Karina Litvack - Human Habitat 2012

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Após o sucesso do ciclo de Conferências HUMAN HABITAT 2010 e 2011, a CONSTRUÇÃO SUSTENTÁVEL® propõe-se em realizar um ciclo de seis Conferências HUMAN HABITAT 2012, dando continuidade e consolidando a plataforma de comunicação aberta dedicada ao tema das Cidades Sustentáveis, no âmbito da renovada parceria com o OCEANÁRIO DE LISBOA.

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Karina Litvack - Human Habitat 2012

  1. 1. Sustainable Investment: How active shareholders drive positive change Karina Litvack, Director, Head of Governance & Sustainable Investment Lisbon, 7th May 2012www.fandc.com
  2. 2. Agenda  F & C’s Approach to Responsible Investment  Market Drivers of Responsible Investment  What are the Hot Issues?  Case Studies  Q &A
  3. 3. F&C Investments – responsible investmentoverviewOverview Leading European Fund Manager   European asset manager with €120bn* under management   London-based   Listedon London Stock Exchange   28-year track record in ethical and sustainable investment funds*€120.1 bn as at 31.12..2011. ***Strategic partners 3 33
  4. 4. F & C’s Ethically-Screened Funds  Growingconsensus that best long-term performance will come from companies that take seriously their wider environmental, social & governance responsibilities  Highenergy prices & awareness of climate change have spurred investor interest in clean energy & related investments  Need to meet ethical considerations that are becoming increasingly important in the minds of investors “   You cannot escape the responsibility of tomorrow b   y evading it today” A   braham Lincoln
  5. 5. Occupy percolates up to investment world New York London Lisbon 5
  6. 6. Market Drivers Behind Responsible Investment  Systemic concerns  Investment drivers   Corporate scandals and crises: downside protection   Reducing risks, Spotting opportunities  Regulations & Codes:   From divestment to active investment   Pensions laws and codes  Corporate leadership: will investors follow?  Stock Exchanges: JSE, Novo Mercado, Borsa Italiana Star Index  Sell-side research: Integration of ESG into investment analysis
  7. 7. Changing Definition of Fiduciary Duty  “Where fiduciary duties apply, there is no general requirement in law for investment decision-makers to invest according to ESG considerations, but ESG considerations are relevant considerations that must be taken into account in the process of investment decision-making.  The weight to be given to ESG considerations, however, is for the investment decision-maker empowered to make discretionary investment decisions in the interests of all beneficiaries.  Itis not a breach of fiduciary duties per se to have regard to ESG considerations while pursuing the purposes of the trust. Rather, in our opinion, it may be a breach of fiduciary duties to fail to take account of ESG considerations that are relevant and to give them appropriate weight.” Freshfield Bruckhaus Deringer, October 2005
  8. 8. A Philosophy: Shareholder Engagement r   eo®: Responsible Engagement Overlay   Responsible   Uses shareholder influence to encourage adoption of best practices   Focuses on risk reduction and long-term shareholder value  Engagement   Recognises common interests of company & shareholder   Builds on constructive dialogue with companies  Overlay   Does not screen out companies = no impact on portfolio construction   Investment decisions driven by financial considerations A   pplies to all of F&C’s equity holdings + third-party funds
  9. 9. Where do investors engage?Environment Social GovernanceEnvironmental management Human rights Corporate Governance  Environmental standards   Security   Remuneration  Supply chain environmental   Privacy & free expression   Board structure standards   Community relations   Shareholder rights  Pollution control   Weak governance zones   Audit & control  Waste & recycling  Product opportunities Labour standards Sustainability Management   Health & safety   Disclosure & reportingEcosystem services   ILO core conventions   Governance of sustainability  Biodiversity management issues   Diversity  Water   UNGC compliance   Supply chain labour  Access to land standards   Stakeholder engagementClimate change Public health Business Ethics  Emissions management &   Nutrition   Bribery & corruption reporting   Access to medicines   Political influence  Climate change strategy   Product safety   Whistleblowing systems  Access to land   HIV/AIDS   Responsible marketing  Biofuels 9 99
  10. 10. Case Study: Tackling the Credit Crunch E   ngaging with banks   Banking sector has experienced a series of seismic shocks I  ssue:   Inadequate oversight of risk and link to pay   Lack of transparency and accountable practices   Disregard for systemic impacts A   ction:   Engage with banks – 4 key themes:   Disposal of toxic assets and recapitalisation   Reform of incentive structures to ensure pay-for-performance and appropriate risk-taking   More robust boards that hold executives to account   Cultural reform - Lobbying   Using voting rights to challenge poor practices   Tackling systemic factors: Dialogue and engagement with regulators   Regulation that sets good governance standards and encourages greater transparency without inhibiting competition.
  11. 11. Aligning bank remuneration with riskCredit quality as a bonus underpin Excessive focus on Return on Equity for banks F&C pioneered Credit Quality Underpin as precondition for bonus awards Engaged over 50 banks globally To date: RBS and Barclays accept idea See F&C Viewpoint “There is an underpin whereby awards will only vest if the Remuneration Committee is satisfied that risk management during the performance period has been effective and that financial and non-financial performance has been satisfactory” “The Remuneration Committee has the discretion to reduce the vesting of deferred incentives and long term incentive awards (to nil if appropriate) if, in its sole opinion, the financial health of the Group has significantly deteriorated” 11 11
  12. 12. BP Golf of Mexico 12
  13. 13. Fukushima 13
  14. 14. Tokyo Electric Power Company - TEPCO TEPCO and the Fukushima nuclear accident Background  In March 2011, Japan suffered a major earthquake and tsunami  Fukushima nuclear power plant suffers a catastrophic safety failure Market Reaction leads to plant shutdown and subsequent rolling  Safety failure power outages  Share price has fallen 80% since the earthquake  TEPCO’s credit rating is downgraded by Moody’s from A1 to Baa1 and remains under review  TEPCO’s credit default swaps peaked at 400bps over risk-free, in line with sub-investment grade risk, compared to 8bps pre-disaster 14
  15. 15. TEPCO F&C Acts  Meeting with TEPCO at Tokyo offices to discuss ESG strategy, practices and reporting  Recommendations to:   Improve independent oversight of the company through appointment of outside board directors   Enhance safety and reporting systems at key nuclear facilities   Implementcomprehensive climate change policy to include emissions targets, renewable energy goals   Encourage responsible consumer behaviour towards energy use  F&C leading collective engagement on behalf of UK investors to:   Urge management strategies to lead business out of the crisis   Safety review and post-mortem will shape F&C’s ongoing engagement 15
  16. 16. ESG risks and Credit risk: BP and TEPCOESG risk hits investors in the wallet Impact of Macondo oil spill on BP’s cost of credit Impact of nuclear blast on Tepco’s cost of credit Source: Bloomberg.
  17. 17. Technology and media industries Since 2004, active involvement in Global e-Sustainability Initiative (GeSI) and Electronics Industry Citizenship Coalition (EICC). EICC: de facto standard for technology hardware companies to improve labour and environmental standards in electronics factories From an initial group of three US computer companies, now over 40 global companies throughout value chain.  Majorcriticism of factory labour standards of Apple’s popular iPhone and iPod  F&C engaged Apple and Foxconn, its outsourced manufacturer  Encouraged both to join the EICC, implement policies and publish factory audits.  Dell introduced a comprehensive take-back programme for its obsolete products as early as 2004. 17
  18. 18. Deforestation & Climate ProtectionForest protection essential to safeguard rainfall andavoid soil erosionPoor government enforcement and company practicesHigh-profile scandal linking Unilever to rainforestdestruction F&C Acts  Site visits: Indonesian palm oil plantation  Pressed Unilever, Golden Agri and 12 companies to curb deforestation  Collaborative engagement : Forest Footprint Disclosure Project, government action Results & Next steps  Golden Agri undertaken remedial action  Unilever will halve environmental footprint of its products by 2020  Consumer Goods Forum goal: zero net deforestation by 2020  78 participants in a new Forest Footprint Disclosure Project  Government support for forest protection at Cancun 18
  19. 19. Market failure: “Universal investor” factorsThe challenge: Diabetes an escalating social and economic burden Cost to health service ($ billion) 47 26 China to see 80% increase in diabetes 15 cases by 2030 2007 2011 2030 Years Investor engagement:   ood & beverage companies: F   Incl. Access to Nutrition Index (ATNI)   etailers and restaurants R   arge employers on employee general health L 19
  20. 20. Global Engagement: Examples of Milestones UK: Standard UK: Petrofac France: Danone NL: Heineken Germany: Adidas Italy: Bulgari Pledged to Chartered actively addressed implemented a committed to new joined SEDEX, an responsible jewelry incorporated humanitarian and strict policy not to ideas for limiting initiative to promote sourcing, addressing Russia: Novatek climate risk into human rights market to children water usage in labor standards human rights concerns increased theUK: HSBC its lending issues in Sudan breweries over conflict diamonds number ofImproved board criteria and Burmese gems independentindependence board directorsenhancingoversight ofgroup riskmanagement Japan: Mitsubishi leveraged suppliers toUS: Pfizer raised improve labouranimal welfare standardsstandardsthroughout itssupply chain Korea: Shihan Financial improved shareholder rightsUS: Motorolaintroduced moreenergy efficient China: China Telecombatteries into its took active steps tomobile phones eliminate corruption by India: TATA Brazil: BM&F enhancing employee Consultancy Mexico: Alsea Bovespa protected conduct standards developed Australia: Arrow Energy integrated the rights of minority capacity to lead committed to comprehensive US: Hewlett-Packard environmental impact shareholders in the clients in biodiversity management Supported US laws to targets into company Brazil Stock sustainability throughout its supply chain improve shareholder performance goals Exchange influence over executive strategies compensation
  21. 21. Thematic investment approach Alternative energy Energy efficiency Sustainable mobility Solar, wind, Insulation, energy Alternative fuels, geothermal… demand management… efficient cars…Mitigation Waste Advanced materials Forestry & agriculture Recycling, landfill, Bioplastics, Forestry gas capture… silicon… projects… Water AcclimatisationAdaptation Desalination, water New crop varieties, purity testing… catastrophe insurance… Supporting servicesSupportingservices Consultancy, carbon trading... 21
  22. 22. Investment themes Theme: Energy efficiency   Huge untapped scope for energy efficiency improvements   Doubling the rate of energy efficiency improvement worldwide could save energy equivalent to 2,000 coal-fired plants by 2030 – and save consumers $500bn/yr   Governments are becoming increasingly bold in their approach, using regulation to set minimum standards in buildings and products (e.g. EU action on the old-style lightbulb)   Improvements to electricity distribution systems also critical – over $90bn of fiscal stimulus money directed towards investments in grids 22
  23. 23. Mitigation: Energy Efficiency and Informatica Climate Change Rationale   Running servers at higher utilization rates means less total energy usage, which results in lower carbon emissions. Cloud data centres are also more energy-efficient compared with more decentralised systems.   Large UK companies that use cloud computing could reduce CO2 emissions associated with their IT estate by 50% compared to predicted levels without the adoption of this technology. This would be equivalent to the annual emissions of over 4 million passenger vehicles, and that’s the potential for UK companies alone. 1   Data is power hungry: the average data centre consumes as much energy as 25,000 households. 21Source: Carbon Disclosure Project 232 Source: McKinsey Analysis Investment Rationale
  24. 24. Waste  3.6% of global greenhouse gas emissions come from waste: largely gases from landfill sites  Recycling also offers significant energy savings compared with producing goods from new  The sector is already subject to heavy regulation (eg EU Landfill Directive). Climate change concerns are adding to the pressures  Growth opportunities include recycling and waste-to-energy projects 24
  25. 25. Q&A Your Questions?
  26. 26. F&C OfficesUnited Kingdom United Kingdom United Kingdom United Kingdom United KingdomF&C Management Limited F&C Management Limited F&C Management Limited F&C REIT Property Asset Thames River Capital LLPExchange House 80 George Street Park Lodge Management Plc 51 Berkeley SquarePrimrose Street Edinburgh EH2 3BU London Road 5 Wigmore Street LondonLondon EC2A 2NY Scotland Dorking London W1J 5BBTel: +44 (0) 20 7628 8000 Tel: +44 (0) 20 7628 8000 Surrey RH4 1QP W1U 1PB Tel: +44 (0) 20 7360 1200Fax: +44 (0) 20 7770 5487 Tel: +44 (0) 20 7628 8000 Tel: +44 (0) 20 7499 2244Website: www.fandc.comAuthorised and regulated in the UK Authorised and regulated in the UK Authorised and regulated in the UK F&C REIT Property Asset The Funds business of the F&Cby the Financial Services Authority. by the Financial Services Authority. by the Financial Services Authority. Management Plc is a wholly owned Group. Authorised and regulated in subsidiary of F&C REIT Asset the UK by the Financial Services Management LLP and is authorised Authority . and regulated by the Financial Services Authority 
Netherlands Portugal Germany IrelandF&C Netherlands B.V. F&C Portugal, Gestão de F&C Management Limited F&C Ireland LimitedJachthavenweg 109 e Patrimónios, S.A. Oeder Weg 113 Block 51081 KJ Amsterdam Rua de Campolide,372 60318 Frankfurt Harcourt CentreNetherlands 1st floor Germany Harcourt RoadTel: +31 (0) 20 582 3000 1070-040 Lisboa Tel: +49 (0) 69 597 99 080 Dublin 2 Portugal Tel: +353 (0) 1 436 4000 Tel: +351 (0) 21 003 3200Regulated in the Netherlands by the Regulated in Portugal by the CMVM Authorised and regulated in the UK F&C Ireland is regulated by theAutoriteit-FM. and the Bank of Portugal. by the Financial Services Authority Central Bank of IrelandUnited States Hong Kong India GermanyF&C Management Limited F&C Management Limited F&C REIT Property F&C REIT Property Asset265 Franklin Street 66th Floor, Suite 01 Management India Management16th Floor The Center 91 Maker Chambers VI GmbH & Co. KGBoston MA 02110 99 Queen’s Road Central Nariman Point Oberanger 34-36USA Hong Kong Mumbai 400 021 80331 MünchenTel: +1 (0) 617 426 9050 Tel: +852 3965 3160 India Germany Tel: +91 (0) 22 2282 9430 Tel: +49 (0) 89 61 46 51 0Authorised and regulated in the UK Authorised and regulated in the UK F&C REIT India Private Limited is a F&C REIT Property Assetby the Financial Services Authority by the Financial Services Authority. wholly owned subsidiary of F&C Management Plc is a wholly owned REIT Property Asset Management subsidiary of F&C REIT Asset LLP. Part of the F&C Asset Management LLP and is authorised 
 Management Plc Group and regulated by the Financial Services AuthorityPast performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not getback the original amount invested. The information, opinions estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time. F&C GroupCompanies may from time to time deal in investments mentioned herein on behalf of their clients. The source of information in all graphs is F&C unless otherwise stated. F&C Management Limited is authorised and regulated by theFinancial Services Authority (FSA) FRN:119230. Limited by shares. Registered in England and Wales, No. 517895. Registered address and Head Office: Exchange House, Primrose Street, London, EC2A 2NY, United Kingdom. F&CAsset Management plc is the listed holding company of the F&C group. F&C Management Limited is a member of the F&C Group of companies and a subsidiary of F&C Asset Management plc. F&C, the F&C logo, REO and the ‘reo’logo are registered trade marks of F&C Asset Management plc. F&C INVESTMENTS and the F&C INVESTMENTS logo are trade marks of F&C Management Limited. © Copyright F&C Management Limited 2011. All Rights Reserved.Neither this document nor any part of it may be reproduced by any party whether by photocopying or storing in any medium by electronic means or otherwise without the prior approval of F&C Management Limited.CN: 26

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