robecosam corporate sustainabilityassessment ... · assignment of materiality value to questions,...

RobecoSAM CorporateSustainability Assessment& Sustainability Indices

RobecoSAM | Kathelijne Marritt Alers

Bangkok, May 2013

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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)

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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

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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.

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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?

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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

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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

14

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


45% target market cap coverage in each supersector

45% target market cap coverage in each supersector

166 Components50 DJSI Sectors16 Countries


600 largest companies from Asia/Pacific* of the Dow Jones Total Global Stock Market Index 56 DJSI Sectors7 Countries


45% target market capcoverage in eachsupersector


DJSI World2,500 largest companies of the

Dow Jones Total Global Stock Market Index58 DJSI Sectors52 Countries


15% target marketcap coverage ineach supersector


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



DJSI EmergingMarkets

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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

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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

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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)

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RobecoSAM AG

Josefstrasse 218

8005 Zurich

Switzerland

Phone: +41 44 653 1800

Fax: +41 44 653 1810

E-Mail: [email protected]

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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