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RobecoSAM CorporateSustainability Assessment& Sustainability Indices
RobecoSAM | Kathelijne Marritt Alers
Bangkok, May 2013
2
Content
• RobecoSAM at a Glance
• Corporate Sustainability
• Why is this important to companies and relevant for investors?
• RobecoSAM Corporate Sustainability Assessment (CSA)
• Role of integrated reporting
• Dow Jones Sustainability Indices (DJSI)
3
RobecoSAM at a Glance
• Investment specialist focused exclusively on Sustainability Investing since 1995
• Offering complementary capabilities to Sustainability Investing
• Powering Dow Jones Sustainability Indices since 1999
• EUR 9.3 billion total assets (as per 31.12.2012)
• Servicing a global and diversified client base
• Approx. 110 employees headquartered in Zurich, Switzerland
anticipating and managing current and future economic, environmental and social opportunities and risks
focusing on quality, innovation and productivity to create competitive advantage and long-term value
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What Is Corporate Sustainability?
A company‘s capacity to prosper
in a hyper-competitive and changing global business environment
by
+
Sustainability Investing by RobecoSAM
524-5-2013
Sustainability Investing means striving to achieve enhanced risk return profiles by also considering Economic, Environmental and Social (EES) criteria
• Integration aims to incorporate EES factors into the investment decision-making process
• Best-in-Class is an investment approach based on selecting the sustainability leaders
• Sustainability Theme Investing is focused on companies providing solutions for global trends
• Engagement entails entering into an active dialogue with companies on important EES issues
Integration
Sustainability Theme
Investing
Best in
Class
SustainabilityInvesting
by RobecoSAM
Engage-ment
Sustainability Materiality to Application
Identification Quantification Validation Application
Megatrendanalysis
Industry/Sector definition &
analysis
Academic
collaboration and
professional
associations
Developed/emerging
market companies for
annual RobecoSAM
assessment
Financial &
Sustainability
value drivers
Annual assessmentof over 2,500 (800 direct)
companies globally
58 defined sectors with
total 120 criteria
and 600 questions
Proprietary database
with over 10
years history
Translation of raw data
into question scores
Assignment of materiality value to questions,
criteria and dimensions
All data points areverified with public
sources and evidence
submitted by firms
RobecoSAM team of 22
Analysts supported by
15 external analysts
for data collection and
quality control
Media and Stakeholder
Analysis (MSA) in co-
operation with RepRisk
Entire process internally and
externally audited
Feedback to firmsin the form of bench-
mark scorecards
and conference calls
Additional detailed
Sustainability reports
available to firms
Calculation/integration:
-DJSI index family
-RobecoSAM strategies
-Robeco strategies
-Select partners
Sustainability performance
reporting for portfolios
and strategies
ESG considerations lead to better informed investment decisions
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Spectrum of Sustainable Investments
Im
porta
nce o
f financia
l retu
rns (client vie
w)
Ethical Investments
PhilanthropicInvestments
ImpactInvesting
SRI Social ResponsibilityInvestments
SustainabilityInvestments
ESGIntegration
Sustainable AlternativeInvestments
ThematicInvestments
Spectrum of Sustainable Investments
Why is this of interest to companies and investors?
Summary of main drivers to adopt a sustainability approach
• Financial perspective
• Communication perspective
• Ethical perspective
• Impact Demonstration
0
5
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15
20
25
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1993
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HSF LSF
A) Financial Perspective:Harvard Study on Sustainability Leaders Outperformance
A corporate culture of sustainability has immense impact on corporate behavior of firms as well as their
performances. In the long run, High Sustainability firms (HSF), companies that voluntarily adopted sustainability
policies many years ago outperform the Low Sustainability firms (LSF), companies that adopted almost none of
these, both in terms of stock market and accounting performance.
Adoption Rates Of Sustainability FactorsSource: Eccles, Ioannou & Serafeim (2011): The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance. Harvard Business School, based on data provided by RobecoSAM.
Factor HSF LSF
Board level Sustainability Committee 41% 15%
Disclosure / Stakeholder Engagement Results
20.3% 0%
Sustainability report external audit 11.1% 1.4%
Integrated Environmental Reporting 32.4% 10.8%
Integrated Social Reporting 25.7% 5.4%
Compensation Linked to Environmental Metrics
18% 8%
Compensation Linked to Social Metrics 35% 22%
HR Performance Indicators / Nonfinancial 54.1% 16.2%
EHS / Tracking Fatalities 77.4% 26.3%
Source: Eccles, Ioannou & Serafeim (2011): The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance. Harvard Business School, based on data provided by RobecoSAM.
Evolution of $1 invested in the stock market in value-weighted portfolios
RobecoSAM
Intrin
sic V
alu
e
Economic Criteria- Corporate governance- Risk & crisis management- Brand management
- etc.
Environmental Criteria- Operational eco-efficiency- Climate strategy- Environmental reporting- etc.
Social Criteria- Human capital development- Stakeholder engagement- Supply chain management- etc.
Revenues
Costs
Cost of Capital
CapitalStructure
Investments
Weighted Avg. Cost of
Capital
Return on InvestedCapital
InvestedCapital
Earnings
A) Financial Perspective:Better informed Investment Decisions
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Growth in PRI Signatories and Assets under ManagementSource: UN PRI
The Principles for Responsible Investment
• We will incorporate ESG issues into investment analysis and decision-making processes.
• We will be active owners and incorporate ESG issues into our ownership policies and practices.
• We will seek appropriate disclosure on ESG issues by the entities in which we invest.
• We will promote acceptance and implementation of the Principles within the investment industry.
• We will work together to enhance our effectiveness in implementing the Principles.
• We will each report on our activities and progress towards implementing the Principles.
0
5
10
15
20
25
30
35
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
$US T
rillion
0
200
400
600
800
1000
1200
Sig
nato
rie
s
AUM Signatories Signatories
B) Communication Perspective:External Reporting and/or Internal Monitoring
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• Avoiding companies or sectors that engage in a variety of activities, such as:
• Avoiding companies with significant weaknesses in the area of E, E or S, such as:
• Avoiding companies that refuse to enter into engagement discussions with shareholders
• Tobacco • Pornography• Alcohol• Gambling
• Weapons• Oil extraction • Mining• Nuclear Energy
Environmental• Operational eco-efficiency• Water related risks• Climate strategy
Economic• Corporate Citizenship & philanthropy
• Transparency• Stakeholder engagement
Social• Labor Practice & Human
Rights• Local Development• Occupational Health & Safety
C) Ethical Perspective:Defining an Exclusion Approach
RobecoSAM Sustainable Global Equities Strategy vs. all assessed companies (as of December 31, 2012)
0
25
50
75
100Risk & Crisis Management (+20)
Codes of Conduct/Compliance/Corruption&Bribery (+14)
Labor Practice Indicators (+17)
Human Capital Development (+27)
Stakeholder engagement (+10)Corporate Citizenship and Philanthropy (+25)
Environmental Policy/Management System (+28)
Climate Strategy (+14)
Operational Eco-Efficiency (+24)
Sustainable Global Active Strategy All Assessed Companies
The number in brackets indicates the absolute difference in score value of the RobecoSAM Sustainable Global Equities Strategy compared to all assessed companies.
D) Impact DemonstrationSustainability performance comparison
RobecoSAM Corporate Sustainability Assessment (CSA)
Systematic and consistent measurement of corporate sustainability performance
• Access to corporate information via web-based questionnaire, management meetings and public information
• Integrated assessment of economic, environmental and social criteria with focus on long-term value creation
• Assessment of more than 2000 companies yearly based on broad range of general and industry-specific criteria
• Emphasis on performance over management systems and policies
• Assessment complemented by a Media & Stakeholder Analysis
• Process audited annually by independent third-party firm
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Regulation Innovation Scarcity natural
resources
Climate Change
Population growth
• Governance
• Anti-trust regulations
• Consumerprotection
• Co-creationcapabilities
• InnovationManagement
• Resource efficiency
• Innovative materials
• Agribusiness
• Agriculture
• Reconstruction
• Infrastructure
• Health
• Scarcity skilled workforce
• Health costs
• Nutrition
Competitive advantage of companies through better management of risks and opportunities
RobecoSAM CSA (2) - Megatrends are Shaping the World
MiningIn percentages
PharmaceuticalsIn percentages
Illustrative chart: dimensional weights can substantially differentiate from 33% based on aggregated criteria weight
Economic Dimension• Corporate Governance• Code of Conduct, Compliance• Risk & Crisis Management• Customer Relationship Management• Innovation Management
Environmental Dimension• Environmental Management System• Environmental Performance• Climate Strategy• Product Stewardship• Biodiversity
Social Dimension• Human Capital Development• Talent Attraction & Retention• Occupational Health & Safety• Stakeholder Engagement• Social Reporting
23.0%
47.0%
30.0% 40.0%
10.0%
50.0%
Economic
Environmental Protection
Social
RobecoSAM CSA (3)
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Economic Dimension
• Anti-crime policy/measures 4• Antitrust Policy 4• Brand Management 8• Codes of Conduct / Compliance / • Corruption & Bribery 6• Combating Smuggling 3• Compliance with applicable export control regimes 2• Corporate Governance 10• Customer Relationship Management 19• Diversification 3• Ecosystem Services 1• Efficiency 1• Exploration & Production 4• Food safety 2• Gas portfolio 5• Grid Parity 6• Health & Nutrition 7• Innovation Management 12• IT Security 6• Lobbying activities 1• Market Opportunities 5• Marketing Practices 6• Materiality 2• Non-financial Project Evaluation 2• Piracy 2• Price Risk Management 5• Privacy Protection 7• Product Quality and Recall Management 3• Reliability 1• Research and Development 5• Risk & Crisis Management 18• Scorecards/Measurement Systems 2• Service development 2• Software-as-a-Service 2• Stakeholder Engagement 3• Strategy for Emerging Markets 6• Supply Chain Management 5• Transparency 1• Water Operations 7
Environmental Dimension
• Biodiversity 10• Building Materials 5• Business Opportunities Financial Services/Products 2• Business Risks and Opportunities 4• Business Risks Large Projects / Export Finance 3• Climate Change Governance 7• Climate Change Strategy 6• Climate Strategy 21• CO2 from Logistics 2• Electricity Generation 4• Electro Magnetic Fields 5• Emission Products 2• Environmental Policy/Management System 31• Environmental reporting 4• Fleet Age 1• Fuel Efficiency 2• Fuels for Tobacco Curing 2• Genetically Modified Organisms 5• Hazardous substances 5• International Production Standards 1• Landfilling and alternatives 3• Local Air Quality 1• LowCarbStrategy 4• Manufactured Gas Plants 2• Mineral Waste Management 8• Packaging 3• Product Impact 1• Product Stewardship 30• Raw Material Sourcing 5• Recycling Strategy 2• Refining/Cleaner Fuels 2• Releases to the Environment 2• Renewable Energy 2• Resource Conservation and Resource Efficiency 5• Risk Detection 3• Route network 1• Sustainable Fiber and Pulp Sourcing 5• Sustainable Management of Forests 6• Transmission & Distribution 3• Transport and Logistics 4• Volatile Organic Compounds (VOCs) and • hazardous substances in supply chain 1• Water Related Risks 7
Social Dimension
• Access to Insurance/ Other Social Value Added 1• Access to Water 3• Addressing Cost Burden 2• Bioethics 3• Business Risks 2• Code of Ethics for Advertising 1• Controversial issues, dilemmas in lending/financing 3• Corporate Citizenship and Philanthropy 5• Digital inclusion 12• Editorial policy 1• Enabling local development 7• Ethical Conduct 2• Financial Inclusion/Capacity Building 1• Health Outcome Contribution 6• Healthy living 1• Human Capital Development 3• Human Rights & Corruption 2• Impact of Telecommunication services 3• Labor Practice Indicators 3• Local Impact of Business Operations 2• Mine Closure 4• Noise 1• Occupational Health and Safety 16• Partnerships Towards Sustainable Healthcare 2• Promoting Responsible Gaming 5• Protection of Children 1• Responsibility for Alcoholic Products 4• Responsible Marketing Policies 4• Security Forces 1• Service to Patients 2• Social Impacts on Communities 9• Social Integration 2• Social reporting 4• Stakeholder Engagement 8• Standards for Suppliers 11• Strategy to Improve Access to Drugs or Products 4• Talent Attraction & Retention 8
RobecoSAM CSA (4) - Extra-financial Indicators of Performance
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Rise of civil society, availability of information,social media, mobile technologies, globalization vs. local issues,
Local stakeholder groups such as communities, authorities, media,associations and NGOs
Reduce reputation risks, improve operational efficiency,build trust and credibility, strengthen social license to operate
Stakeholder Engagement - Background
Drivers
Focus
Benefits
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Stakeholder Engagement Framework
Accountability
Ownership
Execution
Operational Responsibility &
Capacity
Lessons Learnt
Measuring
Criteria Changes
Policy / Procedure
Governance
Implementation Review
Media & Stakeholder Analysis (MSA)
Example - Corporate Citizenship & Philanthropy
Assessment Background
• Methodology developed in line with London Benchmarking Group framework
• Does a company set clear priorities for its corporate citizenship engagement agenda?
• Are the priorities aligned with the company’s overall business strategy?
• Does the company have a system in place to measure the impact of its activities?
Example - Corporate Citizenship & Philanthropy (2)
Setting Priorities
• Clear priorities are needed in order to focus resources to have maximum impact
Alignment with Business Strategy
• Aligning priorities with overall business strategy allows company to leverage its position – through its employees, products/services, operations
Measuring Impact
• Key Performance Indicators are needed to measure impact of initiatives and steer future investment and engagement decisions
• Internal impact – do corporate citizenship initiatives improve employee satisfaction, increase retention rate, etc.?
• External impact – does the company use clearly defined indicators to measure impact or reach of initiatives on the community/ environment?
22
Role of corporate reporting
• ESG can be integrated in every aspect, and should be reported and communicated
to internal and external stakeholders
• Over time, reporting has changed significantly
• Measure intangibles by focusing on financial materiality
• An online questionnaire allows RobecoSAM to analyze sustainability at a much
deeper level than frameworks based on public disclosure alone
23
Corporate reporting (2)
Conclusion
• What companies report on needs to change to attract investor’s attention
• Measuring intangibles is possible
• Integrated reporting is the beginning
Close the Corporate – Investor ESG Integration Gap
Based on a series of industry studies, the chart above depicts the extent to which companies and investors have integrated sustainability into their core business, and where we stand today.
Dow Jones Sustainability Indices (DJSI)
Overview
• Cooperation with S&P Dow Jones Indices for the publication and licensing of the
DJSI, launched in 1999.
• Integrated assessment of economic, environmental and social criteria with a
strong focus on long-term shareholder value.
• Rules-based methodology and use of primary research.
• Focus on best-in-class companies. Yearly review of component selection and
continuous monitoring of companies.
• Broad family of geographic benchmarks.
• 6.4 billion USD in DJSI-based investment vehicles (as per 31.12.2012).
• Assurance of the assessment process by Deloitte.
DJSI: External Credibility
The credibility of the DJSI has been confirmed by a recent study based on the opinions of more than 850 sustainability professionals.
Which ratings and rankings are experts at least somewhat familiar with?Source: SustainAbility (2012) „Rate the Raters 2012 – Polling the Experts“ p. 6.
78
64
55
45
42
41
30
20
19
19
17
17
15
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12
12
8
5
Dow Jones Sustainability Index
Carbon Disclosure Project (CDP) Leadership Index
FTSE4Good Index Series
Bloomberg Sustainability Reporting Initiative
Global 100 Most Sustainable Corporations in the World
Fortune’s Most Admired Companies
Newsweek’s Green Rankings
GoodGuide
Oekom Corporate Ratings
CRO’s 100 Best Corporate Citizens
Sustainalytics Company Ratings
Climate Counts
MSCI ESG Indices
Vigeo Ratings
ASSET4 ESG Ratings
GS Sustain
Access to Medicines Index
Inrate Sustainability Assessment
600 largest European companies of the Dow Jones Total Global Stock Market Index54 DJSI Sectors16 Countries
600 largest North American companies of the Dow Jones Total Global Stock Market Index55 DJSI Sectors2 Countries
Selection of top 20% in terms of sustainability in each sector
Selection of top 20% in terms of sustainability in each sector
45% target market cap coverage in each supersector
45% target market cap coverage in each supersector
166 Components50 DJSI Sectors16 Countries
140 Components49 DJSI Sectors2 Countries
600 largest companies from Asia/Pacific* of the Dow Jones Total Global Stock Market Index 56 DJSI Sectors7 Countries
Selection of top 20% in terms of sustainability in each sector
45% target market capcoverage in eachsupersector
154 Components44 DJSI Sectors7 Countries
DJSI World2,500 largest companies of the
Dow Jones Total Global Stock Market Index58 DJSI Sectors52 Countries
Selection of top 10% in terms of sustainability in each sector
15% target marketcap coverage ineach supersector
340 Components58 DJSI Sectors30 Countries
DJSI Europe
DJSI North America
DJSI AsiaPacific
*600 largest companies from South Korea, Australia, New Zealand, Japan, Hong Kong, Taiwan, and Singapore.Effective as of September 24, 2012 except for DJSI Emerging Markets which is as of February 21, 2013.
DJSI Assessment and Selection Process
800 largest Emerging Markets companies of the Dow Jones Total
Global Stock Market Index55 DJSI Sectors20 Countries
Selection of top 10% in terms of sustainability in each sector
69 Components37 DJSI Sectors12 Countries
DJSI EmergingMarkets
28
Sustainability Investing – what next?
Being a UN PRI signatory is just the beginning
• Next steps: design a customized strategy to match investment objectives and beliefs
• Identify and gain consensus on the main goals & solutions
Active ownership is prevalent in many countries
• Momentum for shareholder engagement remains high
• Companies will be measured by financial and non-financial performance metrics
• Widespread acceptance that ESG has a material financial impact
Sustainable investment opportunities exist in all asset classes
• ESG integration can be used for asset allocation, manager selection, risk management & communication, and fully integrated into the investment process
Example - DJSI as used by pension funds
How do pension funds use the DJSI?
• Most pension funds have significant passive equity investments
• Mandates, ETF’s and funds are available to allow funds to invest in the DJSI
• Momentum for shareholder engagement remains high: engagement services and
ethical exclusions are available
How does this work in practice?
• In Italy, several pension funds ask their asset managers to passively track or
benchmark their mandates against the DJSI
• In Australia, several beneficiaries wanted to have a sustainable alternative for
their pension investments, local superannuation funds now offer these by
investing in the DJSI
• In Spain, the management of a company decided to change the benchmark of one
of their employee pension funds to the DJSI to give employees the choice to have
their pension assets invested sustainably
30
Example – DJSI based products
iShares Dow Jones Europe Sustainability
Screened
iShares Dow Jones Global Sustainability
Screened
DJSI World Enlarged ex All
/AE
DJSI Eurozoneex All/AE
DJSI Europe ex All/AE
European ETFs
Launched in February 2011
Targeting Institutional Investors
Optimized ETFs
iShares Dow Jones EurozoneSustainability
Screened
ETFs Indices Target audience
BlackRock iShares
31
DJSI Licensees
DJSI Licensees as of March 31, 2013
Aegon (NL) Groupama (FR)
Ahorro Corporacion Gestion (ES) Invesco (DE)
Amundi Asset Management (FR) JP Morgan Asset Management (UK)
Anima SGR (IT) Lombard Odier Asset Management (CH)
Aviva (ES) MEAG Munich Ergo (DE)
Barclays Capital (UK) Metzler Asset Management (DE)
BlackRock Asset Management (UK) RobecoSAM AG (CH)
BT Financial Group (AU) Seligson & Co Fund Management (FI)
Credit Suisse Asset Management (CH) Shinhan BNP Paribas Asset Management (KR)
Danske Capital, Sampo Bank (FI) Sparinvest (DK)
Deutsche Postbank (DE) State Street Global Advisors (US)
Eurizon Capital (IT) Storebrand Kapitalforvaltning (NO)
Folksam Sak (SE) Theodoor Gilissen Bankiers (NL)
Generali Investments Italy SpA (IT) Transcap Investments (AU)
32
RobecoSAM AG
Josefstrasse 218
8005 Zurich
Switzerland
Phone: +41 44 653 1800
Fax: +41 44 653 1810
E-Mail: indices@robecosam.com
www.robecosam.com
www.sustainability-indices.com
RobecoSAM Indices
33
Disclaimer
No warranty This publication is derived from sources believed to be accurate and reliable, but neither its accuracy nor completeness is guaranteed. The material and information in this publication are provided "as is" and without warranties of any kind, either expressed or implied. RobecoSAM AG and its related, affiliated and subsidiary companies disclaim all warranties, expressed or implied, including, but not limited to, implied warranties of merchantability and fitness for a particular purpose. Any opinions and views in this publication reflect the current judgment of the authors and may change without notice. It is each reader's responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, services or other information provided in this publication.
Limitation of liability All information contained in this publication is distributed with the understanding that the authors, publishers and distributors are not rendering legal, accounting or other professional advice or opinions on specific facts or matters and accordingly assume no liability whatsoever in connection with its use. In no event shall RobecoSAM AG and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of any opinion or information expressly or implicitly contained in this publication.
Copyright Unless otherwise noted, text, images and layout of this publication are the exclusive property of RobecoSAM AG and/or its related, affiliated and subsidiary companies and may not be copied or distributed, in whole or in part, without the express written consent of RobecoSAM AG or its related, affiliated and subsidiary companies.
No Offer The information and opinions contained in this publication constitutes neither a solicitation, nor a recommendation, nor an offer to buy or sell investment instruments or other services, or to engage in any other kind of transaction. The information described in this publication is not directed to persons in any jurisdiction where the provision of such information would run counter to local laws and regulation.
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