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<ul><li> 1. Wealth Management SRI Portfolio Construction Across the Asset Classes Katie Gordon, SRI, Cazenove Capital Management 12/11/10 </li> <li> 2. Contents <ul><li><ul><li><ul><li>Wealth Management Market SRI issues </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>SRI Today </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>3 rd Party Fund Selection </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Impact Investment </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Sample SRI Portfolios </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Appendix </li></ul></li></ul></li></ul></li> <li> 3. Wealth Management the market </li> <li> 4. Wealth Management the market <ul><li>Clients </li></ul><ul><li>Individuals </li></ul><ul><li>Trustees </li></ul><ul><li>Family offices </li></ul><ul><li>Advisors </li></ul><ul><li>Fund Managers </li></ul><ul><li>Intermediaries: IFAs, Consultants, Accountants, Lawyers, Trust Companies </li></ul><ul><li>Issues </li></ul><ul><li>Understanding SRI today </li></ul><ul><li>Sustainable theme vs integration </li></ul><ul><li>Performance myth </li></ul><ul><li>Philanthropy vs investment </li></ul><ul><li>Portfolio styles: pooled vs segregated; asset class vs entire portfolio </li></ul></li> <li> 5. SRI Today </li> <li> 6. Expansion of Socially Responsible Investment (SRI) Earlier Style S ocial E nvironmental E thical Research ACTIVISM &amp; ENGAGEMENT Best Practice Walk Away Push for Change 4 th Revolution Sustainable Themes Companies of the future Source: Cazenove Capital Ethical Restrictions </li> <li> 7. Integrated SEE research - best practice fund management <ul><li>Riskmetrics ratings </li></ul><ul><li>5: Environmental impact of the sector (5 is high, 1 is low) </li></ul><ul><li>AAA: environmental rating of the stock compared to its sector (AAA is best - CCC is worst) </li></ul><ul><li>* Social rating is BB or below </li></ul><ul><li><ul><li><ul><li>Applies to all Pan-European funds </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Specialist SEE Research Ratings within our valuation matrix </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Analysts aware of SEE issues in stock selection </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Specialists within investment team </li></ul></li></ul></li></ul>Integrated Engagement: Analysts raise strategic SEE issues with CEOs + CFDs. Challenge corporate leaders Satellite SRI Team: Specialists discuss SEE issues with middle management. Self interested circle Source: Cazenove Capital ANGLO AMERICAN ORD USD0.50 RIO TINTO ORD GBP0.10 BHP BILLITON ORD USD0.50 XSTRATA USD0.50 LONMIN USD1.0 ANTOFAGASTA ORD GBP0.05 </li> <li> 8. Why do we incorporate this research? Companies with good environmental management can outperform Source: RiskMetrics * EV21 rating is the RiskMetrics environmental rating ** Above average is AAA-BBB; Below average is BB-CCC *** Top 11 &amp; bottom 11 stocks only due to the size of the sector Above average EV21 rating* Below average EV21 rating** Difference Paper and Forestry Sector Top half outperforms by 59% Chemicals Sector Top Half Outperforms by 78% e Banks Sector Top Half Outperforms by 23%*** Autos Sector Top Half Outperforms by 100% </li> <li> 9. Sustainable investment results Lamprell Plc <ul><li>Provides construction and engineering services for oil and gas rigs and the offshore wind market. </li></ul><ul><li>This year the company has announced USD 320.4 million of contract awards for the design, construction and delivery of self elevating and propelled offshore wind turbine installation vessels. </li></ul><ul><li>Ideally positioned to take advantage of the expansion of the global offshore wind farm market and the constraint on liftboat capacity. </li></ul><ul><li>This area represents a significant proportion of the bidding pipeline. </li></ul>* Source: Datastream </li> <li> 10. Selecting the best 3 rd party fund selection </li> <li> 11. SRI Third Party Fund Selection <ul><li>Process Summary; </li></ul><ul><li><ul><li><ul><li>Strategy &amp; SRI </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>SRI responsibility </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Is the investment strategy consistent with our own? E.g. sustainable theme selection </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Does the fund structure reflect the strategy? </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Is the SRI research integrated into the funds investment process? </li></ul></li></ul></li></ul><ul><li>Quality </li></ul><ul><li>Multi-manager responsibility final sign off and buy list ownership </li></ul><ul><li><ul><li><ul><li>Qualitative assessment of investment philosophy, process and people. </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Quantitative analysis helps to test our expectations of fund behaviour in a range of market conditions </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Is it Best in Class? </li></ul></li></ul></li></ul>SRI funds are selected and monitored alongside our in house specialist multi-manager team </li> <li> 12. Where philanthropy meets investment Impact Investment </li> <li> 13. Mission/Social Impact Investing <ul><li>Investments that fit with clients values </li></ul><ul><li>Some clients wish to set up charities, or give to charities, traditionally called philanthropy </li></ul><ul><li>However increasingly clients are seeing the benefit of investing in Social Impact/Impact/Mission investments. These are hybrid investments that offer a social and financial dividend. </li></ul><ul><li>These investments are made within the investment portfolio (as part of the relevant asset class, or as an additional asset class). The money can come from the portfolio, from grant money or charitable contributions. </li></ul><ul><li>E.g. client wanting to support Poverty Alleviation - Investments should include microfinance and support of fair trade </li></ul><ul><li>Liquidity is often an issue with impact investments. </li></ul></li> <li> 14. Sample SRI Portfolios </li> <li> 15. Sample SRI Portfolio PC pooled portfolio (medium risk) Equities Fixed Income Hedge Cash 2 Property funds 1 SRI property fund Social/eco housing Property Asset Class Investment Solution SRI Solution For illustrative purposes 1 CCM fund 2 3rd party funds 1 SRI 3rd party fund 2 CCM funds 3 SRI funds 2 Cleantech investment trust/unit trust 3rd party account 2 Hedge funds 1SRI hedge fund Engagement and SEE Integration Negative screening Positive screening SEE integration Positive and negative screening SEE integration Engagement and screening </li> <li> 16. Sample SRI Portfolio PC segregated (medium risk) Cash Alternatives Fixed Income Equities Asset Class Investment Solution SRI Solution Property 1 Property fund 1 SRI Property fund For illustrative purposes Global 3rd party funds Individual stocks Specialist SRI funds (investment trusts/unit trusts) e.g. Cleantech Gilts (inc. Index Linked) Individual corp. bonds 2 Hedge funds 1 SRI hedge fund or FofF Microfinance 3rd party SRI deposit account Positive and negative screening, Engagement SEE integration, negative screening SEE integration Negative screening Social/eco housing Negative and positive screening Positive &amp; negative screening SEE integration Sustainable themes and positive screening </li> <li> 17. Sample SRI Portfolio Social impact: poverty alleviation UK segregated Global 3 rd party ethical funds Global 3 rd party sustainable &amp; ethical funds &amp; ETFs Investment solution 3 rd party ethical funds Hedge 5% Social impact 20% SRI style SEE integration, engagement, sustainable themes &amp; negative screening Positive &amp; negative screening, engagement, SEE integration Sustainable themes (e.g. water, energy and climate change adaptation/mitigation) Positive and negative screening, as well as social impact bonds SEE integration &amp; engagement/sustainability, negative screening Social returns Equities UK 20% Global 30% Fixed income Alternatives inc.hedge, &amp; social impact For illustrative purposes </li> <li> 18. Appendix </li> <li> 19. History and development of SRI Negative Screening Green Movement Positive Screening Engagement &amp; Activism Integrated Analysis Sustainable Finance <ul><li>1920s: Methodist Church align investments with its values by excluding alcohol and gaming </li></ul><ul><li>1980s: Anti-apartheid movement excludes investments in S Africa </li></ul><ul><li>1984: The first UK ethical funds is launched, followed later by European ethical fund launches </li></ul><ul><li>1992: Rio de Janeiro UN conference on Development and the Environment </li></ul><ul><li>2000: Pension Act requires SRI disclosure in UK </li></ul><ul><li><ul><li><ul><li>Largest Dutch pension funds draft SRI policies following Trade Union pressure </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>UN Millennium Development Goals launched </li></ul></li></ul></li></ul><ul><li>2001: Social and environmental reporting by companies mandatory in France </li></ul><ul><li><ul><li><ul><li>Association of British Insurers (ABI) issues SRI disclosure Guidelines </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>German private pension fund regulation requiring SEE statement </li></ul></li></ul></li></ul><ul><li>2002: Rio +10 - UN conference on Development and the Environment (Johannesburg) </li></ul><ul><li>2003: Dutch insurance companies create Code of Conduct including social responsibility </li></ul><ul><li><ul><li><ul><li>UNEP FI United Nations Environment Program Finance Initiative </li></ul></li></ul></li></ul><ul><li>2004: Italian and Belgian Pension reforms include SIPs </li></ul><ul><li>Enhanced Analytics Initiative (EAI) founded </li></ul><ul><li>2005: Make Poverty History launched </li></ul><ul><li><ul><li><ul><li>UK Charities recommended to state the extent to which SEE factors are considered in investment decisions </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>UK Conservative party launches Quality of life policy group </li></ul></li></ul></li></ul><ul><li>2006: Launch of Sir Nicholas Sterns report, The Economics of Climate Change </li></ul><ul><li>2007: Delegates from 189 countries met in Bali to begin negotiations on a new international climate change agreement to succeed Kyoto (expires 2012) </li></ul><ul><li>2010: UNPRI (United Nations Principles for Responsible Investment) approx $22trn signed up </li></ul>Source: Cazenove Capital </li> <li> 20. SEE research analyses intangibles to enhance stock selection <ul><li><ul><li><ul><li>All companies are impacted by some of these. However, they are intangible and tend not to be included in financials </li></ul></li></ul></li></ul>Transport Biodiversity Protection Labour Standards Animal Testing Environmental Efficiency Corporate governance Directors remuneration Bribery and corruption Stakeholder engagement Greenhouse Gas Emissions Water Conservation Fair Pricing Renewable energy Genetic Engineering EMF Food Safety Supply Chain Management Environmental Management Equal Opportunities Human Rights Health and Safety Tropical Hardwood Alternates to Toxic Chemicals AIDS </li> <li> 21. Summary of our Socially Responsible Investment offering <ul><li><ul><li><ul><li><ul><li>Socially Responsible Investment policy launched Jan 2002. </li></ul></li></ul></li></ul></li></ul><ul><li><ul><li><ul><li><ul><li>Social, environmental and ethical (SEE) issues are integrated into the investment process, which is applied across all our Common Investment Funds and other Pan-European funds. </li></ul></li></ul></li></ul></li></ul><ul><li><ul><li><ul><li><ul><li>Management of companies with poor SEE ratings are engaged with, via both mainstream investor meetings and one on one meetings. </li></ul></li></ul></li></ul></li></ul><ul><li><ul><li><ul><li><ul><li>Sustainable themes research help identify companies exposed to these growth opportunities. </li></ul></li></ul></li></ul></li></ul><ul><li><ul><li><ul><li><ul><li>The Growth Trust for Charities, The Equity Income Trust for Charities and The Income Trust for Charities are restricted from holding tobacco stocks. </li></ul></li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Negative ethical screens can be applied to larger clients. </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Third party SRI fund selection. </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Clients receive quarterly reports covering SEE and corporate governance issues. </li></ul></li></ul></li></ul>Pan European equities All global asset classes This enables a flexible solution to meet clients differing needs </li> <li> 22. <ul><li>1 st agrarian revolution </li></ul>What is the 4 th Revolution?... <ul><li>2 nd industrial revolution </li></ul><ul><li>3rd - technological revolution (computers/mobiles etc) </li></ul><ul><li>4th the sustainable revolution (alternatives, water capture etc) </li></ul>The Sustainable Revolution! Source: Cazenove Capital </li> <li> 23. Sustainability research the philosophy Source: Cheuvreux Innovative and structured research approach Green Tech Research Focus Population growth Pressure on Natural Resources Climate Change Security of Energy Supply Local Pollution The Lean Way Global Challenges Sustainable Solutions The Clean Way The Green Way Renewable Energy - Hydro - Wind - Solar - Geothermal - Marine - Hydro - Wind - Solar - Geothermal - Marine Alternative Energy &amp; Transport - Hydrogen - Fuel cells - Power storage - Mass transport - Hydrogen - Fuel cells - Power storage - Mass transport Biomass resources - Biofuels - Bioenergy - Biogas - Biomaterials - Wood - Biofuels - Bioenergy - Biogas - Biomaterials - Wood Waste Management - Waste collection and handling - Waste treatment - Recycling - Waste collection and handling - Waste treatment - Recycling Eco - products &amp; services - Engineering - Pollution control &amp; testing - Eco - services - Engineering - Pollution control &amp; testing - Eco - services Water Management - Water treatment - Water distribution - Water savings - Water treatment - Water distribution - Water savings Sustainable Technologies Research Focus Energy Efficiency - Insulation &amp; lighting - Efficient power and electricity - Efficient transports - Insulation &amp; lighting - Efficient power and electricity - Efficient transports Sustainable Tech Investment Universe Population Growth Pressure on Natural Resources Climate Change Security of Energy Supply Local Pollution The Lean Way Sustainable Solutions The Clean Way The Green Way Renewable Energy - Hydro - Wind - Solar - Geothermal - Marine - Hydro - Wind - Solar - Geothermal - Marine Renewable Energy - Hydro - Wind - Solar - Geothermal - Marine - Hydro - Wind - Solar - Geothermal - Marine Alternative Energy &amp; Transport - Hydrog...</li></ul>