download the ri americas - aventri
TRANSCRIPT
Download the RI Americas conference app• Sponsored by• Search “RIAmericas16” in any app stores or go to www.riam16.com• Enter email address you used to register for the RI Americas conference
• Twitter: #RIAmericas16
Welcome Address
Lenora Suki, Head of Sustainable Finance Product Strategy, Bloomberg
Keynote Interview
Pete Grannis, First Deputy Comptroller, Office of the New York State Comptroller
Plenary: Aligning investment strategies with the 2°C target
Pete Grannis, First Deputy Comptroller,Office of the New York State ComptrollerNathaniel Bullard, Global Head of Executive Insights, Bloomberg New Energy FinanceEila Kreivi, Director and Head of Capital Markets, European Investment BankLauren Smart, Executive Director, TrucostModerator: Lara Yacob, Regional Co-‐ordinator, North America, UNEP Finance Initiative
HEADWINDS AND TAILWINDS FOR FUTURE CLIMATE INVESTMENT
Presentation to Responsible Investor Americas, New York
Nathaniel Bullard
06 December 2016
7
THE DOLLAR IS STRENGTHENING AGAINST OTHER CURRENCIESUS TRADE WEIGHTED MAJOR CURRENCY MARCH 1973 =100
40
60
80
100
120
140
160
73
80
85
90
95
00
05
10
151973 80 85 90 95 2000 05 10 15
Source: Bloomberg USTW$ Index
Presentation to RI Americas, 6 December 2016
8
BONDS ARE IN A ROUTBLOOMBERG BARCLAYS GLOBAL AGGREGATE TOTAL RETURN INDEX SINCE 2005
-2%
-1%
0%
1%
2%
3%
2005
06 07 08 09 10 11 12 13 14 15 162005
-1%
-2%
3% Month-on-Month
Source: Bloomberg LEGATRUU Index
Presentation to RI Americas, 6 December 2016
9
THE MARKET EXPECTS INFLATION US INFLATION SWAP FORWARD 5Y5Y INDEX, H2 2016
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
Jun 2016 Aug 2016 Oct 2016Source: Bloomberg FWISUS55 Index
Presentation to RI Americas, 6 December 2016
10
COMMODITIES ARE A BULL MARKET THIS YEARBLOOMBERG COMMODITIES TOTAL RETURN INDEX SINCE JANUARY 2016 LOW
120
140
160
180
200
Jan 2016 Apr 2016 Jul 2016 Oct 2016
+21.4% since 20 January
Source: Bloomberg BCOMTR Index
Presentation to RI Americas, 6 December 2016
11
US POLITICS AND THE US ECONOMY ARE RISK AND OPPORTUNITYOXFORD ANALYTICS SURVEY, NOVEMBER 14-21
27% say a trade war triggered by the next US president is the biggest risk to the global economy in the next two years
23% say a more severe downturn in the Chinese economy is the biggest risk to the global economy in the next two years
38% say that the US economy is the most likely source of faster global growth if there is new fiscal stimulus
Source: Oxford Analytics via Bloomberg News link
Presentation to RI Americas, 6 December 2016
12
79%
75%
42%
0%
42%
54%
38%
38%
Oil
Natural gas
Renewables
Coal
Upstream
MidstreamDownstrea
mOilfield services
Targeted investment in next 12 months
THERE IS ALMOST NO PRIVATE CAPITAL INTEREST IN US COALPREQIN SURVEY OF US NATURAL RESOURCE INVESTORS, NOVEMBER 2016
Source: Preqin Special Report: North American Oil & Gas link
91%
91%
50%
9%
56%
66%
47%
46%
Oil
Natural gas
Renewables
Coal
Upstream
MidstreamDownstrea
mOilfield services
General energy preference
Presentation to RI Americas, 6 December 2016
13
Source: Bloomberg New Energy Finance New Energy Outlook 2016
ZERO-CARBON GENERATION WILL BE 81% OF ALL INVESTMENTPOWER GENERATION CAPACITY INVESTMENT, 2016 – 2040 (2015 $-REAL)
$3.4trn
$3.1trn
$1.5trn
$900bn
$1.2trn
$900bn
Solar
Wind
Nuclear
Hydro
Coal
Gas
81%
19%
Total$11.3 trillion
Zero-carbon
Fossil fuels
Presentation to RI Americas, 6 December 2016
14
$62bn$88bn
$128bn
$175bn$205bn $207bn
$276bn
$317bn$291bn
$269bn
$315bn
$349bn
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Note: Total values include estimates for undisclosed deals. Includes corporate and government R&D, and spending for digital energy and energy storage projects (not reported in quarterly statistics). Excludes large hydro. Source: Bloomberg Intelligence, Bloomberg New Energy Finance
WE ARE ENTERING A NEW ERA IN CLEAN ENERGY INVESTMENTGLOBAL CLEAN ENERGY INVESTMENT VS CAPACITY INSTALLATIONS 2004-15
88GW
20GW“Spend the same,
get more”
“Spend more,get more”
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
152GW
“Spend less,get the same”
165GW
Preliminary estimate
Presentation to RI Americas, 6 December 2016
15
COAL’S FUTURE IS IN ASIATHERMAL COAL CONSUMED IN POWER GENERATION (MT PER YEAR)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000 10 20 30 40
2,500 Million tonnes
World ex-Asia
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000 10 20 30 40
3,500 Million tonnesAsia
Presentation to RI Americas, 6 December 2016
Source: Bloomberg New Energy Finance New Energy Outlook 2016
16
INDIA AND SOUTHEAST ASIA ARE THE EMISSIONS CHALLENGEGLOBAL POWER SECTOR CO2 EMISSIONS (MTCO2) 2012=100
Europe0
100
200
300
400
2012 2015 2020 2025 2030 2035 2040
India
SE Asia
China
US
400 MtCO2
Presentation to RI Americas, 6 December 2016
Source: Bloomberg New Energy Finance New Energy Outlook 2016
17
This publication is the copyright of Bloomberg New Energy Finance. No portion of this document may be photocopied, reproduced, scanned into an electronic system or transmitted, forwarded or distributed in any way without prior consent of Bloomberg New Energy Finance.The information contained in this publication is derived from carefully selected sources we believe are reasonable. We do not guarantee its accuracy or completeness and nothing in this document shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgment of the author of the relevant article or features, and does not necessarily reflect the opinion of Bloomberg New Energy Finance, Bloomberg Finance L.P., Bloomberg L.P. or any of their affiliates ("Bloomberg"). The opinions presented are subject to change without notice. Bloomberg accepts no responsibility for any liability arising from use of this document or its contents. Nothing herein shall constitute or be construed as an offering of financial instruments, or as investment advice or recommendations by Bloomberg of an investment strategy or whether or not to "buy," "sell" or "hold" an investment.
COPYRIGHT AND DISCLAIMER
Presentation to RI Americas, 6 December 2016
Unique analysis, tools and data for decision-makers driving change in the energy system
MARKETS Renewable EnergyEnergy Smart TechnologiesAdvanced TransportGas Carbon and RECs
SERVICESAmericas ServiceAsia Pacific ServiceEMEA ServiceApplied Research Events and Workshops
Nathaniel Bullard
DIFFERENT METRICS FOR DIFFERENT GOALS
Engagement Targets
Footprint
Divestment Targets
Embedded Carbon (Reserves)
Transparency
Range of Metrics
“Traditional” Carbon Footprint
Management
Management Policy/ Targets
Green/Brown 2 degree
Coal & Other FF Exposure
Renewables Exposure
Energy Transition Alignment
Quantifying Positive Impact
Strategy & Communications Insight
Realignment opportunities
Scope 3 Carbon Footprint
“GREEN/BROWN” METRICSCoal Exposure
Renewable Energy Exposure
Set Divestment thresholds
3 year trend
Assess 3 year trendYour exposure
Your exposure
ENERGY TRANSITION & 2 DEGREE ALIGNMENT
22
POWER SECTOR: FORWARD LOOKING 2 DEGREE ALIGNMENT METRICS
QUANTIFYING THE POSITIVES!
Project 1: Solar Power StationA utility scale solar PV power plant.
Project 2: Wind FarmLargest single stage wind farm in the southern hemisphere.
Your Investments
Projects 3,4,5
Carbon Savings:X tonnes pa
Carbon Savings:700,000 tonnes pa
Project 3,4,5 etc...xxxx
Per project carbon savings
Carbon savings attributed to your
investment
Carbon savings attributed to your
portfolio
Carbon Savings:X tonnes pa
Carbon Savings:X tonnes per $mn
Carbon Savings:X tonnes per $mn
Carbon Savings:X tonnes per $mn
Climate InvestmentsPortfolios save x tonnes carbon per $mn invested
x tonnes per $mninvested
AMBITION: BALANCE PORTFOLIO FOOTPRINT
Carbon Footprint• Listed equities
• Corporate fixed income
Carbon Savings• Green bonds• Green real estate• Green infrastructure
ü What are the positive impacts of my investments?
ü How much carbon do they save?
GREEN BONDS: QUANTIFYING POSITIVE IMPACT
Different metrics to answer different questions..ü Where is my portfolio most exposed to policy risk from carbon regulation?
Quantified carbon savings
Lauren SmartExecutive Director
Trucost Plc, 22 Chancery Lane London UK
Tel: +44 20 7160 9814E-‐Mail: [email protected]
QUESTIONS?CONTACT US:
Break 10.35 -‐10.55
Keynote Interview: How can investors and companies move away from short-term, value-
destroying behaviour to long-term value creation?
Sarah Keohane Williamson, Chief Executive Officer, FCLT Global
Plenary: The reality of ESG integration across asset classes. Is responsible investment
actually making a dent in institutional investment in the Americas?
Lisa Woll, Chief Executive Officer, US SIFJennifer Sireklove, Director, Investment Strategy, ParametricLev Dynkin, Head of Quantitative Portfolio Strategy Group,BarclaysCheryl Smith, Managing Partner & Portfolio Manager, Trillium Asset ManagementModerator: Chris Fowle, Associate Director, Americas, Global Networks & Outreach, Principles for Responsible Investment (PRI)
Lunch12.20-‐13.20
Plenary: The authentic investor: values, leadership and culture in investment
institutions
Eric Wetlaufer, Senior Managing Director & Global Head of Public Market Investments, Canada Pension Plan Investment Board (CPPIB)Anna Snider, Head of Global Equity Due Diligence, Bank of America Merrill LynchCarole Laible, CEO, Domini Impact InvestmentsModerator: Rob Lake, Principal, Rob Lake Advisors
Plenary: Can institutional investors really be activist shareholders, and work and engage with companies for sustainable, long-term
economic growth?
Amy Borrus, Deputy Director, Council for Institutional InvestorsEdward Kamonjoh, Executive Director, 50/50 Climate ProjectMichael Kagan, Managing Director, Portfolio Manager,ClearBridge InvestmentsMark Van Clieaf, Partner,Organizational Capital PartnersModerator: Francis Byrd, Chief Executive Officer, Byrd Governance Advisory
Break15.00-‐15.20
Plenary: Impact: the new philanthropy, or a wholly different way of marrying returns with
outcomes in institutional investment?
Geraldine Watson, Vice President, Finance & Operations, Rockefeller Brothers FundFran Seegull, Executive Director,U.S. Impact Investing AllianceArianede Vienne, Director Business Development North America, Head of New York Office, oekom researchModerator: Lenora Suki, Head of Sustainable Finance Product Strategy, Bloomberg
The Great Debate: ESG ratings/rankings for funds and managers
Diederik Timmer, Executive Vice President, Institutional Relations, SustainalyticsLaura Nishikawa, Head of Fixed Income ESG Research, MSCITim Smith, Director of ESG Shareowner Engagement,Walden Asset ManagementSteve Godeke, Adjunct Professor of Finance, New York University & Founder, GodekeConsultingModerator:Hugh Wheelan, Managing Editor, Responsible Investor
Morningstar Sustainability Ratings
Sustainalytics security level research
Two signals are used:
Company ESG ScoresOverall ESG Score (0–100)
Controversy Severity (1 [low] – 5 [high])
Portfolio Sustainability Score
• Asset weighted roll up of company-‐level ESG Scores with deductions made forholdings with Controversies
• Company level analytics apply to Stock & Corporate bonds
• Scoring threshold: 50% of AUM must have ESG Scores
Measures how well the portfolio’s holdings are managing ESG risks and opportunities relative to the fund’s category peers
Morningstar funddata
Portfolio Sustainability Rating
• Morningstar Sustainability Rating
• Portfolio Sustainability Score relative to Morningstar Category
• At least 10 portfolios in category to receive a rating.
Data Step 1 Step 2
CAN UNDERLYING METRICS HELP TELL A MORE COMPLETE ESG STORY OF A FUND?
36
ESG QUALITY SCORE
ESG QUALITYPEER RANK
ESG POSITIVE TREND
CARBON INTENSITY
SUSTAINABLE IMPACT
SRI EXCLUSION CRITERIA
Green Century Equity Fund 6.4 99th 28% 72 15% 0%
Dynamic Blue Chip Equity Fund 6.3 99th 20% 59 2% 6%
iShares MSCI KLD 400 Social ETF 6.3 99th 27% 113 13% 0%
Jensen Quality Growth Fund 6.2 99th 18% 119 4% 11%
DFA Enhanced US LargeCompany Portfolio 6.0 99th 4% 123 0% 3%
Amundi Actions USA ISR 6.0 99th 24% 244 12% 8%
Source: MSCI ESG Research 2016, as of October 21, 2016. For more information see msci.com – MSCI ESG Top 40 Scoring Funds
About MSCI ESG Research Products and Services
MSCI ESG Research products and services are provided by MSCI ESG Research Inc., and are designed to provide in-‐depth research, ratings and analysis of environmental, social and governance-‐related business practices to companies worldwide. ESG ratings, data and analysis from MSCI ESG Research Inc. are also used in the construction of the MSCI ESG Indexes. MSCI ESG Research Inc. is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc.
About MSCI
For more than 40 years, MSCI’s research-‐based indexes and analytics have helped the world’s leading investors build and manage better portfolios. Clients rely on our offerings for deeper insights into the drivers of performance and risk in their portfolios, broad asset class coverage and innovative research.
Our line of products and services includes indexes, analytical models, data, real estate benchmarks and ESG research.
MSCI serves 97 of the top 100 largest money managers, according to the most recent P&I ranking.
For more information, visit us at www.msci.com.
ABOUT MSCI
37
CONTACT US
38
AMERICAS + 1 212 804 5299
EUROPE, MIDDLE EAST & AFRICA + 44 20 7618 2510
ASIA PACIFIC + 612 9033 9339
msci.com/esg
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be modified, reverse-‐engineered, reproduced or redisseminated in whole or in part without prior written permission from MSCI.
The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services.
The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING,WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-‐INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-‐contractors.
Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results.
The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All Information is impersonal and not tailored to the needs of any person, entity or group of persons.
None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.
It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index. MSCI does not issue, sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related to the performance of any MSCI index (collectively, “Index Linked Investments”). MSCI makes no assurance that any Index Linked Investments will accurately track index performance or provide positive investment returns. MSCI Inc. is not an investment adviser or fiduciary and MSCI makes no representation regarding the advisability of investing in any Index Linked Investments.
Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance.
The Information may contain back tested data. Back-‐tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved by any investment strategy.
Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice.
Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research Inc. and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com.
MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index Linked Investments. Information can be found in MSCI Inc.’s company filings on the Investor Relations section of www.msci.com.
MSCI ESG Research Inc. is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI’s products or services are not intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Issuers mentioned or included in any MSCI ESG Research materials may include MSCI Inc., clients of MSCI or suppliers to MSCI, and may also purchase research or other products or services from MSCI ESG Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.
Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD, FEA, InvestorForce, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS)” is a service mark of MSCI and Standard & Poor’s.
NOTICE AND DISCLAIMER
39
Drinks Reception17.20-‐19.00
End of Day 1
Plenary: The impact/output of investment. Why investors now need to show more than just the
financial returns of investment: reporting on GDP growth, social benefits, job creation and
environmental positives. Anna Pot, Manager, Responsible Investments, APG Asset ManagementTracey Rembert, Assistant Director, Catholic Responsible Investing, CBISManuel Lewin, Head of Responsible Investment, Zurich Insurance CompanyLara Yacob, Regional Co-‐ordinator, North America, UNEP Finance InitiativeModerator: William Burckart, President and COO, The Investment Integration Project (TIIP)
Break10.15-‐10.50
The elevator pitch: The leading edge of ESG research and themes, and how this is
translating into investment.
James Lockhart Smith, Head of Financial Sector Risk, Verisk MaplecroftTony Campos, Head of ESG Americas, FTSE RussellMatthew Diserio, President and Co-‐Founder, Water Asset ManagementJohn Chisholm, Global Equity Product Manager, SchrodersModerator: Hugh Wheelan, Managing Editor, Responsible Investor
Geospatial ESG analytics: a new perspective on responsible investing
454545
Verisk Maplecroft: interconnected risks in a globalised world
464646
Exposure = geo-located value * inherent risk
4747
% of forecast revenue, 2016-2030
Water Stress Exposure (resolution: 20km2)
1
2
3
5
6
7
8
9
4
0
10
From asset-level to company-level risk exposure…
10 20 30 40 50 60 70 80 90 100
Anglo American: forecast revenue exposure to water stress
Average water stress risk exposure:
6.457
Source: Verisk Maplecroft, Wood Mackenzie, 2016
4848
…and from one company to all companies in a sector
Percentile rank
Biodiversity Risk
Exposure (resolution: 1km2)
Mining companies: exposure of 2016-2030 forecast revenue to biodiversity risk
Source: Verisk Maplecroft, Wood Mackenzie, 2016
4949
From all firms across one risk…
Percentile rank
Occupational Health & Safety Risk Exposure (resolution: national)
Oil & gas companies: 2016 production exposure to health & safety risk
Source: Verisk Maplecroft, Wood Mackenzie, 2016
5050
…to one firm across multiple risks
ENI: human & labour rights risk exposure, 2016
Source: Verisk Maplecroft, Wood Mackenzie, 2016
5151
Geospatial data helps measure relative +/- impact
Water Stress Exposure Score, 2016 (resolution: 20km2)
Water Use Intensity
Score, 2016 (m3 per
US$1,000 of Opex,
normalised & inverted on 0-10 scale) Market cap
Source: Verisk Maplecroft, Wood Mackenzie, Datastream, 2016
5252
For many ESG issues, tail risks matter more than averages
Percentile rank
Corruption Risk
Exposure
Oil & gas companies: 2016 Capex exposure to corruption risk
Source: Verisk Maplecroft, Wood Mackenzie, 2016
5353
For many ESG issues, tail risks matter more than averages
Corruption Risk
Exposure
O&G companies: 2016 capex exposure to corruption risk, 2016
Country locations
Company-level capex-weighted average
Source: Verisk Maplecroft, Wood Mackenzie, 2016
5454
Geo-located company risk data can transform FDI into a channel for investor influence on sovereigns
Source: Verisk Maplecroft, 2016
5555
56
ftserussell.com
Smart Beta meets Smart SustainabilityRI Americas 2016 Conference
December 7, 2016
Tony Campos, Head of ESG, Americas, FTSE Russell
57
Important informationFTSE Russell is not an investment firm and this presentation is not advice about any investment activity. None of the information in this presentation or reference to a FTSE Russell index constitutes an offer to buy or sell, or a promotion of, a security. This presentation is solely for informational purposes. Accordingly, nothing contained in this presentation is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of making any investment through our indexes.
Views expressed by Tony Campos are as of December 7, 2016 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group plc.
58
1. Goals• Target similar levels of active exposure among four factors
qValueqLow VolatilityqQualityqSize
• Incorporate protection for climate change risk by tilting exposure for
qFossil Fuel ReservesqOperational CO2e Emissions qLow Carbon Economy Revenues
2. Challenges• Transparent and easy stock selection approach
• Limit active industry and country weights
• Maintain index capacity by controlling stock weights relative to cap weight index
• Mitigate turnover from index rebalancing
3. ResultIndex to be used as the basis of an investment fund and core allocation within direct contribution (DC) plan as the long term default investment option for scheme members
Trustees of the pension scheme wanted an index solution for their Default Fund that was consistent with long term investment objectives/values and also climate-risk aware
Case StudyCombining Smart Beta with Smart Sustainability
59
Multi-Factor Climate Risk-Aware Index Framework
FTSE All-World ex CW Climate Index(Fossil Fuel Reserves, Operational Carbon
Emissions, Green Revenues)
FTSE All-World ex CW Balanced Factor Index(Value, Quality, Low Volatility, Size)
(Mkt Cap weight index)
(Combination of Factor tilts and Climate tilts)
(Multi-factor index) (Climate risk-aware index)
FTSE All-World ex Controversial Weapons (CW) Index
FTSE All-World ex CW Climate Balanced Factor Index
60
Performance of Indices:September 2011– October 2016 (TRI, GBP)
• Slightly higher performance & lower volatility by combining climate & factor tilting
Source: FTSE Russell as at October 2016. Past performance is no guarantee of future results. Please see disclaimer for important legal information. Returns shown may reflect hypothetical historical performance
FTSE All World Index FTSE All-World ex CW Balanced Factor Index
FTSE All-World ex CW Climate Balanced Factor
Index
Geo. Return p.a. (%) 15.26 15.55 15.94
Volatility p.a. (%) 12.17 11.22 11.16
Sharp Ratio 1.25 1.39 1.43
Excess Return p.a. (%) 0.29 0.67
Average Turnover p.a. (%) 50.99 51.8
BenchmarkFactorIndex
Factor + ClimateIndex
61
Performance of Indices:September 2011– October 2016 (TRI, GBP)
• Combining climate & factor tilting greatly enhanced the climate change risk exposure measures
FTSE All World Index FTSE All-World ex CW Balanced Factor Index
FTSE All-World ex CW Climate Balanced Factor
Index
Fossil Fuel Reserve Exposure -‐ 22% 67%
Operational Emission Exposure -‐ 11% 34%
Green Revenue Exposure -‐ 28% 99%
BenchmarkFactorIndex
Factor + Climate Index
Source: FTSE Russell as at October 2016. Past performance is no guarantee of future results. Please see disclaimer for important legal information. Returns shown may reflect hypothetical historical performance
62
In summary
• Factor or Alternatively Weighted benchmark construction techniques can provide indexes for use by investors looking to incorporate Sustainable Investment preferences within a desired risk/return profile
• Sequential tilts can be used to simultaneously embed exposure to multiple factors as well as awareness of sustainability risks
• Incorporating climate change risk protections includes revenue exposure to the low carbon economy
Using a combination of Smart Beta plus Smart Sustainability the Asset Owner was provided with an index solution that is consistent with their long term investment objectives
63
Disclaimer© 2016 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
The Low Carbon Economy Industrial Classification System™ & and Low Carbon Economy Industrial Engagement Matrix™ (US Pat.Pend) are unregistered trademarks of LCE Risk Ltd.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of FTSE Russell Indexes or the fitness or suitability of the Indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.
This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and no member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking statements.
ftserussell.com
Translating ESG research and themes into investment
December 2016
John Chisholm, CFA, Product Manager Global and International Equities
For professional investors and advisers only. Not for retail clients. Environmental, Social and Governance is referred to as ESG throughout the presentation.
An integral part of managing and seeking to enhance our clients investments
Sustainable InvestmentThree primary layers of ESG integration
67
The opinions stated in this document are those of the Schroder International Equities team and ESG team and are subject to change.
ESG at Schroders
n Long history of responsible investment imbedded in our culture and investment process
n Supported by a well resourced team of 9 dedicated ESG Analysts
n ESG Specialists work alongside analysts and investors to identify and understand key ESG issues
n Active engagement with companies to improve their performance
> We have achieved an impressive record of positive response to change from hundreds of companies
How ESG is integrated in the investment process
• Thematic research•Training for analysts•ESG Guidance Document covering 170+ GICS sub-sectors•Thorough analysis of risks and opportunities
Research
•Fundamental risk score is a key input in determining position sizes•ESG, management quality and transparency are primary factors for assessing quality and sustainability risk scores
Portfolio Construction
•Company meetings with analysts and ESG specialists•Requests for change and disclosure•Partnering with other investors and interest groups to exert greater influence
Engagement
BMW relative performance versus VW
Stock example: BMW
68
(rebased to 1)
0.901.001.101.201.301.401.501.601.701.801.90
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
Jul-15
Dec-15
Jun-16
Nov-16
BMW Relative to VW
Source: Datastream, USD, as of November 2016. Performance shown is past performance. Past performance is not a guide to future performance. The value of investments can go down as well as up and is not guaranteed. The security shown is for illustrative purposes only and is not intended to serve as any recommendation to buy or sell any security. The opinions stated in this document are those of the Schroder International Equities team and ESG team and are subject to change.
ESG integration in research
n Leadership position in next generation powertrains, light weighting and car sharing options
n Projects must meet hurdle rate of 26% ROCE but cannot compromise group CO2 targets
n Project participants compensation directly linked to achieving targets
n Emissions tests audited by separate departments and external consultants
n Strong checks and balances at management and board level removes scope for unilateral decisions
n Supervisory board focused on long term future of the company rather than next quarterly result
BMW: A culture of sustainability
Roche performance vs Novo Nordisk
Stock example: Roche
69
(rebased to 1)
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Sep-13
Mar-14
Aug-14
Feb-15
Jul-15
Dec-15
Jun-16
Nov-16
Roche relative to Novo Nordisk
Source: Datastream, USD, as of November 2016. Performance shown is past performance. Past performance is not a guide to future performance. The value of investments can go down as well as up and is not guaranteed. The security shown is for illustrative purposes only and is not intended to serve as any recommendation to buy or sell any security. The opinions stated in this document are those of the Schroder International Equities team and ESG team and are subject to change.
ESG integration in research
n Novo has long been a consensus favorite due to its attractive diabetes franchise. – However its focus on extracting a premium insulin price
for marginal clinical benefit and failure to innovate have led to earnings declines
n In contrast, Roche which is focused in oncology has leveraged its acquisition of Genentech and diagnostics business to maintain leadership in innovation– Focused only in areas where they can be the market
leader or first to market
n Roche has also made global pricing a strategic priority – Margins and earnings durability are not overstated
through regional discriminatory pricing practices– It aims to deliver faster access of its dugs to emerging
markets and expand its treatable patient populations
Roche: A culture of innovation
Need to improve long term value creation metrics
Stock example: SAP
70
Issue
Engagement
Source: Schroders, Bloomberg, SAP (company reports). Performance shown is past performance. Past performance is not a guide to future performance. The value of investments can go down as well as up and is not guaranteed. The security shown is for illustrative purposes only and is not intended to serve as any recommendation to buy or sell any security. The opinions stated in this document are those of the Schroder International Equities team and ESG team and are subject to change.
Engagement
n Senior management compensation targets based on non-IFRS P&L figures (revenue, operating profit and bookings)
n Compensation biased toward top line may incentivize acquisitions for revenue growth that may compromise returns
n Executive pay was contentious issue at 2016 AGM with only 54.6% voting in favor
n Specific request to incorporate metrics crucial for long-term value creation such as free cash flow and return on invested capital in to compensation
ESG at SchrodersThe story by numbers
71
Source: Schroders, as of December 31, 2015. *Source: PRI, 2016. Please refer to the back of this presentation for important information.
16/12/2016 15:59:51
$44bnEthically screened mandates(9.6% of total assets)
5,100+Company meetings voted on
490+ESG engagements in 2015
33Countries globally A+
UN PRI annual assessment in 2016*
9Dedicated ESG investment specialists
With
100years +Combined investmentexperience
Across
20years +Firm wide ESG integration
With
This material is intended only for financial professionals and advisers only in attendance of the 2016 RI Conference. Not for retail clients or for use with the general public. Not for redistribution under any circumstances.The views and forecasts contained herein are those of the Schroders investment professionals and are subject to change. The information and opinions contained in this document have been obtained from sources we consider to be reliable.
No responsibility can be accepted for errors of facts obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. This presentation intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase of sale of any financial instrument.
The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management North America Inc. does not warrant its completeness or accuracy.
The opinions stated in this presentation include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee that any forecasts or opinions will be realized. The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.
All investments, domestic and foreign, involve risks including the risk of possible loss of principal.
PRI Important Information: Schroders is an investment management signatory member of the PRI, the rights of membership for which it pays a fee. The report is provided to member firms at their request. Signatory scores for each indicator will be peered against all other signatories for whom that indicator was relevant, regardless of their type, size or location. Module level: Signatory scores for each module will be displayed in six broad performance Bands (A+ to E) at an absolute level as well as relative to peers of a similar type, size or location. Each signatory’s total aggregated module score will be compared to relevant peer groups in a series of distribution charts.. The PRI document is based on information reported directly by signatories. Moreover, the underlying information has not been audited by the PRI or any other party acting on its behalf. While every effort has been made to produce a fair representation of performance, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability can be accepted for damage caused by use of or reliance on the information contained within this report. For more information on the methodology, visit www.unpri.org.
Schroder Investment Management North America Inc. (“SIMNA Inc.”) is an investment advisor registered with the U.S. SEC. It provides asset management products and services to clients in the U.S. and Canada including Schroder Capital Funds (Delaware), Schroder Series Trust and Schroder Global Series Trust, investment companies registered with the SEC (the “Schroder Funds”.) Shares of the Schroder Funds are distributed by Schroder Fund Advisors LLC, a member of the FINRA. SIMNA Inc. and Schroder Fund Advisors LLC. are indirect, wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange. Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan providing asset management products and services to clients in Canada. This document does not purport to provide investment advice and the information contained in this newsletter is for informational purposes and not to engage in a trading activities. It does not purport to describe the business or affairs of any issuer and is not being provided for delivery to or review by any prospective purchaser so as to assist the prospective purchaser to make an investment decision in respect of securities being sold in a distribution. Schroder Investment Management North America Inc.875 Third Avenue, New York, NY 10022-6225(212) 641-3800
Important information
72
Lunch12.00-‐13.00
Keynote Interview: The Taskforce on Climate-Related Financial Disclosures, the G20, and the
future of corporate and investor financial accounting.
Stephanie Leaist, Managing Director, Head of Sustainable Investing, Canada Pension Plan Investment Board (CPPIB)
Plenary: Researching, assessing and applying climate and environmental data in investment.
Cynthia Simon, Senior Manager, Investor Initiatives, CDPGreg Elders, Senior ESG Analyst, BloombergMarcos Jesus Ramos Martin, Product Manager Climate Risk Assessment and Project Manager Innovation, Vigeo EirisDavid Lunsford, Head of Development and Co-‐Founder, CARBON DELTAModerator: Chris Fowle, Associate Director, Americas, Global Networks & Outreach, Principles for Responsible Investment (PRI)
Spotlight plenary: US endowment fundsHow are the big US endowment funds
assessing divest/invest campaigns and thinking about ESG integration?
SonalMahida, Director, Intentional Endowments NetworkSophie Purdom, Co-‐Editor, Revolutions in Sustainable Investing& Co-‐Creator of the Brown University Sustainable Investment FundReid Capalino, Principal,Aligned IntermediaryModerator: Cary Krosinsky, Adjunct Lecturer, Brown University and Yale University
Thank you for attending RI Americas 2016
End of Day 2