Michael salvatico


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Michael salvatico

  1. 1. ESG Research Integration Michael Salvatico 16 September 2011 Workshop 13 - Integrating ESG into Portfolios #2©2011. All rights reserved. msci.com msci.com 1
  2. 2.  Not limited to Negative Screening  Not limited to a Mandate Type  Not about Sacrificing Performance©2011. All rights reserved. msci.com 2
  3. 3. ESG Index Performance and Risk Total Return as of 5/31/2011 Index QTD YTD 1 Month 3 Month 1 Year 3 Year* 5 Year* 10 Year* Since Inception* MSCI World ESG 2.46 6.55 -1.91 1.62 27.18 -0.91 #N/A #N/A -2.22 MSCI World 2.25 7.28 -1.97 1.29 28.73 -1.19 3.17 4.35 -2.29 110 100 90 80 70 MSCI World 60 MSCI World ESG 50 40 Mar/08 Jun/08 Mar/09 Jun/09 Mar/10 Jun/10 Mar/11 Sep/07 Sep/08 Sep/09 Sep/10 Dec/07 Dec/08 Dec/09 Dec/10 AnlzdStdDev Index Beta R-Square TrackingError SharpeRatio Inception 3 Year MSCI World ESG 1.01 99.71 1.22 -0.14 22.18 23.72 MSCI World 1.00 100.00 0.00 -0.15 21.91 23.39 ©2011. All rights reserved. msci.com 3
  4. 4.  Driving Sustainable Profits and Practices  Benchmarking key ESG Performance Metrics  Identifying Intangible Risks and Opportunities  Integrating ESG into the Investment Process  Communicating Portfolio ESG Exposures  Complying with Mandate Requirements©2011. All rights reserved. msci.com 4
  5. 5. ESG Events: Low Frequency / High Impact Massey Energy Pike River Coal April 2010, Massey Energy explosion leaves 29 workers dead November 2010, Pike River Coal explosions leaves 29 workers dead  Rated ‘CCC’ by MSCI ESG Research in  Share price dropped from .67 to .29 NZD 2006, 2008, 2009  Pulled off the market in January 2011  Losses of ~5 mil tons of coal production  Lost coal production estimated at (~ 905 mil USD or 39% of ‘09 revenue) 360,000 tons for the year  CEO Don Blankenship leaves Source: MSCI Research “Integrating Operational Stability into Investment Analysis of Mining Stocks”, May 2011 5 ©2011. All rights reserved. msci.com 5
  6. 6. ESG Research Services ESG Ratings Services - Systematic - Comprehensive - Best-in-Class Raw Data Providers - Data-Point War - Incomplete Sell-Side - Incomparable Research - Thematic - Conflict of Interest ©2011. All rights reserved. msci.com 6
  7. 7. Dimensions of ESG Investing Financial Dimension Values Dimension Mainstream Investor / Value Investor Universal Owner Integrate key ESG Reflect Values Issues and Risk Factors “Bill of Health” Integrated ESG Rating Values Score Portfolio Construction ©2011. All rights reserved. msci.com 7
  8. 8. ESG Integration Spectrum Nice to Have Target External FullRequirement Integration Trigger Tilt ©2011. All rights reserved. msci.com 8
  9. 9. ESG Experience Curve Value of Signal Experience Integrating ESG ©2011. All rights reserved. msci.com 9
  10. 10. Defining a Measure for ESG Integration Portfolio Analytic Framework Drill-Down to Company Exposure MSCI World MSCI World Portfolio Portfolio ESG ESG Index/Portfolio Level Relative ESG Scores Relative ESG Scores Portfolio Scores +0.15 +0.32 Environment +0.14 +0.22 Risk Factors +0.09 +0.32 [+] Key ESG Pillar Environmental Management Capacity +0.06 +0.25 Environment +0.14 +0.22 Opportunity +0.27 +0.08 Social +0.14 +0.35 Governance +0.22 +0.26 Human Capital +0.17 +0.31 Health & Safety +0.07 +0.32 [+] ESG Scores by Sector Labor Relations +0.50 +0.42 Energy +2.53 +1.06 Employee Motivation & Development -0.06 +0.20 Materials +0.08 +0.34 Industrials +0.10 +0.21 Consumer Discretionary -0.03 +0.83 Stakeholder Capital +0.11 +0.38 Consumer Staples -0.23 +0.92 Product Safety +0.29 +0.31 Health Care +0.17 +1.08 Supply Chain -0.29 +0.28 Financials +0.36 +0.69 Customer/ Stakeholder Partnerships +0.12 +0.45 Information Technology +0.79 +1.38 Local Communities +0.24 +0.73 Telecommunication Services +0.60 +0.15 Intellectual Capital/ Product Development +0.21 +0.13 Utilities +1.80 +0.85 Distribution by Rating Band Strategic Governance +0.22 +0.26 [+] AAA - A +10.9% -2.1% Traditional Governance Concerns +0.32 +0.08 [+] BBB - B -5.8% +4.9% Strategy +0.16 +0.69 [+] CCC -2.2% -0.4% Strategic Capability / Adaptability +0.18 +0.01 Notes : Source:i tive rel a tive ESG s core “Integrating ESG into the 1. A pos MSCI Research i ndi ca tes a n a bove a vera ge ESG performa nce vers us the ma rket benchma rk (MSCI Worl d) a nd vi ce vers a . Investment Process”, Whitepaper, August 2011 a s s ESG performa nce. 2. The MSCI Worl d ESG Index i ncl udes compa ni es wi th the bes t-of-cl ©2011. All rights reserved. msci.com 10
  11. 11. Thank you Michael Salvatico - MSCI ESG Research Client Coverage Australia, New Zealand, Asia michael.salvatico@msci.com t +612 9033 9303©2011. All rights reserved. msci.com 11
  12. 12. MSCI ESG Global Client Service Americas + 1.646.778.4208 Asia Pacific + 63.2.902.3897 Europe, Middle East and Africa + 44.20.7063.5699 esgclientservice@msci.com www.msci.com/esg ©2011. All rights reserved. msci.com msci.com 12
  13. 13. Notice and Disclaimer  This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCl Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Contributors”) and is provided for informational purposes only. The Information may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI.  The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information many not be used to create indices, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services.  The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION CONTRIBUTORS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION CONTRIBUTOR EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.  Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Contributor have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or wilful default of itself, its servants, agents or sub-contractors.  Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction.  None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.  MSCI’s indirect wholly-owned subsidiary Institutional Shareholder Services, Inc. (“ISS”) is a Registered Investment Adviser under the Investment Advisers Act of 1940. Except with respect to any applicable products or services from ISS (including applicable products or services from MSCI ESG Research Information which are provided by ISS), none of MSCI’s products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and none of MSCI”s products or services is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.  The MSCI ESG Indices use ratings and other data, analysis and information from MSCI ESG Research. MSCI ESG Research is produced by Institutional Shareholder Services Inc. (an indirect, wholly-owned subsidiary of MSCI and referred to as “ISS”) or its subsidiaries. Issuers mentioned or included in any MSCI ESG Research materials may be a client of MSCI, ISS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of MSCI, ISS, or another MSCI subsidiary, including ISS Corporate Services, Inc. which provides tools and services to issuers. MSCI ESG Research materials utilized in any MSCI indices or other products have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.  Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, ISS, CFRA, FEA, and other MSCI brands and product names are the trademarks, registered trademarks, or service marks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS)” is a service mark of MSCI and Standard & Poor’s. © 2011 MSCI Inc. All rights reserved. ©2011. All rights reserved. msci.com msci.com 13