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Sustainable Investing. April 2010. How We Fail as Investors . Junk Bond Scandals (late-1980’s) The Internet Bubble (2000) Enron, Tyco International, Adelphia, Andersen Consulting (early 2000’s) Subprime Meltdown/Credit Crunch (2007-9) Rogue Traders/Societe Generale(2008) - PowerPoint PPT Presentation


  • Sustainable InvestingApril 2010

  • How We Fail as Investors Junk Bond Scandals (late-1980s)The Internet Bubble (2000)Enron, Tyco International, Adelphia, Andersen Consulting (early 2000s)Subprime Meltdown/Credit Crunch (2007-9)Rogue Traders/Societe Generale(2008)Bernie Madoff/Stanford & the SEC (2008-9)Whats Next?

  • Two ChoicesBusiness as Usual = calamitousInnovation & Mitigation = sea change

    In a world of increasing population (9B 2050), constrained resources (peak oil) & growing global competition, great change is at hand, one way or the other, with potentially large implications for investors.

  • Sustainable Investing

    Sustainable investing is an investment philosophy that explicitly considers future environmental and social trends in financial decision making, in order to provide the best risk-adjusted and opportunity-directed results for investors. By anticipating these trends ahead of the market, sustainable investing seeks to identify predictable surprises that can help protect & enhance shareholder value over the long-term.

    And so on the one hand, sustainable investors seek the key innovations and drivers of the opportunities of tomorrow that are being generated by the changing world now before us, while at the same time, mitigating environmental, social & governance risks

    Different from socially responsible investing (SRI)

  • Sustainability 2.0

    1 E S G F Q 0

  • CERC Columbia University Sustainable Investing I & II

    Students will actively participate in the building of a most sustainable portfolio, while reviewing closely how sustainability affects asset classes, regions and public policy, and what hurdles remain to achieving ideal results for all stakeholders. Guest speakers included throughout the course.

    Sustainable Investing I intro, corporate perspective, investor perspective, other asset classes, the science, fiduciary duty, final portfolio construction

  • Sustainable Investing IIAlternative Energy/Themed FundsWaterPrivate Equity ChinaDetailed Sustainability AnalysisGrowth within sustainability (Brand/Jackson/Victor)

  • Sustainable Portfolio - CERC Ticker Company 2009 Returns US Equity AMZN +166% AXP American Express +121% AAPL Apple +149% AMAT Applied Materials +39% KO Coca Cola +29% FSLR First Solar 3% GPS Gap Inc. +58% GE General Electric 7% IBM IBM +59% ITRI Itron Inc +7% JCI Johnson Controls +53% PLL Pall Corp +29% TTEK Tetra Tech +15% WMT Walmart 4% Non-US Equity 0494 Li & Fung (HK) +129% RHAYY Rhodia ADR +181% - Correlates with other findings by GS SUSTAIN, Matthew Kiernan, Mark Fulton, Paul Hawken -

  • * Trucost

    > Worlds most comprehensive database, reflecting over 750 environmental impact categories of 4500+ public companies globally > Up to 8 years of history > Cutting edge research on environmental issues

  • Newsweek Green Rankings

  • New Scientist Consumer Perception vs. Reality

  • P*Initial findings UN Report on Ecosystems Valuation

    An initial analysis of externalities as they apply to the top 3000 public companies:

    US$2.25 trillion in environmental costs were caused by the largest 3,000 listed companies in 2008. Public companies account for over 1/3 of the total annual global environmental costs. Other elements of the economy, such as other public and private companies, governments, universities and consumers contribute the remaining externalities. For many of these organizations, externalities largely come from their supply chains. Our report estimates the value of external environmental costs at 10% of global GDP (issues include GHGs, Water, Forestry, Fisheries, Air Pollution)The cost of pollution and other damage to the natural environment caused by the world's biggest companies would wipe out more than one-third of their profits if they were held financially accountable

  • Components of Estimated Total Economic ValueDirect Use ValuesDirect use values are values derived from direct use or interaction with ecosystem resources and services. They involve both commercial, subsistence, leisure, or other activities associated with a resource. Subsistence activities are often crucially important to rural populations.Indirect Use ValuesIndirect use value relates to the indirect support and protection provided to economic activity and property by the tropical forests natural functions, or regulatory environmental services. For example, the watershed protection function of a tropical forest may have indirect use value through controlling sedimentation and flood drainage that affect downstream agriculture, fishing, water supplies and other economic activities. The microclimate function of some tropical forests may also have indirect use value through the support of neighbouring agricultural areas. If the environmental functions and services provided by the forest are disturbed, then there will be a corresponding change in the value of production or consumption of the activity and property that is protected or supported by the forest. As indirect values cannot, typically, be directly or indirectly inferred from observed human or market behaviour, they are often difficult to value.Option ValueOption value is a type of use value in that it relates to future use of the tropical forest. Option value arises because individuals may value the option to be able to use a tropical forest some time in the future. Thus there is an additional premium placed on preserving a forest system and its resources and functions for future use, particularly if one is uncertain about the future value but believe it may be high, and if current exploitation or conversion may be irreversible. Option and bequest value is difficult to assess as it involves some assumptions concerning future incomes and preferences, as well as technological change. Non ValueNon-use values are derived neither from current direct nor indirect use of the tropical forest. There are individuals who do not use the tropical forest but nevertheless wish to see it preserved in their own right. These intrinsic values are often referred to as existence values. Existence value is derived from the pure pleasure in somethings existence, unrelated to whether the person concerned will ever be able to benefit directly or indirectly from it. Existence values are difficult to measure as they involve subjective valuations by individuals unrelated to either their own or others use, whether current or future. However, several economic studies have shown the existence value of tropical forests to constitute a significant percentage of total economic value.

  • Key performance indicatorsIn general, the top 7 environmental impacts are: Greenhouse gas emissions Acid rain & smog precursors Volatile organic compounds Water abstraction and use Natural resource use Heavy metals Waste- In a world of growing human population and constrained resources, its not just about carbon emissions

  • Proprietary and ConfidentialP*Companies Environmental ImpactsSource: UK Government Environmental Reporting Guidelines

  • Environmental Impacts (cont.) Over 750 different environmental pollutants / damaging activitiesSink Air Acid rain precursors, Greenhouse gases, Heavy Metals, Ozone Depleting Substances Pesticides, Smog precursors, Volatile Organic Compounds (VOCs)Sink Land Acid Rain Precursors, Fertiliser residues, General Waste, Heavy Metals, Nuclear Waste, Ozone Depleting Substances, Pesticides, Volatile Organic Compounds (VOCs)Sink Water Acid Rain Precursors, Fertiliser residues, General Waste, Heavy Metals, Nuclear Waste, Ozone Depleting Substances, Pesticides, Volatile Organic Compounds (VOCs)Source Land Crude oil, Natural gas, Coal, Metals, Minerals, Stone, Timber, Agricultural products, Water abstractionSource Water Botanical, Zoological

  • Greenhouse Gas Data Standardized data so companies can be accurately compared Broken down into Scope 1, 2 & 3 Represented as absolute figures (tons) and intensity (%)

  • Measures of environmental performance can be made relative to revenues or profit, from which one can compare companies within an industry and across a portfolio

    Environmental Damage CostsAnnual Revenue or EBITDA

    Normalizes environmental damage costs to a common reference - allows for an analysis of a portfolio of companies vs. its chosen benchmark index

  • Potential exposure of Utilities and Oil & Gas companies

    Company Carbon price 12/tCO2-e Carbon price 57/tCO2-e Cost m EBITDA Chg Cost m EBITDA Chg

    E.ON AG 1,838 -18% 8,729 -85%RWE AG 2,153 -32% 10,227 -155%Intl Power Plc 811 -83% 3,852 -392%AEP 1,987 -99% 9,439 -471%BP 1,826 -9% 8,673 -44%

    * As first appeared in Trucosts July 2009 Carbon Risks in UK Equity Funds In-Dep


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