (10%) Natural habitats Terrestrial and marine areas protected to total territorial area Intensity of use freshwater resources as a percentage of internal Freshwater resources Population connected to public waste water treatment plants, secondary Water consumption Wastewater treatment treatment & emissions (10%) Water quality of selected lakes, total Nitrogen in mgN/litre, annual mean Lakes concentrations Water quality of selected rivers, annual mean concentrations of biological Rivers & groundwater oxygen demand (BOD) in mg O2/litre Raw materials & Raw Materials Estimated economic cost of mineral depletion (in % of GNI) wastes (10%) Wastes GDP per unit of waste volums (per capita) Exposure to natural UN, World Meteorological organization, US EPA, the European Natural disasters, Weather disasters ... hazards & Commission, World Bank, NOAA management of Population affected by natural disasters (average per year, per million Effectiveness of natural hazards management policy disasters (10%) people)11 Dexia AM SRI Country Analysis - October 2012
  • 12. The management of sustainable development Social Capital THEMES EXAMPLES OF INDICATORS Basic Political / Civil Rights Voice and Accountability - World Bank Index Democracy (15%) Freedom of the Media Press Freedom Index (RSF) Score Reporters without Borders Corruption & Anti-Corruption Control of Corruption - World Bank Index Rule of law (15%) Rule of Law Rule of Law (World Bank indicator) Government Efficiency Government Effectiveness (World Bank indicator) Governance (30%) Market Efficiency / Business environment Regulatory Quality (World Bank indicator) Domestic Fairness Gini index Fairness (25%) International Fairness Total Official Development Assistance in percentage of GNI Inter-generational Fairness Public social expenditure as a percentage of GDP Internal Security Number of crimes per 100,000 inhabitants Peace (15%) External Security Total armed forces in proportion of the population12 Dexia AM SRI Country Analysis - October 2012
  • 13. The management of sustainable development Economic Sustainability THEMES EXAMPLES OF INDICATORS Government indebtedness Total government debt as a percentage of GDP Indebtedness Household indebtedness Gross debt to income ratio of households (20%) Corporate (non financial sector) indebtedness Private sector debt as a milion of GDP Inflation (5%) Inflation Average annual change in consumer price index since 1990 Budget deficit Net lending / net borrowing as a percentage of GDP, surplus (+), Central government budget deficit (20%) deficit (-) Health of the banking system World Banks Bank capital to assets ratio Health of the financial system Share of Gross rent, fuel and power in household total consumption Real estate bubbles expenditures (20%) General Balance of payment Current account balance of payments as a percentage of GDP International competitiveness - Current account Eurostat Current account balance (% of GDP) Balance of payment (20%) Capital account Net foreign direct investment inflows (% of GDP) Gross value added - Financial intermediation, real estate, renting Economic Level of diversification of the economy and business activities - Percentage of total activity positioning (10%) Exposure to external economic shocks Exports to PIIGS as a proportion of total exports Foreign economic dependency Net International Investment Position Foreign Foreign energy dependency Energy imports in proportion of the total energy production dependency Freshwater imports in proportion of the total freshwater (5%) Foreign food & water dependency consumption Foreign raw materials dependency Copper imports in proportion of the total copper consumption13 Dexia AM SRI Country Analysis - October 2012
  • 14. The management of sustainable development How do we assess?  The assessment is made on country’ policies and performances & country specificities to ensure a fair and accurate comparison.14 Dexia AM SRI Country Analysis - October 2012
  • 15. The management of sustainable development 2012 Countries scores (as of 30th August)15 Dexia AM SRI Country Analysis - October 2012
  • 16. SRI country analysis Agenda 1. SRI country analysis o Objective & Framework o Norms-based Analysis o Best-in-Class Analysis 1. Conclusion16 Dexia AM SRI Country Analysis - October 2012
  • 17. Conclusion  Dexia AM has developed a unique SRI analysis for countries based on 2 steps:  Norm based  Best in class analysis  Rich analytical tree  A complete analytical tree enabling to assess globally a country’s sustainability  Added value from capital based approach: human, social, natural and economic sustainability  Dynamic and prospective scoring model  Basis of both relative levels and trends – not only compare indicators from a country to another – also looks at the evolution of indicators  Offering a unique multi dimensional approach enabling a relevant sustainability assessment for countries.17
  • 18. AddressesLuxembourg Australia Italy The NetherlandsDexia Asset Management Ausbil Dexia Ltd Dexia Asset Management Dexia Asset ManagementLuxembourg SA Veritas House – Level 23 Luxembourg SA Nederlands bijkantoor136, route d’Arlon 207 Kent Street Succursale Italiana Lichtenauerlaan 102-1201150 Luxembourg Sydney NSW 2000 Corso Italia 1 3062 ME RotterdamTel.: + 352 2797-1 Tel.: + 61 2 925 90 200 20122 Milano Tel.: + 31 10 204 56 53 Tel.: + 39 02 31 82 83 62Belgium Bahrain United Arab EmiratesDexia Asset Management Dexia Asset Management Spain Dexia Asset ManagementBelgium Luxembourg S.A., Middle East Dexia Asset Management Luxembourg S.A.,Place Rogier 11 Representative Office Luxembourg SA MENA Representative OfficeB-1210 Bruxelles Bahrain Financial Harbour, Sucursal en España Dubai International Financial CenterTel.: + 32 02 222 11 11 West Tower, Level 23 Calle Ortega y Gasset, 26 ("DIFC") Office 24 PO Box 75766, Manama 28006 Madrid The Gate Village, Building 10France Tel: +973 1750 9900 Tel.: + 34 91 360 94 75 DubaiDexia Asset Management SA Tel: 00 971 4 401 97 3640, rue Washington Canada Switzerland75408 Paris Cedex 08 Dexia Asset Management Dexia Asset Management United KingdomTel.: + 33 1 53 93 40 00 Luxembourg SA Luxembourg SA Dexia Asset Management Canadian Representative Office succursale de Genève Luxembourg SA 155, Wellington Street West 2, rue de Jargonnant London Branch 6th floor 1207 Genève 200 Aldersgate Toronto, Ontario Tel.: + 41 22 707 90 00 13th Floor M5V 3L3 EC1A 4HD London Tel.: + 1 416 974 9055 Tel: +44 2074707345 Germany Dexia Asset Management Luxembourg SA Zweigniederlassung Deutschland An der Welle 4 60422 Frankfurt Tel.: + 49 69 7593 8823 © Dexia Asset Management Alternative Investment Business Unit September 2012  alternativespecialists-dam@dexia.com
  • 19. DisclaimerThis document is published purely for the purposes of information, it contains no offer for the purchase or sale of financial instruments does not comprise investment advice and it is not confirmation of anytransaction unless expressly agreed otherwise. The information contained in this document was obtained from a number of different sources. Dexia Asset Management exercises the greatest care when choosingits sources of information and passing on this information. Nevertheless errors or omissions in those sources or processes cannot be excluded a priori. Dexia AM cannot be held liable for any direct or indirectdamage or loss resulting from the use of this document. The contents of this document may be reproduced only with the prior written agreement of Dexia AM. The intellectual property rights of Dexia AM must berespected at all times.Warning : If this document mentions the past performances of a financial instrument or index or an investment service, refers to simulations of such past performances or contains data relating to futureperformances, the client is aware that those performances and/or forecasts are not a reliable indicator of future performances. Moreover, Dexia AM specifies that: • in the case where performances are gross, the performance may be affected by commissions, fees and other charges; • in the case where the performance is expressed in another currency than that of the investor’s country of residence, the returns mentioned may increase or decrease as a result of currency fluctuations.If this document makes reference to a particular tax treatment, the investor is aware that such information depends on the individual circumstances of each investor and that it may be subject to change in thefuture.This document does not comprise any investment research as defined in article 24, §1 of Directive 2006/73/CE dated 10 August 2006 implementing Directive 2004/39/CE of the European Parliament and Council.If this information is a marketing communication, Dexia AM wants to clarify that it was not designed according to the legal requirements to promote the independence of investment research, and it is not subject toany prohibition on dealing prior to the dissemination of the investment research.Dexia AM invites the investors to always consult the fund prospectus before investing in a fund. The prospectus and other information relating to the fund are available on our site at www.dexia-am.com.© Dexia Asset Management Alternative Investment Business UnitSeptember 2012  alternativespecialists-dam@dexia.com