Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Approaching Sustainability Holistically: How Investors and Brands Can Make Progress on Key Issues Together

495 views

Published on

While awareness and appreciation of sustainable practices continue to grow overall, investors are demanding more data, new kinds of data, and deepening engagement with their investment prospects. Meanwhile, brands are often surprised to find out their disclosure and engagement efforts may be falling short. This session will explore the landscape of investor attitudes and actions around purpose and sustainability, focusing on resolving important points of disconnect between corporate and investor perceptions. The main objective will be to outline specific actions investors and brands can take to make progress on a range of sustainability issues. Panelists will provide guidance on managing emergent issues, resolving communication breakdowns, equipping CFOs and Investor Relations functions with ways to navigate complex dynamics, and staying on top of advancing requirements and recommendations from stock exchanges around the world.

Published in: Business
  • Be the first to comment

  • Be the first to like this

Approaching Sustainability Holistically: How Investors and Brands Can Make Progress on Key Issues Together

  1. 1. Approaching Sustainability Holistically: How Investors and Brands Can Make Progress on Key Issues Together Paul Herman, HIP Investor Ratings + Portfolios @hipinvestor Evan Harvey, Nasdaq @NASDAQ Jackson Robinson, Trillium Asset Management @TrilliumAM Be sure to engage in the app: sb16app.com 1) Check into the session by selecting session from the program and selecting 'check in' 2) Pose and 'up-vote' questions to be posed during Q&A: In session description, select 'submit a question'
  2. 2. 2 What Does ESG Mean? Limiting the data spectrum to realistic deliverables SOURCE: Brown Flynn, 2015 ESG Disclosure Guidance
  3. 3. How does Nasdaq define ESG data? Better labels = clearer expectations 3 It is important to note that while this document primarily uses the term “ESG” because it is commonly used among investors, the term “sustainability” is used interchangeably as it is more common among companies. While subtle nuances exist, for the purpose of this guidance, both terms are seen as encompassing the broad set of environmental, social and governance considerations that can impact a company’s ability to execute its business strategy and create value. While ESG factors are at times called non-financial, how a company manages them undoubtedly has financial consequences. ESG factors create real impacts upon: ESG Disclosure Guidance Access to capital Cost savings and productivity Risk management Revenue growth and market access Brand value and reputation License to operate Human capital management Employee retention and recruitment Mergers and acquisitions New product and service innovation
  4. 4. Progress: Exchange-Driven ESG Reporting What is the current state? 4 ESG Disclosure Guidance SSE Research, Sept 2016
  5. 5. A Mix of Rules, Guidance, and Commitments 40 (of 82) exchanges are leading the way 5 ESG Disclosure Guidance SSE Research, Sept 2016
  6. 6. Defining the Landscape Nasdaq recommends disclosure of these ESG metrics 6 This list includes 33 indicators across three broad categories. E, S, and G concerns are given equal weight. This list purposely includes all 7 of the “first generation” sustainability metrics valued by Corporate Knights and other ratings entities. ENVIRONMENTAL (E) SOCIAL (S) CORPORATE GOVERNANCE (G) E1. Direct & Indirect GhG Emissions S1. CEO Pay Ratio G1. Board – Separation of Powers E2. Carbon Intensity S2. Gender Pay Ratio G2. Board – Transparent Practices E3. Direct & Indirect Energy Consumption S3. Employee Turnover Ratio G3. Incentivized Pay E4. Energy Intensity S4. Gender Diversity G4. Fair Labor Practices E5. Primary Energy Source S5. Temporary Worker Ratio G5. Supplier Code of Conduct E6. Renewable Energy Intensity S6. Non-Discrimination Policy G6. Ethics Code of Conduct E7. Water Management S7. Injury Rate G7. Bribery / Anti-Corruption Code E8. Waste Management S8. Global Health Policy G8. Tax Transparency E9. Environmental Policy S9. Child & Forced Labor Policy G9. Sustainability Report E10. Environmental Impacts S10. Human Rights Policy G10. Other Framework Disclosures S11. Human Rights Violations G11. External Validation, Assurance S12. Board - Diversity ESG Disclosure Guidance
  7. 7. Sidebar 1: UN Sustainable Development Goals 7 ESG Disclosure Guidance Stock exchanges have been asked (by the UN and PRI) to create corporate reporting guidance and other tools that specifically address these five SDGs. Doing so would significantly increase global chances of achieving 2030 targets.
  8. 8. Sidebar 2: Global Regulatory Actions 8 ESG Disclosure Guidance Virtually every market regulator is active in the sustainability debate. This has been driven by demand from investors, governments, NGOs, and citizens. Some regulators have already created ESG disclosure requirements; others are investigating the right way forward. Note: SEC Reg S-K. Of the 227 original comment letters, 66% discussed sustainability disclosures. This is pretty remarkable, considering that only 3.2% of the Concept Release (11 of 341 pages) discussed sustainability disclosure. SASB
  9. 9. 9 Sidebar 3: Compelling Statistics • 95% of the Global 250 issue separate ESG reports • 90% of high-performing ESG companies have lower costs of capital • 88% of high-performing ESG companies have better operational performance • 85% of high-performing ESG companies outperform accounting standards • 80% of high-performing ESG companies have better stock performance • 76% anticipate resource shortages will impact core business objectives • 70% organize sustainability in strategic or operational areas • 68% have increased their commitment to sustainability in the past year • 65% have dedicated sustainability teams and budgets • 65% of CFOs have some direct involvement in sustainability • 53% of the Global 500 experienced negative water-related business impacts • 53% of shareholder resolutions are related to ESG issues • 40% of equity analysts leverage sustainability performance in valuations • 40% of all carbon cuts would ultimately generate a profit ESG Disclosure Guidance
  10. 10. 10CONFIDENTIAL © 2006-2016 HIP Investor Inc.
  11. 11. 11CONFIDENTIAL © 2006-2016 HIP Investor Inc.
  12. 12. THE 84% IS MEASURABLE Smarter Beta: Value-Creation Fundamentals People As An Asset Natural Resource Efficiency Governance & Stakeholder Mgmt. Transparency of Risks & Opportunities CONFIDENTIAL © 2006-2016 HIP Investor Inc. 12 Key Drivers of Value + Risk + Customer Satisfaction + Employee Retention + Oil & water use + Energy mix + Board & team diversity + Supply chain mgmt. - Legal exposure - Lobbying ratio Knowable Yet Ignored Not on Financial Statements
  13. 13. EXTRACTIVE VS INNOVATIVE CONFIDENTIAL © 2006-2013 HIP Investor Inc. 13
  14. 14. HEALTH EQUALITY WEALTH EARTH TRUST P R O F I T I M P A C T INNOVATE Products & Services WITH NATURE Operating Metrics BY PEOPLE Mgmt Practices SUSTAINABLE PRODUCTS + PEOPLE + PLANET = HIGHER PROFIT POTENTIAL 14 CONFIDENTIAL © 2006-2016 HIP Investor Inc.
  15. 15. © 2006-2016 HIP Investor Inc. 15
  16. 16. 16 New Metric: Your Green PRODUCT Revenue $$$ Consumer Discretionary Automobiles & Components Automobiles Automobile Manufacturers Gasoline Flex-fuel Hybrid Electric Electric GICS Industry Segments Sustainable Revenue Segments
  17. 17. PORTFOLIO WOULD’VE HANDILY BEATEN THE S&P 500 10-yr TSR Growth* 330% 292% 119% 102% $- $100,000 $200,000 $300,000 $400,000 $500,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GPTW Medium GPTW Large S&P 400 Cumulative Total Shareholder Return (TSR) over 10 Years * Total Shareholder Return includesreinvested dividendsand price appreciation. FromDec 31st 2005to Dec 31st 2015. Source: GreatPlace ToWork®; ThomsonReuters; HIPInvestor analysisand portfolio modeling No. Empl. Firms GPTW Medium 100-999 22 GPTW Large 1000+ 93 Category
  18. 18. 18 Global Leaders Link CEO Pay to Positive PLANET Goals Sustainability Pay Link Board / Executive Board CEO CFO COO Corporate Executive Team Executive Officer GHG Reduction, Expanded Use of Natural Refigeration, etc. Scope 1 & 2 GHG Reduction GHG Reduction Target per Consumer Scope 1, 2, & 3 GHG Reduction Scope 1, 2, & 3 GHG Reduction Energy Efficiency, Emissions to Air (CO2, NOx, Sox), Emissions to Water GHG Reduction, Energy Efficiency GHG Reduction, Energy Efficiency Emission Reduction, Sales of Climate Protection Products
  19. 19. 1 9 HIGHER SUSTAINABILITY à HIGHER PROFIT HIP RATINGà RETURN ON EQUITY
  20. 20. 20 Fast Facts: About Corporate Knights & HIP Investor (1) Use Strategic Scorecards that Measure Sustainability…. (2)…that Link to Financial Value § Business Case for Sustainability § PRODUCTS: “Green Revenue” § PEOPLE: Calculate Human Capital Value § PLANET: Issue “Green Bonds” § PROFIT: Quarterly “Sustain’y Earnings Call” (3) Educate and Engage Employees Globally § Impact ratings of 401(k) fund choices for employees A To-Do List for Sustainable Profits
  21. 21. CONFIDENTIAL © 2006-2015 HIP Investor Inc. 21 Published 2010 (John Wiley & Sons) *Amazon.com *BetterWorldBooks * Wiley.com Top 20 Business Book Bestseller List 26 University and MBA Curricula 75 Global Libraries on 5 Continents THE HIP INVESTOR BOOK: A HOW-TO GUIDE FOR IMPACT + PROFIT
  22. 22. CONFIDENTIAL © 2006-2013 HIP Investor Inc. 22
  23. 23. SHAREHOLDERS PROPOSALS TO ADDRESS LONG-TERM FUTURE RISKS CONFIDENTIAL © 2006-2013 HIP Investor Inc. 23
  24. 24. CONFIDENTIAL © 2006-2013 HIP Investor Inc. 24
  25. 25. CONFIDENTIAL © 2006-2013 HIP Investor Inc. 25
  26. 26. HIP RATINGS = 100 POINT SCALE IMPACT, FUTURE RISK + FUTURE RETURN Worst: 0 HIP Rating Best: 100 Net Negative IMPACT Health, Wealth, Earth, Equality, Trust Net Positive More Volatile Future RISK More Resilient Lesser Potential Future RETURNS Stronger Potential HIP RATINGZero 100 26 © 2006-2016 HIP InvestorInc.
  27. 27. 9SECTORS SOVEREIGNS AGENCIES TRANSPORTATION WATER ROADS SEAPORTS AIRPORTS COMBINED WASTEWATER WATER AGENCIES ENTERPRISES ENERGY HOUSING EDUCATION ENERGY GOVERNMENT HEALTHCARE HOUSING K-12 DISTRICTS UNIVERSITIES COMMUNITY COLLEGES COMBINED HOSPITALS STATES COUNTIES CITIES UTILITIES HOUSING AGENCIES SOVEREIGNS COUNTRIES
  28. 28. IMPACTS VARY BY SECTOR 28 CONFIDENTIAL © 2006-2015 HIP Investor Inc. General Government Housing Water Higher Education
  29. 29. 8 of 10 TRUST points: • Metering • Smart-metering 36 of 40 HEALTH points: • Drinking water safety, including nitrate and fluoride • Level of EPA violations 14 of 40 EARTH points: • Treatment technique • Leakage • Per-person water use • Use of recycled water 2 of 10 EQUALITY points: • Gender diversity of the Board and executive management 60% WATER UTILITIES: CITY OF SAN DIEGO WATER = 60%
  30. 30. 30 K-12 Muni Bond Issuers: Advance High Rated K-12’s with Low Income to Continue their High Impacts
  31. 31. 31 K-12 Muni Bond Issuers: Fund High Rated K-12’s with Low Income to Seek Better Impacts
  32. 32. 32 CITIES: Household Income and Impact Ratings Correlate, but Impact Depends on Management
  33. 33. 33 HOSPITAL SYSTEMS: Household Income and Impact Ratings Correlate, but Impact Depends on Mgmt.
  34. 34. HIP RATINGS FOR 195+ SOVEREIGN COUNTRIES 34
  35. 35. COUNTIES IN CALIFORNIA 35
  36. 36. CITY IMPACT CATEGORIES City of Seattle = 70% 15 of 25 WEALTH points •Median Income •Affordability of Housing •Vacant Houses •Unemployment •Poverty 21 of 25 HEALTH points: • Obesity/Diabetes • Crime Rate • Graduation Rate • Health Insurance Coverage 75% 15 of 25 EQUALITY points: • Gender Diversity & Ethnicity Reflected in Business Ownership WEALTH 25% EQUALITY 25%EARTH 25% HEALTH 25% 70% 19 of 25 EARTH points: • Commuting Method & Time Duration
  37. 37. HIP HEALTH PILLAR HIP WEALTH HIP EQUALITY St County MetroArea Overall HIP Rating Diabetes Rate Adult Obesity Rate Violent Crime Rate Murder Rate Grad Rate High School Grad Rate College %Living in Poverty Occupied (not vacant) Housing Women Owned Businesses African American Population African American Owned Businesses MD County of Anne Arundel Baltimore 58.3% 8% 28% 561 3.5 91% 37% 6% 93% 31% 15% 9% MD County of Baltimore Baltimore 54.1% 9% 27% 538 2.5 90% 35% 10% 92% 31% 26% 17% MD County of Carroll Baltimore 57.4% 8% 28% 207 2.4 91% 32% 6% 96% 27% 3% 2% MD County of Howard Baltimore 61.7% 8% 25% 577 - 95% 60% 4% 96% 30% 17% 15% MD County of Montgomery Baltimore 57.9% 8% 25% 193 2.1 92% 57% 7% 95% 26% 17% 3% MD County of Prince George Baltimore 53.5% 11% 34% 708 10.5 85% 30% 9% 92% 38% 63% 55% MD County of Frederick Baltimore 62.2% 8% 27% 312 1.3 92% 38% 6% 95% 31% 8% 6% MD County of Harford Baltimore 58.6% 9% 30% 347 2.5 92% 33% 7% 94% 34% 13% 9% MD City of Baltimore Baltimore 44.7% 12% 32% 1,405 34.9 80% 27% 24% 82% 37% 63% 35% US USA Average National * 8% 27% 405 4.8 86% 29% 16% 87% 29% 13% 7% * The median of HIPRatings calculated for Cities is 52.8%, for Counties is 53.5%, and for States is 49.5%; HIPRatings cover more than 350 cities, counties and states. HIPRatings are comprised of the Pillars of Health, Wealth, Earth, Equality and Trust. Selected pillars and metrics are shown above. Each column is color-coded: GREENfor leaders in ratios, YELLOW for average ratios, RED for laggards in ratios The Wire: Impacts of City of Baltimore vs. surrounding Maryland Counties 37
  38. 38. SRI, ESG AND IMPACT APPLY ACROSS ALL ASSET CLASSES Higher Impact Choices for Your Portfolio Cash Eco-focused banks Economic empower-ment credit unions Fixed income Social Impact Bonds Muni Bonds Microfinance Mezzanine Debt Funds Income Generating Appreciation REITs Preferred equities (dividends) Equities Impact- weighted strategies International and Emerging Global portfolios Venture Capital and Private Equity Sustainability funds Education and Human Capital funds Alternativ es Sustainable Forestry Organic Agriculture Renewable Fuels CONFIDENTIAL © 2006-2013 HIP Investor Inc. 38
  39. 39. HOW TO SERVE YOUR CLIENTS DESIRING SRI, ESG, IMPACT: FIRST 3 STEPS 1. Investment Policy Statement: Include impact alongside risk, return, income & liquidity goals 2. Impact Allocation + Themes: Specify impact themes and goals for each asset class 3. New Investment Evaluation: Integrate impact into your planning and portfolio design CONFIDENTIAL © 2006-2013 HIP Investor Inc. 39
  40. 40. 1. INVESTMENT POLICY STATEMENT (CLIENT SAMPLE) INCOME :: RETURNS :: RISK :: IMPACT :: BENCHMARKS q Generate after-tax INCOME of $__MM annually, through conservative to moderate investment choices (the majority fromfixed income, corporate bonds, sovereign treasuries, real estate investment trusts [REITs], and dividends frompreferredand common stocks). q Lower the RISK of principal loss through diversification across multiple asset types and seek protectionagainst potential inflation (e.g. TIPS: Treasury Inflation ProtectedSecurities; baskets of commodities, including gold and silver; real estate and REITs; investments that generate income within 18 months of committed capital; and consideration of hedging, including options). q Seek higher positive-IMPACT investments acrossall asset types (e.g. cash, fixed income, public equity, private equity, real estate, etc.). Using the HIP (Human Impact + Profit)Scorecard evaluation tools, target a 100% invested for impact by 2020. Today, the portfolio’sweightedaverage HIP Score is __%. q All of our investments need to minimize the negative impact on all people and the planet. q Target competitive investment PERFORMANCE versusappropriate benchmarks, calculated on a pre-tax basis, relative to similar risk investments: q According to the Strategic Plan’s goals, the portfolio seeks a five-year average annual appreciation of 8% nominal returns. Expected tax rate of 35%, we seek 5% after-taxannual returns. q Rationale for Impact Investor: q Liquidity, Doing well and doing good, Wealth preservation, Diversification, and Moderate capital appreciation CONFIDENTIAL © 2006-2013 HIP Investor Inc. 40
  41. 41. HIP RATINGS – OF A PORTFOLIO BY ASSET CLASS RISK, RETURN, IMPACT AND ALLOCATION RELATIVE TO AN EFFICIENT FRONTIER * Annualized Returns (time-weighted: TWR) over 3 years and no less than 19 months, for liquid securities as of 6/30 for remainder of funds/holdings as of 3/31/2013 or 12/31/2012. Returnsare Gross of Advisory and Management Fee HIP REIT included inside RealEstate Fund assets. CONFIDENTIAL © 2006-2013 HIP Investor Inc. RETURN S: Annualize d Returns* RISK: Standard Deviation of Returns* ALLOCATION: size of bubbles is percent (%) Allocated to Asset Class IMPACT: color of bubbles: Green = higher IMPACT Yellow = medium IMPACT Red = lower IMPACT
  42. 42. CONTACT HIP R. Paul Herman CEO + Founder Paul@HIPinvestor.com +1 (415) 902-7741 Twitter: @HIPinvestor CONFIDENTIAL © 2006-2015 HIP Investor Inc. 42
  43. 43. APPROACHING SUSTAINABILITY HOLISTICALLY: HOW INVESTORS & BRANDS CAN MAKE PROGRESS ON KEY ISSUES TOGETHER Jackson W. Robinson Vice Chair and Portfolio Manager TrilliumAsset Management
  44. 44. TRILLIUM OVERVIEW • Boston based firm started in 1982 • Over $2 billion in assets under management plus $200 million in model-driven platform assets (9/30/16) • Oldest investment advisor exclusively focused on sustainable and responsible investing (SRI) • 55% Institutional/ 45% Individual • Employee owned, with broad distribution of shares • 4 person dedicated shareholder advocacy team
  45. 45. SHAREHOLDER ADVOCACY EXAMPLES IMPORTANT DISCLOSURE. The views expressed are those of the authors and Trillium Asset Management, LLC as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the authors on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is for informational purposes and should not be construed as a research report.
  46. 46. 2016 SHAREHOLDER RESOLUTIONS *In addition to engaging with approved companies on our buy list , Trillium also conducts advocacy at selected companies that are held as legacy positions in client portfolios. These are companies that may not meet our minimum social and environmental criteria, but that we still seek to improve. See important disclosure page in appendix.

×