Black and white document - low environmental impact and minimalistic.
True Impact Investing Happens with Thematic Solutions, not ESG
December 14, 2016
Agenda
• A Problem with a Solution
• Trends toward more disclosure
• UNPRI and SASB
• Most managers will become ESG managers
• Thematic versus ESG managers
• Thematic managers make an impact
• Introducing GEOS – a Thematic manager
2
The Problem
3
There are solutions
Increasing trend towards CSR disclosures
4
12
18
2428
41
53
64
71
0
10
20
30
40
50
60
70
80
90
100
1993 1996 1999 2002 2005 2008 2011 2013
Percentage of companies globally with corporate social responsibility (CSR) reports%
Source: KPMG Survey of Corporate Responsibility Reporting 2013. Includes N100 companies – top 100 companies from each country globally.
7673 71
54
0
10
20
30
40
50
60
70
80
90
100
Americas Europe Asia Pacific Middle East & Africa
Percentage of companies with CSR reports (2013)
5
%
CSR disclosure levels are also high globally
Source: KPMG Survey of Corporate Responsibility Reporting 2013. Includes N100 companies – top 100 companies from each country within the regions.
Disclosures have evolved over time
6
1934SEC
1973FASB
2011SASB
2010SEC Climate Change Disclosure
Investor Disclosure
Accounting Disclosure
Climate Disclosure
Sustainability Accounting Standards
1887AICPA
American Institute of CPAs
(accountants)
1947CFA Institute
Financial Analysts
Source: Hamersley Partners Research
UNPRI Signatories
7Source: UN PRI, December 2016. *Average rate based on UNPRI schedule of fees for 2016-2017.
Signatories Europe U.S. Other Total Fees*
Asset Owners 187 29 111 327 $6,100
Investment Managers 581 226 264 1,071 $8,800
Service Providers 104 40 72 216 $4,600
Total 872 295 447 1,614
Six Principles
• Include ESG issues• Be active owners• Seek ESG disclosure• Promote the principles• Work together• Report on progress
UNPRI has grown gradually since 2006
8Source: UN PRI, November 2016, https://www.unpri.org/download_report/3847
0
200
400
600
800
1000
1200
1400
1600
0
10
20
30
40
50
60
70
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
UNPRI Growth: 2006 - 2016
Assets under management (US$ trillion) Number of Signatories
($ trillions) #
Non Financial Inputs
Hazardous air pollutants
Water withdrawn and discharged
Energy consumed from grid
Energy from renewable sources
Percent of toxic chemical substances
Number of safety incidents
Violations of nonconformance of laws
Material from recycled sources
Amount of waste produced
Confirmed foodborne illnesses
CDC investigations
Employee turnover
Labor law violations
9
Revenue
Expenses
Cost of Capital
Assets and Liabilities
Sustainability Analysis
SASB Metrics Financial Impact
Source: Hamersley Partners Research
New RFP Questions for Managers
• Are you a UNPRI signatory?
• Do you produce sustainability reports?
• Do you have an ESG investment policy?
• How are ESG factors integrated into your process?
10Source: Hamersley Partners Research
Mercer ESG Ratings
11Source: Mercer, http://www.mercer.com/our-thinking/mercer-esg-ratings.html
ESG 1
ESG 2
ESG 3
ESG 4
High Integration
Medium Integration
Low Integration
No Integration
ESG investing has steadily increased
$650$1,100
$2,100 $2,200 $2,100 $2,150
$2,750$3,050
$3,700
$6,500
$8,900
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
1995 1997 1999 2001 2003 2005 2007 2010 2012 2014 2016
Professionally managed US assets utilizing sustainable investment criteria
Total investments
12
($ billions)
Source: US SIF Foundation, Report on US Sustainable, Responsible and Impact Investing Trends
ESG and non-ESG strategies - large cap, household names
13
Fund 1 Fund 2 Fund 3
$14.4B $1.9B $900M
Wells Fargo Apple Verizon
Gilead Sciences American Tower Corp Merck
Apple Microsoft Microsoft
Danaher Corp Johnson & Johnson Intel Corp
Charles Schwab Chubb Ltd PepsiCo
Intel Corp Qualcomm Amazon
Walt Disney Zoetis Inc. Prudential
UPS Inc. Occidental Petroleum Cummins
Praxair Inc. Alphabet Gilead Sciences
CVS Health Corp PepsiCo Edwards Lifesciences
Source: Morningstar, Q3 2016. Accessed on December 1, 2016. http://ibd.morningstar.com/article/article.asp?id=632201&CN=brf295,http. Excludes cash and index fund holdings.
Fund 1 Fund 2 Fund 3
$147.0B $32.6B $14.8B
Amazon Amazon Apple
Broadcom Facebook Facebook
Home Depot Alphabet C Alphabet A
United Health Priceline Group Alphabet C
Microsoft Visa Berkshire Hathaway B
EOG Resources Microsoft JP Morgan Chase
Amgen MasterCard Visa
Alphabet Alphabet A MasterCard
Netflix Danaher Corp Home Depot
Facebook Alibaba Group Chevron Corp
Top 10 holdings: ESG Managers Top 10 holdings: non-ESG Managers
MSCI vs. MSCI ESG Performance
14
2013 2014 2015 3 year 5 year
MSCI World 27.36% 5.50% -0.32% 6.44% 12.27%
MSCI World ESG 28.22% 5.42% -0.55% 6.34% 12.12%
Source: eVestment Database, December 2, 2016. Hamersley Partners Research
Universe of Managers
15
ESG Strategies*5,150
Source: *Mercer Global Investment Manager Database (GIMD), Q3 2016. **Hamersley Partners Research
All Strategies*27,300
Thematic Managers**(50)
ESG Strategies
All Strategies
Thematic Managers
Today Tomorrow
ESG vs. Thematic Managers
16
ESG (5,150) Thematic (50)
Emphasis ESG integration Targeted themes
Portfolio holdings Using impact solutions Creating impact solutions
Number of holdings Diversified Concentrated
Benchmarks Standard, broad benchmarks Lacking benchmarks
Screening Negative screens Positive screens
Volatility Lower volatility Higher volatility
Supply of managers Plenty of supply Limited supply
Sector exposure All or most One or few
Asset allocation Core (Beta) Satellite (Alpha)
Cap bias Large Small and Mid
Source: ESG: Mercer Global Investment Manager Database (GIMD), Q3 2016. Thematic: Hamersley Partners Research
Targeted Thematic Managers
17
Clean Water
Agriculture
Renewable Energy
Affordable Housing
Transportation Access
Low Carbon
Focused on solving societal problems
Source: Hamersley Partners Research
Where do thematic managers fit in Asset Allocation?
18
Listed-equity impact investing
Complements private equity clean tech
Thematic equity strategy Fossil fuel divest-invest
Mission-based investment
Infrastructure exposure
Alpha Complement to ESG StrategiesCommodity substitute
Source: Hamersley Partners Research
Common Benchmark Performance Comparisons
2011 2012 2013 2014 2015 2016*
MSCI World Index -5.0% 16.5% 27.4% 5.5% -0.3% 6.1%
Wilderhill Clean Energy Index -50.7% -18.6% 57.9% -17.2% -10.7% -18.5%
S&P Goldman Sachs Commodity -1.2% 0.1% -1.2% -33.1% -32.9% 5.3%
FTSE Environmental All Share -13.6% 16.4% 31.7% -0.1% -2.0% 11.5%
FTSE Global Core Infrastructure 50/50 7.1% 14.0% 14.3% 16.2% -8.1% 15.8%
MSCI World Industrials Index -7.6% 16.3% 32.3% 1.4% -1.5% 14.7%
19*YTD Q3 2016, September 30, 2016. Source: Hamersley Partners Research
GEOS Global Environmental Opportunities Strategy
Listed equity thematic investment solutions
Black and white document - low environmental impact and minimalistic.
How impactful is your portfolio?™
GEOS
Portfolio Managers
Bill Page Rob Uek, CFA
21
About GEOS
• Global, small-mid cap; 7 year track record• Impact leader• Inefficient portion of capital markets• Domain expertise• Concentrated• Low turnover
GEOS 22See appendix for additional background on these organizations.
GEOS
• Higher agriculture yields• Enhanced resource efficiency
• LED street lighting• Energy efficiency initiatives
• Water infrastructure• Management and treatment
• Production, distribution, storage• Solar, wind, waves, geothermal
• Electric vehicle technologies• Enhanced engine efficiencies
Five Areas of Focus
Power Technology and Renewables Clean Water
Smart City Agricultural Productivity
23
Efficient Transportation
GEOS 24
Water quality and filtration
LED technologies
Energy management and assessment
Residential Efficiencies
Electric, gas and water data
GEOS 25
Industrial robotics systems
High performance insulation panels
Industrial Efficiencies
Energy management software
Industrial automation solutions
GEOS
GEOS Investment Process
26
Thematic Universe
Domain Expertise
Attractive Fundamentals
Portfolio
GEOS
GEOS Portfolio
27
Areas of Focus # of stocks
Smart City 14
Agricultural Productivity 3
Power Technology and Renewables 9
Efficient Transportation 4
Clean Water 6
Total 36
Geographic Breakdown # of stocks
US 21
Canada 3
Israel 2
United Kingdom 2
Japan 2
Netherlands 2
Other (Austria, Germany, Ireland, Switzerland) 4
Total 36
Holdings as of September 30, 2016
• Available in separate account, commingled fund, ADR-only, and mutual fund (soon)• Customized solutions are available
GEOS
Essex Investment Management
• Boston based investment manager
• $628 mil AUM (as of 9/30/2016)
• Focused on dynamic growth opportunities
• 100% employee owned
28
GEOS
Growth in AUM over time
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
Assets Under Management
29
($ millions)
Current clients: Endowments, Foundations and Family Offices
2016 AUM as of September 30, 2016
Investor Feedback
• “We use GEOS as a complement to our ESG portfolio”
• “Our clients want to leave a legacy and make a sustainable impact through GEOS”
• “The portfolio managers at GEOS are truly domain experts”
• “GEOS is a substitute for our commodity allocation and reduces the overall portfolio volatility”
30
Thank you!
Hamersley PartnersBoston-based global capital raiser
Webinar recording: www.hamersleypartners.com/webinar
For more information, please contact:
Peter Pavlina, [email protected]
Michael Wren, [email protected]
Kanwar Singh, [email protected]
1-781-235-3235
31
GEOS Global Environmental Opportunities Strategy
Listed equity thematic investment solutions
Black and white document - low environmental impact and minimalistic.
How impactful is your portfolio?™
Appendix
33
Evolution of Reporting Standards
• 1991 AICPA - “Special Committee on Financial Reporting”
• 1993 AIMR – “Financial Reporting in the 1990s and beyond”
• 2001 FASB – “Improving Business Reporting”
• 2011 SASB – Sustainability Accounting Standards
• 10 sectors, 79 industries
34Source: SASB, http://www.sasb.org/. AICPA: American Institute of CPAs. AIMR: Association for Investment Management Research
(now called CFA Institute). FASB: Financial Accounting Standards Board.
SASB Materiality Map
35Source: SASB, http://www.sasb.org/materiality/sasb-materiality-map/Issue materialIssue somewhat materialIssue not material
ESG Investor Resource Guide
36
Standards and Metrics ESG Database Index Provider Industry Organizations Advocacy Groups
CDP eVestment FTSE Russell USSIF SOCAP
SASB Mercer MSCI World iPARCrotan Institute
(Clean 15)
UN PRI Morningstar S&P Dow Jones Collaboration Capital Divest-Invest
IRIS (GIIN) BloombergJantzi Social
(Sustainalytics)Ceres (INCR)
Global Impact Investing Network
Source: Hamersley Partners Research
Funds using ESG factors
$12$96 $154 $136 $151 $179 $202
$569
$1,013
$2,457$2,597
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1995 1997 1999 2001 2003 2005 2007 2010 2012 2014 2016
US domiciled assets using ESG factors
Total investments
37
($ billions)
Source: US SIF Foundation, Report on US Sustainable, Responsible and Impact Investing Trends. ESG funds include mutual funds, variable annuity funds, closed-end funds, exchange-traded funds, alternative investment funds and other pooled products. Separate accounts have been excluded since 2014.
Top 10 holdings – ESG managers
38
Fund 1 Fund 2 Fund 3 Fund 4 Fund 5 Fund 6 Fund 7
$14.4B $2.2B $2.2B $1.9B $900M $409M $179M
Wells Fargo Visa Texas Instruments Apple Verizon Alphabet Unilever
Gilead Sciences Alphabet Newell Brands American Tower Corp Merck Apple Roche Holding
Apple CVS Health Progressive Corp Microsoft Microsoft Taiwan Semiconductor Henkel AG
Danaher Microsoft Becton Dickinson Johnson & Johnson Intel Corp Samsung Electronics Novartis
Charles Schwab Lowe’s Home Improve. Schlumberger Ltd Chubb Ltd PepsiCo KDDI Corp Hoya Corp
Intel Corp Abbott Laboratories Unilever Qualcomm Amazon Cisco Systems Daikin
Walt Disney Level 3 Comm. W.W. Grainger Zoetis Inc. Prudential TJX Companies AIA Group
UPS Inc. Intuit Inc. Danaher Occidental Petroleum Cummins Merck Wolseley
Praxair Inc. Intercontinental Exch. Noble Energy Alphabet Gilead Sciences Jeronmio Martins Royal Philips
CVS Health Medtronic PLC eBay PepsiCo Edwards Lifesciences SVB Financial Singapore Telco
Source: Morningstar, Q3 2016. Accessed on December 1, 2016. http://ibd.morningstar.com/article/article.asp?id=632201&CN=brf295,http. Excludes cash and index fund holdings.
Mentioned three times
Mentioned two times
GEOS
Portfolio Managers
Bill Page Rob Uek, CFA
• PM at Essex since 2009• Prior firms: State Street Global, Wellington Management• Journal of Environmental Investment; Better Future Project • MBA, Babson College; B.S., Boston University• History of demonstrated leadership in the impact space• Frequent speaker on impact investing
• PM at Essex since 2009• Prior firms: State Street Global, John Hancock, Ernst & Young• Investment Committee Member, Anatolia College, Greece• M.S., Northeastern University; B.S., Economics, Boston College• Focused on quantifying environmental impact of companies• Managing impact portfolio for 10 years
39
GEOS
GEOS as an Industry Leader• Ceres - Investor Network on Climate Risk : Network of financial market participants that integrate sustainability into
investment decision-making, corporate practices and public policy, thereby improving environmental, social and economic outcomes. GEOS has engaged and educated INCR members regarding climate solutions in listed equities.
• Collaboration Capital: GEOS provides investment solutions to Perigon Wealth Management’s social impact investment arm, Collaboration Capital.
• CDP: Essex Investment Management has been a signatory of the CDP for seven years. GEOS leverages CDP’s global disclosure system for information on environmental technologies when making investment decisions. CDP enables companies, cities, states and regions to measure and manage their environmental impacts.
• Croatan Institute: GEOS PMs have provided leadership to Croatan Institute’s efforts to advance social and environmental research and engagement. Essex is a founding sponsor of the Croatan Institute.
• Divest Invest Clean Fifteen: GEOS is a founding consortium member of the Clean 15 which incorporates 15 sustainable investment strategies across five major asset classes.
• iPAR: GEOS is iPAR certified and utilizes the proprietary metrics to report environmental impact of the companies in its portfolio. iPAR is a CapRock initiative.
40
GEOS
Portfolio Exposure by Areas of Focus
2231
4249
39 42 46
41 23
15
2029 26 16
17
24 20
11 11 1521
11
7 67 9
1310
816 18 13 12
3 8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016
GEOS Breakdown by Areas of Focus
Smart City Power Technology and Renewables Clean Water Efficient Transportation Agricultural Productivity
41Holdings as of September 30, 2016
GEOS
Common Benchmark Performance Comparisons
2011 2012 2013 2014 2015 2016*
GEOS (Net) -8.0% 5.3% 44.3% -8.9% -2.6% 4.5%
MSCI World Index -5.0% 16.5% 27.4% 5.5% -0.3% 6.1%
Wilderhill Clean Energy Index -50.7% -18.6% 57.9% -17.2% -10.7% -18.5%
S&P Goldman Sachs Commodity -1.2% 0.1% -1.2% -33.1% -32.9% 5.3%
FTSE Environmental All Share -13.6% 16.4% 31.7% -0.1% -2.0% 11.5%
FTSE Global Core Infrastructure 50/50 7.1% 14.0% 14.3% 16.2% -8.1% 15.8%
MSCI World Industrials Index -7.6% 16.3% 32.3% 1.4% -1.5% 14.7%
42
*YTD Q3 2016, September 30, 2016.
The holdings of the client portfolios in our composites may differ significantly from the securities that comprise the index shown. The indices have been selected to represent what Essex believes is an appropriate benchmark to compare the composite performance to. Please see the following page for a definition of all indices listed in this brochure. The actual performance achieved by a client portfolio may be affected by a variety of factors, including the initial balance of the account, the timing and amount of any additions to or withdrawals from the portfolio, changes made to the account to reflect the specific investment needs or preferences of the client, duration and timing of participation as an Essex client, and a client portfolio’s risk tolerance, investment objectives, and investment time horizon. Consultant’s use of Performance Data: Any use of Essex’s performance data, in other than one-on-one client presentations, should be accompanied by additional disclosures relating to gross versus net performance
GEOS
Important DisclosuresThis presentation is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this presentation commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience, and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product, nor does it constitute a recommendation to invest in any particular security. An investment in securities is speculative and involves a high degree of risk and could result in the loss of all or a substantial portion of the amount invested. There can be no assurance that the strategy described herein will meet its objectives generally, or avoid losses. Essex makes no warranty or representation, expressed or implied; nor does Essex accept any liability, with respect to the information and data set forth herein, and Essex specifically disclaims any duty to update any of the information and data contained in the commentary. This information and data does not constitute legal, tax, account, investment or other professional advice. Essex being registered by the SEC does not imply a certain level of skill or training.
Hamersley Partners, LLC serves as an independent sales and marketing representative for Essex Investment Management. Hamersley is compensated for its services by Essex in the form of a quarterly retainer fee of $30,000, and a percentage of the investment management fees on assets placed under management with Essex as a direct result of their efforts. No additional amount is added to Essex’s investment advisory fees as a result of any Hamersley role in the solicitation of new business. This information is provided in accordance with the requirements of Rule 206(4)-3 under the Investment Advisers Act of 1940.
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