This chart shows the market opportunity we see. It shows the gap we see between companies and investors when it comes to adapting sustainability Companies are adapting better and more quickly. Compliance is no longer distinctive. Distinction more found in innovation (products, processes). Why is this gap there. One of the key reasons is that for companies the impact of the sustainability trends on their future business is much more tangible than for investors. Companies translate these trends actively back into their businesses. Simply because they understand that not doing so will harm their competiveness or even chances of survival. In our view investors will catch up however. And this is our great market opportunity. First because we have all the investment strategies that benefit form these sustainability trends. Secondly because our methodology & direct company access allows us to closely follow and predict the development curve of these companies and spot the winners and the losers. Also on the investors side you see players that are quicker and slower in adapting. We feel for example that Family Offices given the origin of their wealthy are much more open or even advanced. Research confirms that.
IntegratedReporting InEurope:Measuring IntangiblesTBLI, November 2012
Introduction• ESG can be integrated in every aspect, and should be reported and communicated to internal and external stakeholders• Over time, reporting has changed significantly• Measure intangibles by focusing on financial materiality• An online questionnaire allows SAM to analyze sustainability at a much deeper level than frameworks based on public disclosure alone.2
Close the Corporate – Investor ESG Integration GapBased on a series of industry studies, the chart above depicts the extent to which companies and investors haveintegrated sustainability into their core business, and where we stand today.3
Sustainability Investing: „The Elephant in the Room“ It raises alpha! It shuns vice! It It has impact! creates returns! It commu- lowers It reduces nicates! volatility risks!4
Sustainability Materiality to Application Identification Quantification Validation Application Megatrend Annual assessment All data points are Feedback to firms analysis of over 2,500 (800 direct) verified with public in the form of bench- companies globally sources and evidence mark scorecards Industry/Sector definition & submitted by firms and conference calls analysis 58 defined sectors with total 120 criteria SAM team of 22 analysts Additional detailed Academic and 600 questions supported by 15 Sustainability reports collaboration and external analysts available to firms professional Proprietary database for data collection and associations with over 10 quality control Calculation/integration: years history Developed/emerging Media and Stakeholder -DJSI index family market companies for Translation of raw data Analysis (MSA) in co- -SAM strategies annual SAM assessment into question scores operation with RepRisk -Robeco strategies -Select partners Financial & Assignment of materiality Entire process Sustainability value to questions, internally and Sustainability performance value drivers criteria and dimensions externally audited reporting for portfolios and strategies ESG considerations lead to better informed investment decisions5
Extra-financial Indicators of Performance Economic Dimension Environmental Dimension Social Dimension • Anti-crime policy/measures 4 • Biodiversity 10 • Access to Insurance/ Other Social Value Added 1 • Antitrust Policy 4 • Building Materials 5 • Access to Water 3 • Brand Management 8 • Business Opportunities Financial Services/Products 2 • Addressing Cost Burden 2 • Codes of Conduct / Compliance / Corruption & Bribery 6 • Business Risks and Opportunities 4 • Bioethics 3 • Combatting Smuggling 3 • Business Risks Large Projects / Export Finance 3 • Business Risks 2 • Compliance with applicable export control regimes 2 • Climate Change Governance 7 • Code of Ethics for Advertising 1 • Corporate Governance 10 • Climate Change Strategy 6 • Controversial issues, dilemmas in lending/financing 3 • Customer Relationship Management 19 • Climate Strategy 21 • Corporate Citizenship and Philanthropy 5 • • CO2 from Logistics 2 • Diversification 3 Digital inclusion 12 • Electricity Generation 4 • Ecosystem Services 1 • Editorial policy 1 • Electro Magnetic Fields 5 • Efficiency 1 • Enabling local development 7 • Emission Products 2 • Exploration & Production 4 • Environmental Policy/Management System 31 • Ethical Conduct 2 • Food safety 2 • Environmental reporting 4 • Financial Inclusion/Capacity Building 1 • Gas portfolio 5 • Fleet Age 1 • Health Outcome Contribution 6 • Grid Parity 6 • Fuel Efficiency 2 • Healthy living 1 • Health & Nutrition 7 • Fuels for Tobacco Curing 2 • Human Capital Development 3 • Innovation Management 12 • Genetically Modified Organisms 5 • Human Rights & Corruption 2 • IT Security 6 • Hazardous substances 5 • Impact of Telecommunication services 3 • Lobbying activities 1 • International Production Standards 1 • Labor Practice Indicators 3 • Market Opportunities 5 • Landfilling and alternatives 3 • Local Impact of Business Operations 2 • Marketing Practices 6 • Local Air Quality 1 • Mine Closure 4 • Materiality 2 • LowCarbStrategy 4 • Noise 1 • Non-financial Project Evaluation 2 • Manufactured Gas Plants 2 • Occupational Health and Safety 16 • • Mineral Waste Management 8 • Piracy 2 Partnerships Towards Sustainable Healthcare 2 • Packaging 3 • Price Risk Management 5 • Promoting Responsible Gaming 5 • Product Impact 1 • Privacy Protection 7 • Protection of Children 1 • Product Stewardship 30 • Product Quality and Recall Management 3 • Raw Material Sourcing 5 • Responsibility for Alcoholic Products 4 • Reliability 1 • Recycling Strategy 2 • Responsible Marketing Policies 4 • Research and Development 5 • Refining/Cleaner Fuels 2 • Security Forces 1 • Risk & Crisis Management 18 • Releases to the Environment 2 • Service to Patients 2 • Scorecards/Measurement Systems 2 • Renewable Energy 2 • Social Impacts on Communities 9 • Service development 2 • Resource Conservation and Resource Efficiency 5 • Social Integration 2 • Software-as-a-Service 2 • Risk Detection 3 • Social reporting 4 • Stakeholder Engagement 3 • Route network 1 • Stakeholder Engagement 8 • Sustainable Fiber and Pulp Sourcing 5 • Strategy for Emerging Markets 6 • • Standards for Suppliers 11 Sustainable Management of Forests 6 • Supply Chain Management 5 • Transmission & Distribution 3 • Strategy to Improve Access to Drugs or Products 4 • Transparency 1 • Transport and Logistics 4 • Talent Attraction & Retention 8 • Water Operations 7 • Volatile Organic Compounds (VOCs) and hazardous substances in supply chain 1 • Water Related Risks 76
Surveys, Surveys and More Surveys – What Matters? Carbon Disclosure Project (CDP) Leadership Index 65 6 FTSE4Good Index Series 54 Carbon Disclosure Project (CDP) Leadership Index 10 65 6 53 Dow Jones Sustainability Index 10 54 FTSE4Good Index Series 10 Oekom Corporate Ratings 52 SAM Dow Jones Sustainability Index 12 53 10 50 Access to Medicines Index 13 52 Oekom Corporate Ratings 12 Sustainalytics Company Ratings 48 Access to Medicines Index 10 50 13 41 Climate Counts 1448 Sustainalytics Company Ratings 10 Inrate Sustainability Assessment 39 Climate Counts 41 22 14 39 GoodGuide 39 19 Inrate Sustainability Assessment 22 GS Sustain 39 GoodGuide 39 12 19 39 MSCI ESG Indices 3910 GS Sustain 12 Bloomberg Sustainability Reporting Initiative 36 MSCI ESG Indices 39 14 10 34 ASSET4 ESG Ratings 36 18 Bloomberg Sustainability Reporting Initiative 14 Global 100 Most Sustainable Corporations in the 34 ASSET4 ESG Ratings 34 21 18 33 Vigeo Ratings 34 21 Global 100 Most Sustainable Corporations in the 21 Fortune’s Most Admired Companies 25 Vigeo Ratings 33 30 21 25 Newsweek’s Green Rankings 25 31 Fortune’s Most Admired Companies 30 CRO’s 100 Best Corporate Citizens 24 Newsweek’s Green Rankings 25 28 31 CRO’s 100 Best Corporate Citizens 24 Credible Not credible 28 Credible Not credible Source: SustainAbility “Rate the Raters, Phase Five: Polling the Experts 2012”, http://www.sustainability.com/library/rate-the-raters-phase-7 five-polling-the-experts-2012
External Reporting and/or Internal MonitoringCalpers first stand alone Sustainable ‘Sustainability is Essential’ is one of PGGM’sInvestment Report in 2012 investment beliefs. PGGM publishes yearly a RI Annual Report; RI Policy is based on six pillars:Source: CalPERS Towards Sustainable Investment - ESG Report 2012 Source: PGGM Responsible Investment Annual Report 20118
Sustainability Performance in Stakeholder CommunicationSustainability performance comparison The number in brackets indicates the absolute difference in score value of the SAM Sustainable Global Active Strategy compared to all assessed9 companies.
Results of Materiality Questions Environmental Cost Savings • Connection between environmental initiatives and cost savings: 34% • Strategically significant and quantification of savings reported • In CSR Report: 14% • In Annual report: 2.2% Environmental Revenue Opportunities • Connection to revenue opportunities: 21% • Strategically significant and quantification of revenue • In CSR Report: 4.8% • In Annual report 1.5%10
Results of Materiality Questions (2) Social Cost Savings • Connection between social initiatives and cost savings: 5.7% • Strategically significant and quantification of savings reported • In CSR Report: 1.2% • In Annual report: 0.4% Social Revenue Opportunities • Connection to revenue opportunities: 7.3% • Strategically significant and quantification of revenue • In CSR Report: 1.6% • In Annual report 0.4% Clearly much more work needed in linking social to financial impacts11
Summary • What companies report on needs to change to attract investor’s attention • Measuring intangibles is possible • Integrated reporting is the beginning12
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