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Transcript of Responsible Investment Lunch Riding the long wave of sustainability Presented by Angus Dennis,...
Responsible Investment Lunch
Riding the long wave of sustainability
Presented by
Angus Dennis, Senior Investment Specialist, Sustainable Alpha and RIL
August 2009
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Leadership in Responsible Investment
AMP Capital is Australasia’s largest manager of
Responsible Investment Funds*
Significant resources including: RI fund managers,
researchers and investment specialist
Offer product choice to clients:
Sustainable Alpha Australian Shares ($1.7 bn)
Responsible Investment Leaders range ($700 million)
Range targets quality investment and social and
environmental outcomes
Future Directions Fund Team actively involved in manager
selection for RIL range
* RIAA Benchmarking Study as at June 2008, with total of $2.77 billion
3
What is Responsible Investment?
Responsible Investment describes an investment process that
systematically takes environmental, social, and/or governance (ESG)
considerations into account
Elements of a responsible investment approach can include:
Favouring or avoiding companies or sectors on ESG grounds
Integrating ESG factors into company analysis
Thematic investment (eg clean energy)
Corporate engagement and shareholder activism
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Company Value
75% of the value of the typical Australian company is made up of intangibles.
Source: AMP Capital Sustainable Alpha Analysis, ASX Top 200 Companies. (Dec 2007)
• Employee and customer relationships• Brand and corporate reputation• Supply chains• Intellectual Property• Corporate Governance• Environmental and socially responsiblepractices
• Financials• Investments• Capital Assets
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Favouring leaders in sectors – banking study
Source: Innovest Strategic Advisors
Favouring the leading ESG rated companies (A rated etc) and avoiding worst (CCC)
Avoiding worst ranked stocks on underlying pillars – governance, environment, human capital & stakeholders
Banking sector provides useful case study
Responsible lending and links to sub-prime exposure
Remuneration & disclosure of banks
Investment banks ESG ranking pre-credit crunch: 1. Goldman Sachs; 2. Morgan Stanley, 3. Merrill Lynch, 4. Lehman Brothers, 5. Bear Stearns
Global Banking Sector ESG Ranking – Case Study
Innovest - Performance of Top Quartile IVA Rated Bank Stocks v Bottom Quartile Rated Global Bank Stocks
Period: May 2007 - January 2009
-20
0
20
40
60
80
100
120
5/07 7/2007 9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09
Top Quartile
Bottom Quartile
Difference
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Investing in Industries of the Future
EnvironmentalServices
Safety
WaterManagement
Qualityof Life
Health
SocialPropertyand Finance
CleanerEnergy
SustainableTransport
Efficiency
Knowledge
0
30
60
90
120
2000 2003 2005
Global Students Enrolled
Millions
Source: IFC 2007
Global higher education
1,643 stocks identified within themes Knowledge example of strong performing
theme Increase importance as world becomes
more knowledge intensive Individuals living longer & switching
occupation Held up well during down turn
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RIL International SharesRange of Responsible Investment Strategies
GrowthInvestment Style
Initial quant screeningbottom up stock picking & specialist knowledge
Core Financial Process
Focus industries of future strong growth aligned
with sustainability ESG Strategy
Henderson
Value
Global Currents apply value stock selection
& fundamental analysis
Grassroots assessment of companies together with social advocacy
Global Currents / Boston Common
In-House ESG Researchers
ESG Capability12 year partnership with
BC’s Social Research & Advocacy Team
30%Current Target Weighting 35%
Core
Quant strategy withkey factors incl value,
growth, quality
Breadth and depth of analysis 2,300 co’sfrom 65+ industries
Lazard / Innovest
Draw on Innovest 55ESG analysts worldwide
30%
Emerging Markets
Long term horizonwith focus on quality
management teams and absolute return focus
Positive screening investing in
sustainability innovators
Colonial First State
Emerging markets team have a focus on ESG and advisor “Ethix”
5%
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The role of Corporate Engagement
Should investors be targeting corporate engagement?
How should it be done, particularly in the case of multiple managers?
The aim is to protect and enhance shareholder value through: Reducing social and environmental risks for companies within the fund Target companies to benefit from social and environmental opportunities
Typically target companies held by the portfolio
Be aware of manager/ESG research house expertise and encourage company specific activity
Look to partner on offshore initiatives – letter writing, teleconferences, co-filing resolutions reinforced by investor coalitions, industry wide initiative building on leaders
How do we make sure it is relevant for our clients?
We draw on RIL Ethics Committee forum to draw out themes; interested in broader client input
How do we measure the results?
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Example: Supply Chain / Occ Health & Safety One theme – with multiple applications
Electronics industry targeted to support of Electronic Industry Code of Conduct; targets minimum standards across the electronics supply chain – focus on labour (working hours, child labour,...), health and safety; Boston Common - key partner
Used strategy to build on initial signatories at blue chip end (eg IBM), to provide example for broader sector, together with concerted communication by group investors
Through targeted engagement, succeeded in Sun Microsystems and Philips signing on to EICC
Investment outcome – protect brand from scandal, lower cost implementation, practical application across common factories and support of suppliers
Extended focus to auto sector after found bonded/unpaid labour in pig iron production in Brazil, with Toyota identified as one of recipients
Engaged with Toyota to join Automotive Industry Action Group, via investor coalition with letters, teleconferences; Toyota agreed to share standards with suppliers by Q3 ‘09
Investment outcome – Protect highly regarded brand built on hybrid leadership and build investor base
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Brand, sustainability and work practices
Support throughInvestment in safety& renewable energy
Brand Value
1999 2004 2005
Accident at Texas City refinery
Source: Interbrand
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Resolutions and New Frontiers
In Australia there is an Advisory Vote on executive remuneration – AMP Capital has voted against approximately 35% of proposals in last 2 years
In the US there is no equivalent, but there is scope for putting forward non-binding resolutions
Co-filed with Boston Common a proposal to Waddell and Reed Financial to allow shareholder vote annually on exec pay packages - 49.5% shareholder support in 2008
Looking to recognise the positive: worked with Henderson to be Australian participant in Access to Medicines Investor Statement – and ranking the world’s pharmaceutical companies on access to medicine in the developing world
The global financial crisis and sub-prime provides poses challenges, with Fannie Mae voted top corporate citizen in America between 2000 and 2004
Investigating global finance engagement initiative around responsible lending to underprivileged, with linked governance, remuneration and ethics issues with Innovest
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Applying ESG to Fixed Income - Assessment
State & Agency Corporate Asset BackedNational
Consider the ESG quality of differing security types
Debt Type
National Government
Quasi-Government
Corporate Securities
Asset-Backed
Proposed issues and assessment
• Within ESG assessment consider:• Environmental: country’s protection of atmosphere, water, land and biodiversity• Governance: Targeting well governed and non-corrupt countries• Social: Country catering for the education, health, welfare and social needs of inhabitants
• Also assess support of key international conventions
• Considerable “AAA” quality ESG opportunities including rail and reconstruction/development banks
• For corporate debt assessing risk is critical and ESG provides insights in line with RIL Charter:• Evaluating environment, workplace, social, community and governance issues • Can assess securities by industry, particularly concerns around high social impact sectors
• ESG assessment by AMPCI for Aus debt securities and global ESG research house for offshore credit securities
• Review both asset and issuer - can be problematic eg auto loans and credit cards
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ESG FI Performance – US Experience
“Causing the stir among US investors is how SRI fixed-income funds have out-performed traditional funds by four percentage points in the past 12 months. According to Cerulli, while traditional funds earned -6.3 per cent, their SRI equivalents earned -2 per cent.”
"In fact, socially conscious mutual funds have held their ground over the last ten years. SRI fixed-income funds outperformed other fixed-income mutual funds in five of the past ten years," said Pamela DeBolt, author of the Cerulli Quantitative Update: Retail Products and Strategies 2009.
24 April 2009Financial Standard
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Important noteNeither AMP Capital Investors Limited (ABN 59 001 777 591) (AFSL 232497), nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this presentation.
Past performance is not a reliable indicator of future performance.
While every care has been taken in the preparation of this document, AMP Capital Investors makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts.
This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided.