norm-based exclusiona key to pri implementation
DESCRIPTION
Oliver Jaeggi, Managing Partner/ Chairman - ECOFACT AG - SwitzerlandTRANSCRIPT
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG.
Norm-based ExclusionA Key to PRI Implementation
TBLI Conference Europe
Amsterdam, November 13, 2009
Olivier JaeggiManaging PartnerECOFACT AG
Tel. +41 44 350 60 [email protected]
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG.
"We will incorporate ESG issues into investment analysis and decision-making
processes."
Possible actions:
Address ESG issues in investment policy statements
Support development of ESG-related tools, metrics, and analyses
Assess the capabilities of internal investment managers to incorporate ESG issues
Assess the capabilities of external investment managers to incorporate ESG issues
Ask investment service providers (such as financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into evolving research and analysis
Encourage academic and other research on this theme
Advocate ESG training for investment professionals
UN PRI: Principle 1
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG.
“We will incorporate ESG issues into investment analysis and decision-making
processes.”
Possible actions:
Address ESG issues in investment policy statements
Support development of ESG-related tools, metrics, and analyses
Assess the capabilities of internal investment managers to incorporate ESG issues
Assess the capabilities of external investment managers to incorporate ESG issues
Ask investment service providers (such as financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into evolving research and analysis
Encourage academic and other research on this theme
Advocate ESG training for investment professionals
UN PRI: Principle 1
TBLI / November 13, 2009
"Starting in 2011, the PRI will
introduce a set of minimum disclosure
requirements."
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG.
Many institutional investors are skeptical towards traditional SRI approaches.
Traditional SRI/ESG solutions: "best-in-class" approach. Investments into shares of companies such as BP, Nestle, British
Airways, etc.Some funds exclude the most controversial sectors, such as defense or
tobacco.
For most investors this has two downsides:
This approach reduces the investment universe significantly; only a few hundred companies will be "best-in-class".
Most investors would like to see some form of positive impact on sustainable development. The "best-in-class" approach is difficult to communicate; investors remain skeptical.
UN PRI: Why Many Institutional Investors Hesitate
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG.
UN PRI: Stock-Picking vs. Stock-Kicking
"Best-in-class" "Norm-based Exclusion" Engage or exclude
Research Universe Research Universe
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 6
Companies are Exposed to Environmental and Social Risks
TBLI / November 13, 2009
Natural Environment
Society
Economy
Investors CompanyInvestments
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 7
Natural Environment
Society
Economy
Impacts
Company
TBLI / November 13, 2009
InvestorsInvestments
Companies are Exposed to Environmental and Social Risks
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 8
Natural Environment
Society
Economy
Impacts Perception Reactions
Company
TBLI / November 13, 2009
InvestorsInvestments
Companies are Exposed to Environmental and Social Risks
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 9
The Rules of the Game are Changing
TBLI / November 13, 2009
1. More information available, growing concern about issues.
2. New and strengthened environmental and social standards.
3. New requirements present new risks (and new opportunities).
The tipping point?
Voluntary standards become common business practice.
Reputational issues become compliance issues.
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 10
UN Global Compact Voluntary guidelines by the United Nations in the range of human rights, labor standards, environment and anti-corruption.[www.globalcompact.com]
OECD Guidelines for Multinational Enterprises(Semi-)Voluntary principles for responsible business practice including human rights, environment, corruption and other issues. National Contact Points (CH: SECO).[www.oecd.org/dataoecd/56/36/1922428.pdf]
New and Strengthened International StandardsIncrease Risks IFC Environmental and
Social Standards (World Bank Group) > 60 sector-specific Environmental, Health and Safety Guidelines; Exclusion List; Performance Standards.[www.ifc.org/sustainability]
Equator PrinciplesSigned by more than 50 banks and export credit agencies (covering approx. 80% of the project finance market).[www.equator-principles.com]
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 11
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 12
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 13
Engage with or exclude a small number of the worst companies.
Easier to communicate:
No impact on the investment universe.
Obvious "ethical" upside: If I hold a stock I bet on the company's future cash flows.By excluding the worst violators an investor can easily avoid participating in the revenues of a company that grossly violates international minimum standards.
Norm-based Exclusion: A First Step to PRI Implementation
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 14
Natural Environment
Society
Economy
Financial andReputational Risk
Impacts Perception Reactions
Company
TBLI / November 13, 2009
InvestorsInvestments
How to Identify these Companies?
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 15
RepRisk®: Selected ClientsCase Study: Norwegian Government Pension Fund - Global
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 16
Controversies Around Companies and Projects Are Captured by RepRisk®
Print Media
Newsletters
News Websites
Governmental Agencies
“The Web”, Blogs
NGO Websites2nd LevelAnalysts
IC
P
C S
NG
News1st LevelAnalysts
Approval by1st Level Analyst(double check principle)
Advanced search algorithms covering English, Spanish, Chinese, German, French, Korean, Portuguese, and Russian sources worldwide
TBLI / November 13, 2009
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 17
The RepRisk Index (RRI) Is an Indicator of the Exposure to Environmental, Social and Reputational risks
TBLI / November 13, 2009
The RepRisk Index (RRI) supports the user when assessing risks: relevant risks are highlighted the risk exposure of entities can be
compared with peers risk trends can be tracked over time
The RRI calculation is based on relevance of news sources frequency and timing of news, and news content, i.e. severity and
novelty.
The Peak RRI gives the maximum RRI value in the last 24 months
ECOFACT AG, Zurich, Switzerland, www.ecofact.com. RepRisk® is a registered trademark of ECOFACT AG. 18
Norm-based Exclusion: A First Step to PRI Implementation
TBLI / November 13, 2009
"Starting in 2011, the PRI will
introduce a set of minimum disclosure
requirements."