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Environmental social governance (esg)


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Portfolio managers are failing dismally to make headway on ESG issues in their investment strategies.

Published in: Business, Economy & Finance
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Environmental social governance (esg)

  1. 1. ESG  Environmental  Social and  GovernancePeter Schellinck
  2. 2. Environmental, Social and Governance (ESG)CriteriaOver the past five years, the financialindustry has adopted the acronym ESG(Environmental, Social and Governance) asthe standard terminology for the group ofextra-financial data that investors increasingevaluate as part of their comprehensiveinvestment review. PDS
  3. 3. CSR / ESG / SRI Corporate Social Responsibility (CSR) Explains how the company behaves Environmental, Social and Governance (ESG) criteria Codify what the company discloses / reports Socially Responsible Investing (SRI) How investors analyze companies according to their CSR practices and ESG disclosures PDS
  4. 4. How should this information be organized?1. Financial  Annual Report  Audit  Bond Issues  Cash Flow  Crop Insurance  Dividend  Fair Trade  Financial Statement  Market Share  Share Price  Transportation PDS
  5. 5. How should this information be organized?2. Environmental  Climate change  Deforestation  Environmental  Report  Fruit vs. Juice  Location of raw materials  Groves  Organic Certification  Pesticides  Sustainability  Water Use PDS
  6. 6. How should this information be organized?3. Social 4. Governance  Health & Safety  Annual General  Human Rights  Meeting  Labor Standards  Board Members  Management  Management  Discussion and  Analysis  Supply Chain  Management PDS
  7. 7. How should this information be organized? Extra - Financial Financial Environmental Social GovernanceAnnual Report Climate changeAudit Deforestation Annual GeneralBond Issues Environmental MeetingCash Flow Report Board MembersCrop Insurance Fruit vs. Juice Health & Safety ManagementDividend Location Raw Materials Human Rights ManagementFair Trade Groves Labor Standards Discussion andFinancial Statement Organic Certification AnalysisMarket Share Pesticides Supply ChainShare Price Sustainability ManagementTransportation Water Use PDS
  8. 8. Structure of Underlying Model KPIs Non-Financials 3 Areas of E S G Environmental Social GovernancePerformance Emissions, Human Rights Compliance Effluentes Resources Societal Sustainability of11 Categories of Performance Success Factors Measurement Waste Training & Qualification Environmental Product & Compatibility Health/Safety Employee Management PDS
  9. 9. The need: objective, transparent and comparable data Standardised units across companies - Consistent approach to the data Timely, on-going updates - Relevant, current information must be reported Information broken into smaller units to measure performance - Policies and outcomes Common starting point for customised uses of the data Have access to all sides of the data PDS
  10. 10. Relevancy of data Relevance differs greatly across sectors ESG reports are for various stakeholders  Marketing for customers, employees, general public  Responding to problems and pressure  A reflection of leadership and management quality Necessity to cut through noise and stories  Policies must be broken down, and the extent of implementation must be measured  Objective variables must be carefully considered  Contradicting controversies must be incorporated  Biases of the data must be considered: market cap PDS
  11. 11. Trends in ESG risk assessments Research providers and rating agencies  Sector reviews  Corporate compliance assessments  Risk monitoring getting started Brokerage research  Picking themes to uncover value & risk for long-term performance Convergence between ESG analysis and financial analysis  Getting underway where ESG factors have an impact on valuation Progress in information and tools available ESG – proxy for quality management  Avoid systematic risk  Identify opportunity PDS
  12. 12. Investment priorities matrix” ® Businesses with a For-profit Businesses single bottom line social enterprises Nonprofit with a single that practice social enterprises bottom line (pure plays corporate social (chameleons) (financial) and migrators) responsibility Traditionalinvestors FIRST SECOND THIRD NOT A seeking PRIORITY PRIORITY PRIORITY PRIORITY financial returns Socially responsible investors NOT A FIRST SECOND THIRDseeking both social PRIORITY PRIORITY PRIORITY PRIORITY and financial returnsSocial investors seeking both NOT A THIRD FIRST SECONDsocial and financial PRIORITY PRIORITY PRIORITY PRIORITY returnsSocial investors primarily NOT A THIRD SECOND FIRST seeking social PRIORITY PRIORITY PRIORITY PRIORITY impact PDS