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Climate Neutral Investments - an innovative Socially Responsible Investing approach and its implications for CSR


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Net Impact 16 Dec 2010

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Climate Neutral Investments - an innovative Socially Responsible Investing approach and its implications for CSR

  1. 1. Climate Neutral Investments - an innovative Socially Responsible Investing approach Climate Neutral Investments Ltd. A Company of South Pole Holding Ltd. A Presentation to Net Impact Bangkok, December 2010
  2. 2. 2 • Socially Responsible Investing : Overview • The Climate Neutral Concept • Who We Are • Contact
  3. 3. 3 Socially Responsible Investing has many faces ESG SRI Tripple Bottom Line Ethical Investing Socially Conscious Investing Any type of investing that focusses - beyond financial returns - on the investments‘ ethical implications Responsible Investing Venture Philantophy Community Investing Faith Based Investing Sharia Compliance Merit Making
  4. 4. 4 Socially Responsible Investing in practice •ESG Screening (e.g. Best-in-Class) •Norm-based approach (International Treaties) •Sector-based exclusions ((Tobacco, Alcohol, Weapons etc) •Shareholder Engagement (Dialogue, general meetings, action) •ESG integration (case-by-case) New: Screening & Offsetting (Climate Neutral Investments)
  5. 5. 5 The Market is still Niche – but growing fast • Over the past two years, the Socially Responsible Investments (SRI) market - in Europe alone - rocketed from EUR 2.5 trillion to EUR 5 trillion. In the US, it grew from USD 2.7 trillion to USD 3.1 trillion. • 92% of SRI assets are from Institutional Investors, with 65% from Pension Plans. • Europe has now 879 SRI funds, grown 40% in one year to EUR 75 bn, the US has about 250 SRI funds with AUM of USD 316 bn (55 with 12bn in 1995). • Asia accounts for 2% (USD 10 bn) of the world‘s SRI AuMs. • Thailand is reported to offer two SRI vehicles and one faith-based fund. Siam Cement now leader in the Dow Jones Sustainability Index World. Among all SRI concerns, eco-efficency and climate change rank highest for investors Sources: PWC, Booz & Co, ASRIA
  6. 6. 6 From Niche to Mainstream? Source: Booz & Co. 0% 5% 10% 15% 20% Europe US Asia Projected Growth in Responsible Investing In % of Total AUM 2007 2015 •Strongest growth in Asia: Estimated to be > 150% until 2015 •10 years of ASRIA, the new Hang Seng Corporate Sustainability Index Series, DJSI Asia-Pacific and Korea, interest from pension plans, UN PRI signatories etc. •Leaders are Japan, Hong Kong and South Korea
  7. 7. 7 So, why are there not more SRI investors today? Primary point of hesitation (48%) towards socially responsible investing is the fear of financial underperformance
  8. 8. 8 Responsability and Returns – a contradiction? •Guerard (1997) finds that social screens have no detrimental impact on his quantitative active management strategy. •Angel and Rivoli (1997) use CAPM-based analysis by Merton to show that the impact of a shareholder boycott on a company's cost of capital is likely to be small. •Waddock and Graves (1997)* show a strong relationship between corporation reputation (as defined by the Fortune most-admired list) and ratings of corporate social responsibility. •Russo and Fouts (1997)* find that, after adjusting for everything imaginable, companies with better environmental records appear to have better-than- average returns on assets. •McWilliams and Siegel (1999) find that many event studies of socially responsible investing have been marred by methodological errors. Their analysis forced a reassessment of many studies reporting returns to social variables, and put authors of future event studies on notice that considerable care must be exercised in both study design and data analysis for their findings to be credible. •Dibartolomeo and Kurtz (1999) analyzes the Domini Index using a multifactor attribution model and and arbitrage pricing theory model. While agreeing with earlier attribution studies that style effects are generally a wash and that industry effects are important, Dibartolomeo does not agree that there might be an SRI effect at work. His model finds no unexplained performance. •Teoh, Welch, and Wazzan (1999)* find that the South Africa boycott, the largest shareholder boycott to date, had minimal impact on South African securities and securities of U.S. companies doing business in South Africa. •Dowell, Hart, Yeung (2000)* show that between 1994 and 1997, U.S. multinational corporations with high global environmental standards tended to have higher price/book ratios than companies adopting local environmental standards, even after adjusting for factors such as industry membership, R&D intensity, and advertising intensity. •Stone, Guerard, Gultekin, and Adams (2001) show that the returns of a stock selection model were not harmed by the implementation of social screens for the 1984-1997 time period. •Bauer, Koedijk, and Otten (2002)* measure the risk-adjusted performance of 103 German, U.S., and U.K. screened mutual funds for the 1990-2001 time period, and find no significant differences betwen their returns and those of unscreened funds. •Guenster, Derwall, Bauer, and Koedijk (2005)* find that Innovest environmental ratings have a significant relationship with both firm valuation and operating results. •Barber (2006)* finds that CalPERS' corporate governance initiatives created over $3 bn in shareholder wealth from 1992-2004. • Hong and Kacperczyk (2006) show that tobacco stocks have outperformed market averages for decades, and demonstrate that this is true even after accounting for market risk, size, and valuation effects. •Edmans (2007)* finds that stocks of firms on Fortune magazine's '100 Best Companies to Work For' list outperformed market averages, even after accounting for market risk, size, momentum, and style effects. •Statman and Glushkov (2008)* confirm Hong and Kacperczyk's findings on sin stocks. Studies show that responsible investments deliver the same or better returns – and they show the contrary…
  9. 9. 9 • Socially Responsible Investing : Overview • The Climate Neutral Concept • Who We Are • Contact
  10. 10. Climate Change – The Biggest Challenge of Our Times Source: Lüthi et al. 2008, cited in 2010 World Development Report, World Bank
  11. 11. 11 We make your client’s current investment emission neutral A stock owner is also responsible for the emission of the company to the extent of his/her holding. Source. Climate Neutral Investments We research and calculate the carbon emissions of each position to create a Portfolio Carbon Assessment. The value of the carbon assessment is then offset with the purchase of our internationally certified Carbon Credits.
  12. 12. 12 Institutions Managed Funds The Climate Neutral Concept: Our Clients Private Wealth We consult private clients directly or via advisors. We work to place carbon credits in projects that match each client’s sustainability priorities and objectives. Individuals are given the opportunity to visit the projects which they have chosen to sponsor with their carbon credits. We work with asset management firms to create and maintain updated Portfolio Carbon Assessments, while handling the mechanical aspects of offsetting via the purchase and sale of carbon credits. We also provide communications training and help in crafting a marketing message. We work with institutions to offset the carbon generated by their directly held public and private investments, as well as on a look-through basis for assets managed by outside investors.
  13. 13. 13 The investor decides to invest climate friendly, we take care of the rest Portfolio CO2 Climate Neutral Investments Regular Option Emission Offsets from Certified Projects CO2 The Climate Neutral Option orInvestor Source. Climate Neutral Investments
  14. 14. 14 • For every ton of prevented greenhouse gas emissions - for example by replacing fossil energies with renewable energy - the emission saving entity receives a reduction certificate • This certificate can be sold to companies and individuals who want to reduce their own emission footprint • The buyer, with these certificates, offsets his/her own emissions • This mechanism incentivizes emission reducing investments in developing countries. It enables progress in a climate-friendly framework. • Positive effects other than the reduction of CO2 include technology transfer, knowledge transfer, job creation, education, improved economic conditions and social and political stability The climate neutral investment buys certified carbon credits: A robust and sustainable solution to environmental & social challenges Source: Climate Neutral Investments Ltd.
  15. 15. 15 Investor chooses from our Greenhouse Gas Emission Reduction Projects and benefits from measurable Environmental & Social Returns Source: Climate Neutral Investments Ltd. CO2 Waste water treatment ,Thailand, Reduction: 90,000 tCO2e / Year • Technology and knowledge transfer with high replication potential • Creation of new jobs for locals and improvement of living conditions • Replacement of fossil fuels and contribution to energy savings • Improvement of water quality offset Choose from over 35 Thai and over 160 worldwide certified projects • This example project reduces 90k tCO2e /Year, while significantely improving living conditions in the area. • Thai investors have now the opportunity to - de-facto - buy green electricity. • The project delivers 18 Million kwh/ year - enough for as many people as living in the province Phuket. • Positive effects other than the reduction of CO2 include technology transfer, knowledge transfer, job creation, education, improved economic conditions and social and political stability.
  16. 16. 16 Investor chooses personalized Emission-Reduction & Social Impact Report Source: Climate Neutral Investments Ltd. We welcome you in person to„your“ greenhouse gas emission-reduction project!
  17. 17. 17 Where we are at in Europe/ US • Sharpen the sustainable and responsible profile of your house - CSR - Employee engagement • Engage in dialogue with clients and stakeholders over social and environmental issues - Important new topic - Transaction trigger • Strengthen emotional ties with clients and stakeholders - New Business Development - Client retention Source: Climate Neutral Investments Ltd.
  18. 18. 18 How to position this in Thailand? Suggestions •Create shareholder value through CSR measures, reporting and disclosures •Benefit from governmental incentive mechanisms •Take responsibility for external environmental costs of business
  19. 19. 19 • Socially Responsible Investing : Overview • The Climate Neutral Concept • Who We Are • Contact
  20. 20. 20 South Pole Partnership: A steep success story Number of Employees Minority investment from BP Alternative Energy Office Jakarta Office Beijing Office Bangkok Office Mexico City Office Johannesburg Office Taipei Office Istanbul Office New Delhi Office Hanoi 2006 2007 2008 2009 Minority investment from Corisol AG 2010 Founding of Climate Neutral Investments Ltd. Source: Climate Neutral Investments Ltd. Office Zurich
  21. 21. 21 South Pole Projects all around the globe South Pole – Rapidly Growing Portfolio Of Projects Broad project pipeline • Over 160 contracted projects in over 20 countries with a total volume of more than 60 million tonnes of CO2 (tCO2e) until 2012 – ~50% are CDM projects – ~50% are Gold Standard projects • Projects in advanced negotiations with roughly 30 million tCO2e until 2012 Most important project types • Renewable Energy (Biomass, Hydro, Wind, Geothermal) • Waste Treatment (liquid and solid) • Energy Efficiency • Reduction of Waste Gas (Oil, Gas and Chemical Industries) • Forestry • Programmatic Approach (PoAs) Source: South Pole Carbon Asset Management Ltd.
  22. 22. 22 Your Investment can make the difference! Let us show you how. Source: Climate Neutral Investments Ltd.
  23. 23. 23 South Pole Holding Ltd. Renat Heuberger CEO Phone: +41 43 501 35 50 Ingo Puhl Partner, Bangkok Phone: +66 86 778 28 869 Climate Neutral Investments Ltd. Dr. Maximilian Horster CEO Phone: +41 78 613 7291 This marketing communication is issued by Climate Neutral Investments Ltd. It is intended for professional clients only and should not be relied upon by retail clients. While Climate Neutral Investments uses reasonable efforts to obtain information from sources which it believes to be reliable, Climate Neutral Investments makes no representation or warranty as to the accuracy, reliability or completeness of the information. The marketing communication is intended merely to highlight issues, and not to be comprehensive or to provide advice. Should you have any queries on the issues reported here, please contact one of your regular contacts at Climate Neutral Investments Registered office: c/o South Pole Carbon Asset Management Ltd., Technoparkstrasse 1, CH-8005 Zurich, +41 43 501 35 59 © Copyright 2010. Climate Neutral Investments Ltd. All rights reserved. • 14 years experience in climate change policy • MD of 550 ppm • World Bank and International Energy Agency • Founder of South Poles Thailand Office • 4 years investment management with Capital Group Companies in North America, Asia and Europe • Equity and Fixed Income research accross industries • Relationship responsibilities to institutional investors • 9 years experience in the carbon market • Closed CDM contracts worth >100 mill EUR • Managing director and co-founder of myclimate in 2002 • Finalist of the Swiss Social Entrepreneur Awards 2005 Contacts
  24. 24. 24 Who We Are: Climate Neutral Investments Ltd. •Replace the use of fossil fuel energy with renewable energies •Encourage technology and knowledge transfer from the developed to the developing world •Foster local job creation and improved educational standards •Support the improvement of local economic conditions and social and political stability Our Sustainability Objectives We neutralize the greenhouse gas emissions of investment portfolios • We are a partner of South Pole Holding Ltd, a pioneer and market leader in emission offsetting. • Our team has a broad mix of experience from the worlds of finance, consultancy and NGOs. • We are partnered with well respected thought- leaders in the green and business communities. Source: Climate Neutral Investments Ltd.
  25. 25. 25 The Resultant Portfolio: The Best of Both Worlds Financial Performance Environmental/SocialPerformance Traditional Portfolios - High Financial Returns - No Social Responsibility Criteria Ethical Portfolios - Focus on green/social Criteria. Returns potentially compromised Climate Neutral Investments – traditional Financial Returns – Zero Emissions – Social Impact Source: Climate Neutral Investments Ltd.