From Policy to Portfolio - What is ESG integration?

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Floris Lambrechtsen, Director - Double Dividend B.V. - The Netherlands

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From Policy to Portfolio - What is ESG integration?

  1. 1. Floris Lambrechtsen & Masja Zandbergen Double Dividend From Policy to Portfolio TBLI Academy Integrating ESG
  2. 2. Food scarcity 091006-ICC-TT-Duurzaamheid-BD Source: Goldman Sachs commodities research,  Double Dividend Source: Goldman Sachs commodities research, Double Dividend Climate change impact?! <ul><li>Risks </li></ul><ul><li>Increasing uncertainty and volatility food prices. </li></ul><ul><li>Opportunities </li></ul><ul><li>Investments in increasing efficiency agriculture. </li></ul><ul><li>Increasing commodities trade. </li></ul>Demand Yield Arable land 2 65 67 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 ..... 30........50 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0 Projections
  3. 3. Energy scarcity 091006-ICC-TT-Duurzaamheid-BD Source: International Energy Agency, Clean Edge, New Energy Finance <ul><li>Risks </li></ul><ul><li>Increasing uncertainty and volatility oil prices </li></ul><ul><li>Opportunities </li></ul><ul><li>Investments in clean technologies </li></ul>120 100 80 60 40 20 0 1990 2000 2010 2020 2030 USD Billion Mb/d New Investment in Renewable Energy 400 300 200 100 0 3
  4. 4. Trends are interlinked Source: Netherlands Environmental Assessment Agency, Growing within Limits, 2009 Integrated approaches are needed, leads to impasse and predictable surprises 4 } Impasse
  5. 5. Today’s investments shape tomorrows economy 5 clean energy & efficiency 2030
  6. 6. 20 year investment horizon requires incorporation of long term risks 091006-ICC-TT-Duurzaamheid-BD Source: Goldman Sachs commodities research,  Double Dividend nominal Correction for inflation Expected Payments 6
  7. 7. Evolution in responsible investing 7 Strategy Process redesign Process support Filter
  8. 8. Management of RI of a pension fund 8 RI Support RI Control
  9. 9. What is ESG integration? Obtaining ESG capability within the investment process at all levels – conviction, research, portfolio construction, risk management and reporting versus Removing from further consideration in the investment process possible investments which do not meet specified criteria related to ESG (negative screening) 9
  10. 10. Levels of ESG capability 10
  11. 11. Manager screening on ESG integration 11
  12. 12. <ul><ul><li>Managers are ranked according to development in RI: Risk Management, Integration and Value Creation </li></ul></ul>Manager screening on ESG integration 12 Relative performance per quartile Value Creation Integration Risk Management ESG Capability 2008 Relative performance 2009 Relative performance 1st quartile 9,25 6,19 2nd quartile 3,40 2,52 3rd quartile -4,16 -0,38 4th quartile -1,50 -1,16
  13. 13. Examples of ESG best practice in non-SRI asset managers <ul><li>2-6 RI analysts support portfolio managers </li></ul><ul><li>ESG analysis in Global Equity Buy List </li></ul><ul><li>Platform for ESG analysis available to all portfolio managers </li></ul><ul><li>Training of portfolio managers on ESG risks and opportunities </li></ul><ul><li>Compliance/Risk Management involvement </li></ul><ul><li>Reporting to clients on ESG analysis and decisions (on demand) </li></ul>13
  14. 14. <ul><ul><li>Involvement of portfolio managers </li></ul></ul><ul><ul><li>Availability of ESG data in Emerging Markets and Small Caps </li></ul></ul><ul><ul><li>Assessment of government bonds </li></ul></ul><ul><ul><li>ESG integration in investment modeling </li></ul></ul><ul><ul><li>Short term incentives structure </li></ul></ul>Dilemma’s and challenges 14

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