How to Get from SRI to ESG Maria Custer Sigrist, Vontobel Asset Management TBLI, 8 November 2012Performance creates trust
Page 2 Sustainable investing What do we mean and why do we do it?The world is changing rapidly and many sustainability challenges are ahead Health Traffic Social Green Waste and Water and Poverty problems congestion security spaces pollution Energy ESG Integration Thematic Funds
Page 3The problem with exclusion based SRILimits potential Limits the investment universe Restricts diversification Limits performance potential Excluded Restricts active ownership CONTROVERSIAL ACTIVITIES NON-CONTROVERSIAL ACTIVITIES
Page 4Benefits of an integrated approachFuture focused Identifies changes in policy & behaviour Fundamental research enhanced by sustainability perspective Allows greater analysis and interpretation e.g. Pharma Co. Specialist ESG Research provider Proprietary research Environment: Environment Good regulatory control Agree it has high standards Social: Social Fines imposed due to bribes and pricing fraud Violations for old cases - company now has Good access to healthcare new management, codes of conduct and control systems to prevent future incidents Governance: Governance Progressive One of best among peers Rating: Rating: Below average Investable
Page 5Developing an integrated approachKey issues No ‘one size fits all’ Philosophy Financial / investment Values value Strengths Resources Goals and expectations One approach to integrating: target the overlap between value- driven and values-based investing
Page 6A case study in integration (1)The Vontobel processFundamental and Financial Analysis In-House Sector ESG Analysis Minimum Standards Framework 9 critical ESG factors, each scored from 0-10, or F (fail) Environment Social Governance Environment Management System Employees Board independence Environmental considerations Fair compensation Independent diversified board integrated into key processes Training, health & safety Separation of CEO and Chair Systematic targets, monitoring Equality of recruitment Independent auditors Supply chain Social & economic development Shareholder rights Emissions disclosure Code of conduct Disclosure of structure Resource use policies Ethical policy Anti-takeover devices Human rights Founder privileges Products Advertising Executive remuneration Use of life cycle assessment Responsible marketing Transparancy and appropriateness Ecological impact of products Health and content claims, labelling Compensation models link to ESG Packaging reduction and recycling Supplier monitoring Independent compensation committee Average ‘E’ score Average ‘S’ score Average ‘G’ score Average ESG Score >5 to be investable Any F score fails the entire rating Valuation Company ESG Minimum Standard
Page 7A case study in integration (2)The Vontobel process Minimum Standards Framework 9 critical ESG factors, each scored from 0-10, or F (fail)Environment Social GovernanceEnvironment Management System Employee relations Board accountability Environmental considerations Fair compensation Independent nomination committeeintegrated into key processes Training, health & safety Separation of CEO and Chair Systematic targets, monitoring Equality of recruitment Independent auditorsEco-efficient operations Social & economic development Shareholder rights Emissions and water use disclosure Code of conduct Disclosure of structure Waste & resource use policies Ethical policy No anti-takeover devices Human rights Founder privilegesProduct stewardship Supply chain Executive remuneration Use of life cycle assessment Responsible marketing Transparancy and appropriateness Ecological impact of products Health and content claims, labelling Compensation models link to ESG Packaging reduction and recycling Supplier monitoring Independent compensation committeeAverage ‘E’ score Average ‘S’ score Average ‘G’ score Average ESG Score >5 to be investable Any F score fails the entire rating
Page 8ConclusionsGetting from SRI to ESG… A clear philosophy that is - based on sound principles, - relevant to today’s investors. A process that - reflects the philosophy - meets the specific needs of the investors - matches the resources - is continually challenged and improved – there is no holy grail‘.
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