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DJSI 2017: Human Capital Development & Operational Eco-Efficiency

November 2017

Agenda

Human Capital Development

• Manjit Jus, Head of Sustainability Application & Operations

Operational Eco-Efficiency

• Roland Hengerer, PhD, Senior Energy Analyst

Q&A

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Human Capital DevelopmentQuestions Overview

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The Human Capital Development criterion consists on four questions:

• 1. Training & Development Inputs

• 2. Employee Development Programs

• 3. Human Capital Return on Investment

• 4. Return on Employee Development Investment


Average question scores across regions

5Source: RobecoSAM Corporate Sustainability Assessment 2017

1. Training & Development InputsQuestion structure

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Source: RobecoSAM Corporate Sustainability Assessment 2017

1. Training & Development InputsDefinitions

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Average hours of training and development per FTE:

Total number of hours of training and development provided in the last fiscal year

Total number of FTEs

Total amount spent on training and development in the last fiscal year

Total number of FTEs

Average amount spent on training and development per FTE:

Percentage of open positions filled by internal candidates:

Total number of open positions filled by company’s own employees

Total number of vacancies in the company in the last fiscal year

1. Training & Development Inputs

Average percentage of open positions filled by internal candidates across GICS sectors


1. Training & Development Inputs

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Average percentage of open positions filled by internal candidates across regions


2. Employee Development ProgramsQuestion structure


2. Employee Development Programs“Employee Development Program, please specify two different examples:”

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RobecoSAM’s expectations:

Employee development programs that go beyond basic or mandatory training programs and are designed to

enhance, upgrade and improve employee skills

Acceptable examples:

• Leadership / management development programs

• Advanced occupational health and safety training

• Young talent development programs

• World class manufacturing programs

• Project management trainings

• Retail customer care programs

• Sales programs

2. Employee Development Programs“Employee Development Program, please specify two different examples:”

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Non acceptable examples:

• Programs providing employees with the basic skills they need to carry out their daily work

• Basic health & safety programs

• Mandatory compliance training

• Training for new board members

• Standard graduate / trainee / intern trainings

2. Employee Development ProgramsPartial leading practice

“Employee Development Program, please specify two different examples:”

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Company name: Prysmian SpA

Industry: Electrical Components & Equipment (ELQ)

Prysmian’s Professional School aims at sharing, developing and consolidating knowledge and technical skills

through a wide range of employee development programs, including:

• Manufacturing Academy (e.g. Lean Six Sigma, Advanced Manufacturing)

• Supply Chain Academy (e.g. Advanced Supply Chain)

• R&D Academy (e.g. Advanced Cable Design, Advanced Factory)

Public Link:

Click here to access Prysmian website and the list of training programs offered by the company

https://www.prysmiangroup.com/en/careers/what-we-offer/prysmian-academy/professional-school

2. Employee Development Programs“Description of business benefits”

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• Qualitative description of the business benefits that the company derives from providing the employee

development program

• Clear link between the employee development program and the company’s business benefits


• Revenue generation

• Cost savings

• Decreased turnover

• Addressing employment or skill shortages

• Increase in employee engagement

• Increased competitiveness

• Efficiency gains

• Output gains

2. Employee Development Programs“Quantitative impact of business benefits (monetary or non-monetary)”

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• Quantification of the company’s business benefits linked to the training program using a monetary or non-

monetary quantitative metric

Acceptable examples include quantitative metrics (monetary or non monetary) linked to:

• Revenue generation

• Cost savings

• Decreased turnover

• Understaffed positions filled

• Increase in employee engagement

• Increased customer satisfaction

• Efficiency gains

• Output gains

2. Employee Development Programs: leading practice“Quantitative impact of business benefits (monetary or non-monetary)”

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Company name: Scottish and Southern Energy (SSE) PLC

Industry: Electric Utilities (ELC)

The company has identified two major employment challenges – a skills shortage and lack of diversity. The company has reported that by 2023, half of the energy industry’s workforce is due to leave or retire –creating a massive shortage of skilled labor. Additionally, the energy industry lacks diversity, which has been identified as a key driver of innovation and commercial success.

SSE reports that for every 1 GBP invested in ‘Barnardo’s Works programme’, a youth employability program which operates mainly in Scotland, generated return of 7.67 GBP over five years.

Public Link:

Click here to access SSE PLC’s Report.

http://sse.com/media/385008/Changing-lives-growing-value_2016.pdf

3. Human Capital Return on InvestmentQuestion structure

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3. Human Capital Return on Investment

Average return on investments on human capital across GICS sectors

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4. Return on Employee Development InvestmentQuestion Structure

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4. Return on Employee Development Investment“We use a third-party methodology (e.g., the Kirkpatrick Model, Level 3 Behavior or Level 4 Results) to identify the value of training to our business and resulting ROI, please briefly specify:”

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The business benefits of the training programs are quantified by using monetary metrics or other

quantitative performance metrics based on third-party methodologies


• Kirkpatrick Model

• Phillips ROI methodology

4. Return on Employee Development Investment

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The Kirkpatrick Model

Source: Kirkpatrick Partners


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Phillips ROI Model

Source: Six Ways to Show the Value of HR Programs - Jack J. Phillips and Patti P. Phillips, Ph.D.

Level Measures Issue

Input Volume, Cost, Time How many employees are involved, their time and cost?

Reaction Relevance, Importance and Necessity

How did they react to the program?

Learning Skills and Knowledge Acquisition

Did the employees learn how to make the program successful?

Application Extent of Use, Frequency of Use and Success with Use

Did the employees implement the program?

Impact Productivity, Quality, Cost, Time, Satisfaction, Image, Engagement and Stress

What was the impact (consequence) of the program?

Return on Investment (ROI) Benefit Cost Ratio and ROI Expressed as a Percent

What was the payoff?


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• Reduction in manufacturing costs linked to world class manufacturing or lean six sigma training programs

• Comparison between the costs of hiring external managers and the company’s investments in employee

development to prepare internal candidates for future managerial positions:

(cost of external recruitment) * (number of new managers hired during the last FY)

(investment in training for future managers)


Metrics adopted by companies to measure the business benefits of employee development investments (in%)

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Eco-efficiency

Eco-efficiency means doing more with less; creating goods and services while using fewer resources and

creating less waste and pollution.

Operational eco-efficiency

Refers to the eco-efficiency of manufacturing and service operations. The aim of any company should be to

improve operational eco-efficiency by reducing the resources used and emissions/waste during manufacturing

or the provision of services.

Operational Eco-Efficiency - Definition

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Reducing the overall environmental footprint of companies in both the manufacturing and services sectors is

crucial, as the risks of financial and reputational costs linked to environmental litigation increase.

Producing more with less material is essential for many industries affected by growing natural resource

scarcity. For all industries, minimizing natural resource consumption and waste-generating activities can lead

to lower costs and in some cases, new business opportunities.

The key focus of this criterion is on the inputs and outputs of business operations. It assesses trends in

natural resource consumption and the production of environmental waste products specific to each industry.

Operational Eco-Efficiency – Rationale

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Operational Eco-Efficiency – Rationale for investors

Investors are interested in knowing whether companies are able to consistently increase their operational

eco-efficiency, and whether they are transparent in this respect. In addition, investors are interested in

company’s targets and their progress towards achieving these targets.

Investors believe that Operational Eco-Efficiency (OEE) enhances companies’ competitiveness

through reductions in:

• Direct operational costs (e.g. commodity price exposure)

• Regulatory risks (e.g. stricter regulations or new taxations schemes in future)

• Reputational risks (e.g. due to environmental pollution or future litigations)

• Operational risks (e.g. higher probabilities of potential accidents)


Environmental Footprint Report of Investment Products

Impact per mUSD invested

Unit per year

Impact

Impact (%)

Savings/mUSD*

2.0

35%

5

[t/mUSD]

Waste Generation

[t/mUSD]

134.2

13%

3

[m3/mUSD]

Water Use

[m3/mUSD]

87.9

39%

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[MWh/mUSD]

Energy Consumption

[MWh/mUSD]

59.9

57%

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[t CO2-eq/mUSD]

GHG Emissions - Scope 1 & 2

[t CO2-eq/mUSD]

RobecoSAM Global Environmental Impact Solution

MSCI World

29Source: RobecoSAM

The financial industry has an important role to play in minimizing their environmental footprint and facilitating

the transition to a low-carbon economy. An increasing number of investors are reporting on the environmental

footprint of their investments and therefore prefer companies that can help them to lower their overall

environmental impact.

Operational Eco-Efficiency – Scope

Generally Applicable Questions

• Greenhouse Gas Emissions

• Direct Greenhouse Gas Emissions (Scope 1)

• Indirect Greenhouse Gas Emissions (Scope 2)

• Energy Consumption

• Water Consumption

• Waste

These questions are used for environmental impact valuation, which is a basic criterion for our core

investment universes.

Industry-specific Questions

• In addition, we ask certain sectors industry-specific questions (25 in total, see next slide).


Other OEE Questions (Industry Specific)


• AOX

• Ash and Gypsum Waste

• Biological Oxygen Demand

• Chemical Oxygen Demand

• Data Center Efficiency

• Direct Mercury Emissions

• Dust Emissions

• Energy Intensity

• Hazardous Waste

• Hydrocarbon Spills

• Methane Emissions

• Mineral Waste

• NOx Emissions

• SOx Emissions

• SF6 Emissions

• Perfluorocarbons Emissions

• Volatile Organic Compounds Emissions

• Construction Sites Environmental Safety Measures

• Share of Renewable Energy in Data Centers

• Specific Fuel Consumption for Cargo Transport

• Specific Fuel Consumption for Passenger Transport

• Specific NOx Emissions for Cargo Transport

• Specific NOx Emissions for Passenger Transport

• Total Business Travel

• Ultra-Pure Water Usage

Operational Eco-Efficiency

Aspect Expected practice

Trend Decreasing normalized trend*

!At least 3 years of data are needed to calculate the trend

Target Consistent and meaningful target

!Thresholds set per industry, based on industry means and variances

Target achieved

Coverage High data coverage

!Coverage used as a multiplier to the trend score

External Verification

Third-party verification

!Verification needs to be relevant for the specific indicator

Operational Eco-Efficiency - Assessment

*Revenues or some other denominator (e.g. FTEs, Area, Mmboe, MWh, Production in tons, Units etc.) are used to normalize OEE data reported. Companies in certain industries have the choice to select among a few relevant denominators.


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Overall Performance Across Sectors

Average Scores for Criterion

Source: RobecoSAM Corporate Sustainability Assessment 2017 - 942 participating companies

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Overall Performance Across Regions

Average Scores for Criterion


Average Coverage for Criterion

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Overall Coverage Across Sectors


Greenhouse Gas Emissions


Direct Greenhouse Gas Emissions (Scope 1)

• It refers to ALL the six main GHGs that are covered by the Kyoto Protocol;

Carbon Dioxide - CO2, Methane - CH4, Nitrous Oxide - N2O, Hydrofluorocarbons - HFCs, Perfluorocarbons - PFCs and

Sulphur Hexafluoride - SF6

• GHG emissions should be reported as metric tons of CO2-equivalents.

• GHG emissions that have been offset do not need to be reported.

Indirect Greenhouse Gas Emissions (Scope 2)

• This refers to indirect greenhouse gas emissions from the consumption of purchased electricity, steam, or

other sources of energy (e.g. chilled water) generated upstream from the organization.

• The measurement of Scope 2 emissions is recommended to be performed according to the market-based

method of the Greenhouse Gas Protocol. However the location-based method is equally accepted.

Energy Consumption


What we were looking for:

Simplified version (for low impact industries)

• Non-renewable energy consumption (including transport fuels)

• Renewable energy consumption

• Total cost of energy consumption

Extended version (for high impact industries)

• Non-renewable energy listed separately by

• fossil fuels (including transport fuels and nuclear fuels)

• electricity

• steam/heating/cooling

• Total non-renewable energy sold (if applicable)

RobecoSAM Expectations:

• Grey energy (electricity) to be reported as non-renewable energy

• Hydroelectric power to reported as renewable energy (regardless of plant’s capacity)

Water Consumption



Simplified version (for low impact industries)

• Total water use (from all sources)

Extended version (for high impact industries)

• Water withdrawal from

• municipal supplies

• fresh surface water

• fresh ground water

• Water returned to the source at same or higher quality

• Total municipal water suppliers (or from other water utilities): all water supplied directly by the municipality and/or other public or private water utilities

• Surface fresh water: includes water from wetlands, rivers, lakes. Do not include sea water

• Ground fresh water: fresh water from below the surface. Do not include brackish ground water

Water Consumption (extended version)


RobecoSAM Expectations:

What we accepted

• Water discharged at similar quality

What we didn’t accepted

• Water discharged back to municipality or water utility

• Water discharged at lower quality

• Figures including salt or brackish water

Common mistake:

• Many companies provided wrong calculations in their water consumption reporting: they reported water

withdrawals as water consumption (A+B+C-D ≠E)

Waste



• Total solid waste disposed (i.e. waste not recycled or reused)

• It is defined as waste that is land filled, subject to deep well injection, or incinerated without

energy recovery (either on-site and off-site)

• For companies in industries that have a separate question on mineral waste or hazardous waste,

this data should be reported separately

Common mistake:

• Figures reported included recycling waste and/or incinerated waste for energy recovery

Operational Eco-Efficiency - Data consistency

What has it changed in calculation method since 2016?

• We need at least 3 years of data

• “Not applicable” only accepted if reasonable explanation is provided

Relevant options should be marked in case of :

• Data provided is different from the data publicly reported

• Temporary coverage reduction due to corporate actions

• Data in absolute terms are not available

• Data reported do not follow RobecoSAM definitions


Company name: Grupo Argos SA/Colombia

Industry: Construction Materials (COM)

The company’s normalized Direct GHG emissions have decreased from 2014 to 2016. The company has also set and met its target for the most recent reporting year. In addition, the data is verified by an independent third party.

Public Link:

Click here to access Grupo Argos’ Integrated Report 2016, page 98

Direct Greenhouse Gas Emissions: leading practice


https://www.grupoargos.com/Portals/0/Documents/Integrated-Report-2016-Grupo-Argos.pdf#page=98

Company name: Cie Generale des Etablissements Michelin

Industry: Auto Components (ATX)

The company has a decreasing trend of energy consumption over the last years. The company has also set and

met its target for the most recent reporting year. In addition, the data is verified by an independent third party.

Public Link:

Click here to access Michelin’s 2016 Registration Document, page 188


Energy Consumption: leading practice

https://www.michelin.com/eng/media-room/press-and-news/michelin-reports/(category)/145/(year)/2016

Questions?

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Contact us:

RobecoSAM CSA Helpline

+41 44 653 10 30

[email protected]

Visit the CSA website:

www.robecosam.com/csa

mailto:[email protected]

http://www.robecosam.com/csa

Disclaimer

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