- Not just about ethical screens. - ESG (or SRI) analysis which I use essentially as synonyms been around for c. 30yrs (Henderson launched first fund in 1977) - Has advanced in a series of ‘waves’ - First two waves are focused on issues from a normative point of view exclusively. - First wave was indeed focus on ethical screens – largely driven by religious groups and was focused on excluding certain controversial industries (gambling, tobacco, armaments etc) - Second wave focused on the environmental and social issues across all sectors and sought to differentiate btwn companies within sectors on basis of their management of social and environmental issues – but looking at this purely from a normative perspective and not linking this back to financial performance – i.e. screening out companies with poor environmental performance on the basis that it is ‘bad’ from a moral point of view and not considering whether this has any bearing on financial performance Third and Fourth wave are not focused on environmental and social issues from a moral perspective but from a perspective that these issues do increasingly play through into financial performance - third wave was in many ways the inverse of the first – focused on actively identifying social or environmental themes that are subject to structural growth drivers. Companies providing ‘solutions’ to social/environmental challenges Finally, - Fourth wave is focused on analysing environmental, social and governance issues as a way of trying to gain additional insights into how particular companies are likely to perform financially.
The Future of ESG Research Seb Beloe Head of SRI Research 11-12 November 2010
Evolution of ESG investing <ul><li>Inclusion of ESG issues into traditional financial analysis </li></ul><ul><li>Focused on how ESG issues affect investment returns </li></ul>4) Integration Four ‘waves’ of ESG 3) Themes 2) Responsibility 1) Ethics <ul><li>Emergence of investable ES ‘themes’ </li></ul><ul><li>Focused on investing in ‘solution providers’ </li></ul><ul><li>Enabled by ESG performance analysis </li></ul><ul><li>Focused on best-in-class social & environmental performance </li></ul><ul><li>Driven by ethical values </li></ul><ul><li>Focused on excluding certain types of activities using negative screens </li></ul>
Henderson SRI philosophy <ul><li>Value creation from: </li></ul><ul><li>Identifying and investing in sectors of the economy benefiting from the shift to sustainable development, and </li></ul><ul><li>Companies demonstrating superior management of environmental, social and governance issues </li></ul>ESG Sustainability Make money, make a difference.
Sustainability & ESG: the case of sustainable solar (1) “ I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.” – Thomas Edison
Sustainability & ESG: the case of sustainable solar (2) “ The target of an industry, which is as proud of its environmentally friendly image, must not only be to recycle hazardous materials better but, wherever possible, replace them totally. Not until then can you speak of it being a clean industry.” – www.soolux.com
The SVTC Solar scorecard <ul><li>Working with US NGO the Silicon Valley Toxics Coalition </li></ul><ul><li>Encouraging PV industry to develop sustainable practices ( health and safety, chemical use, recycling, supply-chain) </li></ul><ul><li>‘ Solar scorecard’ jointly researched and published with US environmental group in March 2010 </li></ul><ul><ul><li>1/3 rd of industry by mkt share responded </li></ul></ul><ul><ul><li>German companies scored most highly (Calyxo, Q-Cells and SolarWorld scored >85%) </li></ul></ul><ul><ul><li>Also strong scores from US (First Solar 77%) and China (Yingli 69%) </li></ul></ul><ul><li>Letter encouraging non-responding companies to respond – supported by investors representing US$1.6trn </li></ul>
The future of ESG research? Top-down Bottom-up Holistic <ul><li>Integration of ESG issues across all sectors (though relative importance will vary widely) </li></ul><ul><li>Integration across asset classes (bonds, private equity, property, etc.) </li></ul>Normative Financial
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