michael salvatico
TRANSCRIPT
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ESG Research Integration
Michael Salvatico
16 September 2011
Workshop 13 - Integrating ESG into Portfolios #2
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Not limited to Negative Screening
Not limited to a Mandate Type
Not about Sacrificing Performance
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ESG Index Performance and Risk
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40
50
60
70
80
90
100
110
Sep
/07
Dec
/07
Mar
/08
Jun
/08
Sep
/08
Dec
/08
Mar
/09
Jun
/09
Sep
/09
Dec
/09
Mar
/10
Jun
/10
Sep
/10
Dec
/10
Mar
/11
MSCI World
MSCI World ESG
Total Return as of 5/31/2011
Index QTD YTD 1 Month 3 Month 1 Year 3 Year* 5 Year* 10 Year* Since Inception*
MSCI World ESG 2.46 6.55 -1.91 1.62 27.18 -0.91 #N/A #N/A -2.22
MSCI World 2.25 7.28 -1.97 1.29 28.73 -1.19 3.17 4.35 -2.29
Index Beta R-Square TrackingError SharpeRatio Inception 3 Year
MSCI World ESG 1.01 99.71 1.22 -0.14 22.18 23.72
MSCI World 1.00 100.00 0.00 -0.15 21.91 23.39
AnlzdStdDev
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Driving Sustainable Profits and Practices
Benchmarking key ESG Performance Metrics
Identifying Intangible Risks and Opportunities
Integrating ESG into the Investment Process
Communicating Portfolio ESG Exposures
Complying with Mandate Requirements
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ESG Events: Low Frequency / High Impact
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Massey Energy
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Rated ‘CCC’ by MSCI ESG Research in 2006, 2008, 2009
Losses of ~5 mil tons of coal production (~ 905 mil USD or 39% of ‘09 revenue)
CEO Don Blankenship leaves
Share price dropped from .67 to .29 NZD Pulled off the market in January 2011 Lost coal production estimated at
360,000 tons for the year
Pike River Coal
April 2010, Massey Energy explosion leaves 29 workers dead
November 2010, Pike River Coal explosions leaves 29 workers dead
Source: MSCI Research “Integrating Operational Stability into Investment Analysis of Mining Stocks”, May 2011
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ESG Research Services
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ESG RatingsServices
Raw DataProviders
Sell-SideResearch- Thematic- Conflict of Interest
- Data-Point War- Incomplete- Incomparable
- Systematic- Comprehensive- Best-in-Class
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Dimensions of ESG Investing
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Mainstream Investor / Universal Owner
Integrated ESG Rating
Value Investor
Values Score
Financial Dimension Values Dimension
Reflect Values“Bill of Health”
Integrate key ESG Issues and Risk Factors
Portfolio Construction
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ESG Integration Spectrum
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External Requirement
FullIntegration
Nice to Have
Trigger
Target
Tilt
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ESG Experience Curve
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Val
ue
of
Sign
al
Experience Integrating ESG
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Defining a Measure for ESG Integration
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PortfolioMSCI World
ESGPortfolio
MSCI World
ESG
Index/Portfolio Level
Portfolio Scores +0.15 +0.32 Environment +0.14 +0.22
Risk Factors +0.09 +0.32
[+] Key ESG Pillar Environmental Management Capacity +0.06 +0.25
Environment +0.14 +0.22 Opportunity +0.27 +0.08
Social +0.14 +0.35
Governance +0.22 +0.26
Human Capital +0.17 +0.31
Health & Safety +0.07 +0.32
[+] ESG Scores by Sector Labor Relations +0.50 +0.42
Energy +2.53 +1.06 Employee Motivation & Development -0.06 +0.20
Materials +0.08 +0.34
Industrials +0.10 +0.21
Consumer Discretionary -0.03 +0.83 Stakeholder Capital +0.11 +0.38
Consumer Staples -0.23 +0.92 Product Safety +0.29 +0.31
Health Care +0.17 +1.08 Supply Chain -0.29 +0.28
Financials +0.36 +0.69 Customer/ Stakeholder Partnerships +0.12 +0.45
Information Technology +0.79 +1.38 Local Communities +0.24 +0.73
Telecommunication Services +0.60 +0.15 Intellectual Capital/ Product Development +0.21 +0.13
Utilities +1.80 +0.85
Distribution by Rating Band Strategic Governance +0.22 +0.26
[+] AAA - A +10.9% -2.1% Traditional Governance Concerns +0.32 +0.08
[+] BBB - B -5.8% +4.9% Strategy +0.16 +0.69
[+] CCC -2.2% -0.4% Strategic Capability / Adaptability +0.18 +0.01
Notes :
1. A pos i tive relative ESG score indicates an above average ESG performance versus the market benchmark (MSCI World) and vice versa.
2. The MSCI World ESG Index includes companies with the best-of-class ESG performance.
Relative ESG Scores Relative ESG Scores
Portfolio Analytic Framework Drill-Down to Company Exposure
Source: MSCI Research “Integrating ESG into theInvestment Process”, Whitepaper, August 2011
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Thank you
Michael Salvatico - MSCI ESG Research Client Coverage
Australia, New Zealand, Asia
t +612 9033 9303
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MSCI ESG Global Client Service
Americas + 1.646.778.4208
Asia Pacific + 63.2.902.3897
Europe, Middle East and Africa + 44.20.7063.5699
www.msci.com/esg
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