John Cusack

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TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland

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John Cusack

  1. 1. Winner: "Most Innovative Product of the Year" – Business Continuity Awards 2012 Special Commendation: Risk Management Product of the Year – StrategicRISK European Risk Management Awards 2012 and 2011 Winner: "Most Innovative Development in ESG" – TBLI: ESG Leaders Awards Europe 2011 Winner: “Risk Management Product of the Year” – StrategicRISK, 2010 European Risk Management Awards Winner: “Best ESG Research House UK” – 2010 World Finance Awards Winner: GRI / ING “Big Five” 2010 – Global Reporting Initiative / ING Winner: “Environmental Risk Initiative of the Year” – Risk Management Awards 2010ESG and Extra-financial Risk ManagementTriple Bottom Line Investment Conference- ZurichJohn L. Cusack, Associate Director, and Headof Financial Services Risk Management 9 November 2012
  2. 2. Introducing MaplecroftWe support clients to identify, assess, monitor andmanage extra-financial risks:•Political, reputational, legal, ESG, and terrorism•Economic, business, bribery and corruption•Societal, human rights, and sustainablebusiness/development issues•Environment risks and natural hazardsWhat we do:•Analyse, index and map 500+ global risks across197 countries within 160+ indices•Deliver meticulously-researched, client-focused andinteractive solutions  Maplecroft is a signatory of both the UN Global Compact and the UN Principles for Responsible Investment (PRI). Our strong support for theWho we are: UN Global Compact is reflected in the alignment of our business model with the 10 Principles. The core purpose of our products and services is•100+ team of software, GIS mapping, indices and to enable our clients to manage risks and conduct business in aresearch analysts and experts responsible way. Our latest (10/2012) report “Our Communication on•Senior management team of 10 directors and Progress to the United Nations Global Compact” is available on ourassociate directors. Professor Alyson Warhurst (CEO) website at: http://maplecroft.com/about/unsi/and Ed Cole, founding directors© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 2
  3. 3. Maplecroft’s Global Risks Portfolio scope – allRisk of reputation risk Human Rights part Political Economic Social Environment Dynamic Risk Legal and Regulatory Carbon Resources Environment Governance Framework Human Security Climate Change Vulnerability Political Violence Business Integrity and Corruption Labour Rights and Protection CO2 Energy Emissions Conflict Intensity Corporate Governance Civil Liberties and Freedoms CO2 Land Use Emissions Terrorism Debt Access to Remedy Geophysical Risks Business and Macroeconomics Digital Inclusion Poverty Hydro-Meteorological Risks Resource Nationalism Economic Diversity Capacity to Contain Infectious Disease Natural Hazards Economic Exposure Socio-Economic Disaster Forced Regime Change Risk Emerging Powers (BRICS) Disappearances Resilience Structural Risk Energy Security Displacement Sustainable Energy Complicity with Oppressive Regimes Financial Inclusion Education Biofuels Supply Chain Complicity Risk Financial Market Risk Food Security Water Security Societal Resilience Fiscal Risk Health and Safety Resource Security Growth Competitiveness HIV/AIDS, Malaria, TB Infrastructure Readiness Macroeconomic Stability Economic Diversification Regulatory Framework Transport and Communications© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 3
  4. 4. Selected clients: multilateral organisations, banks, asset managers Major global companies and financial institutions rely on Maplecroft to assist with provision of country risk analysis and sovereign risk ratings Maplecroft works with governmental and multi-lateral institutions to assess key environmental and social risks based on IFC Performance Standards Our top 25 financial clients have assets under management > $5.9 trillion Maplecroft’s founder and CEO, Professor Alyson Warhurst, is a board member of TI UK and a member of the PRI Sovereign Risk Advisory Group© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 4
  5. 5. The financial world is changingWhy investors want and need extra-financial information…
  6. 6. The financial world is changing… and rebuilding reputation is a key part! After the excesses of the last decade: investors, regulators and companies are developing a different business perspective Rapid changes to the policy “lenses”: new regulatory frameworks arising to enhance the stability of the global financial system and to control risk-taking amongst systematically important financial institutions Trend is towards a longer-term asset investor/owner perspective: led by institutional asset owners who own 35% of all assets under management, and to whom reputation is a key business driver.*“Lenses and Clocks- Financial Stability and Systematic Risks”, IISD, UNEP-FI, the Blended Capital Group, (June 2012)© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 6
  7. 7. What is driving the interest in extra-financial risk information? Shift towards intangible assets: In 1979, tangible assets represented 83% of a typical publicly- traded company’s market value. By 2010, they represented only 19% of a typical company’s market value.* This big increase in intangible value is not measured in traditional financial statements and regulatory reporting, and reputation is a key part of this intangible value. Standards are developing for integrated reporting that discuss a firm’s ability to create and sustain value: Global committee of experts from business, all major accounting bodies, standards setters, and security regulators are developing standards for “integrated reporting”, which combines the many strands of company reporting into one single report. Moves to align incentives: The Kay Review of UK financial markets recommends financial markets should be based on relationships of fiduciary responsibility, trust and confidence rather than transactions and trading. This requires aligning incentives with good long-term decision making, and adopting the perspective of asset owners, rather than the market participants. Focus on future intangible value: All of these contribute to the need for investors and business executives to consider and analyze extra-financial risks and opportunities that address future intangible value, not just past performance, and affect future reputational value.* Ocean Tomo (2010), “Ocean Tomo’s Intangible Asset Market Value Study”© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 7
  8. 8. Example: use of extra-financial information by an investment fund The LGA Eco Performance Portfolio™ has now outperformed both the S&P 500 and Russell 1000 benchmarks since inception in 2000, as well as for the last 1, 3, and 5 year periods. Quarter to Date Latest 1 Year Latest 3 years Latest 5 years Inception to date to Date to date to Date* Eco Performance 11.8 18.1 1.34 26.7 23.33 Portfolio™ S&P 500 10.76 15.06 -8.34 11.98 4.49 Russell 1000 11.19 16.1 -6.95 13.64 10.52 MSCI KLD 400 9.99 11.89 -4.11 11.5 -2.04 Performance as of 12/31/10 *Date of Inception: 12/31/99 Source: Light Green Advisors This Fund selects the 80+/- most sustainable firms in S&P 500, using ESG risk/opportunity criteria, while keeping the sector-weighting neutral and beating traditional and SRI benchmarks. Largest client of this strategy is the California State Teachers Retirement System (CalSTRS) Pension Fund’s sustainability mandate.© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 8
  9. 9. Emerging trends for extra-financial/sustainability reputation issues Issues of concern of mainstream and ESG investors converging: for example compensation review proxy voter support grew from 3-4% to 60-86% over last decade. Materiality of ESG issues driven not by regulators or accountants, but by asset owners/investors: high participation rate (80+%) of companies in Carbon Disclosure Project, a decade ahead of financial regulators requiring mandatory GHG emissions reporting, is due to 551 asset owners of $71 trillion signing the CDP letter to company CEOs. Maplecroft’s research shows that the relationship between country growth rates and expected financial returns are driving company operations to higher risk areas: however, extra-financial risks (country, ESG, climate, etc.) in those “high growth, high risk” areas materially affect corporate and project investment and financial performance. To achieve these expected higher returns, firms must better manage these higher extra- financial risks: investors and owners need to understand the management risk proficiency of portfolio firms, and engage them on key extra-financial issues (ESG, human rights, corruption, etc.) ESG risks and risk management, such as climate risk management, are becoming increasingly important as an indicator of business reputation risks: as indicated by our Climate Innovation Index research results over the last three years and other research.© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 9
  10. 10. Extra-financial risk intelligence… identifying, analysing and assessing risks at country, sub-national, company, sector and global levels …
  11. 11. The Maplecroft Dashboard: the doorway to understanding risk© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 11
  12. 12. Key growth markets – still outperforming developed economies© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 12
  13. 13. Political Risk Atlas and Scorecard© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 13
  14. 14. Legal and Regulatory Environment Atlas and Scorecard© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 14
  15. 15. Climate Change and Environmental Risk Atlas and Scorecard© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 15
  16. 16. Climate risk and long-term investment risk for pension funds/bondholders© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 16
  17. 17. Natural Hazards Risk Atlas and Scorecard (exposure and resilience) Compare risk across 12 key natural hazards. Map down to 22km2 across 196 countries. Identify key concentrations of economic exposure to hazards Evaluate across a range of factors which increase vulnerability to hazards Quantify socio-economic resilience and hazard exposure to provide insight into disaster risk hotspots © Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 17
  18. 18. Natural Hazards Risk: Super storm Sandy hits the USA Super-storm Sandy  Hit the Eastern Seaboard on 29 October 2012, 8pm EST  Estimated damages between $30 and 50bn including business interruption  4 meter plus storm surges hit New York city  In New York at least 750,000 residents lost power  Major New York airports closed causing over 19,000 flight cancelations  Seven subway tunnels flooded  Aging, subterranean electrical infrastructure flooded  NYSE closed for two days© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 18
  19. 19. Extra-financial risk intelligenceInvestment reputation risk examples…
  20. 20. Reputation Risk Example: agro-commodities indices and maps Risk assessment helps companies identify, mitigate and monitor reputation and operating risks throughout their operations, supply chains and distribution networks Agro-commodities risk indices and interactive maps enable clients to compare, monitor and measuring all risks affecting agro-commodities producers and users Commodities covered include cocoa, coffee, mint, nuts, palm oil, polyester (and thermoplastics), rice, soy, sugar cane, tea and wheat Indices developed to align with IFC Performance Standards, for instance on environmental protection, child labour and biodiversity Risk Calculators enable agro-commodities clients involved to select and compare risk indices, enabling them to empirically quantify risk© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 20
  21. 21. Sovereign Risk Example: ESG country risk (“Blood Bonds”) Average ESG Sovereign Risk Ratings correlate with declining sovereign credit ratings, suggesting a relationship between meeting debt obligations, higher reputational risks, and natural hazards, social and governance risks (such as corruption.)© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 21
  22. 22. Maplecroft’s ESG Atlas and Risk Calculator – tailored results  Includes 49 risk indices, grouped under 12 ESG themes, allows client to customize weightings  One portal to access latest 2012 index scores  Incorporates key multi-lateral agreements  Ability to moderate and refine index weightings Calculates single ESG Country Risk Score© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 22
  23. 23. Summary- the importance of reputational risk management Words to remember: " the easy part of investing is giving the money out, the hard part is getting it back." - Ken Rind, cofounder and partner, Oxford Ventures, Stamford Venture Forum, 1982 In a world where 80% of an equities value is intangible value, a firm’sreputation can be ruined in minutes on the internet, and long-term climaterisk is increasing, extra-financial risk management is an important part ofdetermining whether an investor will “get their money back". Maplecroft can help assess and quantify those risks.© Maplecroft 2012 | The Towers, St Stephen’s Road, Bath BA1 5JZ, United Kingdom | t: +44 (0) 1225 420 000 | e: info@maplecroft.com | w: maplecroft.com Page 23
  24. 24. Forthcoming complimentary Maplecroft webinars:Friday 9th November – Mapping Resilience and Shaping the Emerging Growth LandscapeMonday 12th November - Professional Services: Ethical Supply Chain Management ToolsTuesday 13th November – Human Rights and Business Dilemmas Forum: Security ForcesThursday 22nd November – The Climate Change and Environmental Risk Atlas 2013Friday 30th November - Emerging Powers Integration: risks and opportunities of economic integrationwith growth marketsMonday 10th December – Human Rights Risk Atlas 2013Tuesday 8th January – Syria: The Domestic and Regional Implications of ConflictMonday 14th January – Children’s Rights and Business Principles: suggested approaches forresponsible businessTuesday 15th January – Legal and Regulatory Environment Atlas 2013 All webinars start at 3pm BST. To listen to thesewebinars, please register on our website priorto the event. e: info@maplecroft.com Maplecroft t: +44(0) 1225 420 000 The Towers, St Stephen’s Road w: www.maplecroft.com Bath, BA1 5JZ, United Kingdom

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