tbli conference™ nordic 2014 - sustainable sourcing - tal ullmann - sustainalytics

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"Analysing ESG risks in the supply chain" - How ESG risks in the supply chain are relevant to investors - How these risks can be analysen - Examples of good practice & bad practice related to different industries TBLI CONFERENCE™ NORDIC 2014 Our first ESG & Impact Investing conference in the Nordic region, hosted by the BI Norwegian Business School in Oslo. For 2 days, the conference offered a platform to learn about current trends in sustainable investing and CSR in the Nordic region – and ample opportunity to find new business partners. Unique to this event, selected entrepreneurs have been invited to present their innovative green technology and climate change related projects to the investor community.


  • 1. Sustainalytics A Global Leader in Sustainability Analysis Oslo, September 2014

2. About Sustainalytics 2 3. We help clients turn vast quantities of environmental, social and governance information into insightful, value-added analysis to enable more informed investment decisions 3 Sustainalytics: What We Do 4. Offices in Amsterdam (HQ), Boston, Frankfurt, London, New York City, Paris, Singapore, Timisoara, and Toronto Representation in Bogota, Brussels, Bucharest, and Copenhagen Over 180 staff (100+ analysts) 4 Sustainalytics: Where We Are 5. Research Company ESG research & Ratings Sector reports Thematic research Alert services Country Risk Monitor Controversial Weapons Radar Global Compact Compliance Advisory & Services UNPRI support services Engagement support ESG integration training Portfolio reviews & screening Portfolio analytics Sustainable Bonds service Bespoke ESG research 5 Our Research & Services 6. Research Approach 6 7. 7 Assessment of E,S,G controversies e.g Operations controversies, Environmental supply chain controversies Qualitative performance Targets and quantitative commitments, performance metrics e.g. Water Intensity, Environmental Fines and Penalties, Employee Turnover Rate Quantitative performance Disclosure of key ESG issues as part of industry initiatives e.g Scope of GHG Reporting, Tax Transparency per country Disclosure Management systems and policies e.g Health and Safety Programmes, Programmes/targets for Hazardous Waste Generation Preparedness Company ESG Assessment Framework 8. We assess company performance based on a broad set of indicators: Review of company reporting: annual reports, CSR reports, publicly available policies, etc. Review of external sources (Newspapers, NGOs, publications, etc.) Analysis by experienced analyst Structural peer review Company feedback always included in the research process 8 Company Research Process Risk Appetite NGO Reports Media and News DataAnalysis Stress & Scenario Testing Research Process Company Data Quality and Peer Review Company Feedback 9. Sustainalytics Outlook OutlookESG impact Business Impact Reputational Risks Regulatory Risks Preparedness Company Response 10 10. ESG Risks in the supply chain 10 11. About supply chains Strong supply chains can be the difference between a competitive advantage and a competitive disadvantage Supply chain dynamics vary per sector, risks vary per sector Where you are in the supply chain matters Supply chains are increasingly global. Country-specific factors, such as local regulatory frameworks and socio-political environment, can have disruptive effects Advantages of extending supply chain to low-cost countries are real, but so are the challenges Race to the bottom (on cost) has number of side effects, for countries, sectors, and companies (and therefore investors) 12 12. Supply chain risks Largely speaking three types of risk sources: Environmental, Social, and Political (governance) Associated risks to society Social unrest Negative impact on workers: forced labour, physical and psychological injuries, fatalities Environmental pollution Shock to local/national economies in case of business failures Associated risks to corporates Reputational Business risk Regulatory Associated risks to investors Impact on risk-adjusted returns Reputation risk 13 13. Example: Food Retailing Cost competitive environment Consumer demand driven High concentration of market share among few players Complex supply chains High impact on stakeholders, including customers, employees and suppliers Intensive use of energy and producer of waste 13 14. Example: Bangladesh Factory Collapse April 2013 incident resulted in over 1,000 fatalities and 2,500 injuries 80% of the Bangladesh revenues derived from garment manufacturing 25% of factories considered unsafe due to recurring health & safety incidents Company programs inadequately address factory integrity Limited traction of collaborative supply chain initiatives 14 15. Examples of Best Practices Defining clear supply chain standards which combine quality assurance, health & safety, working conditions and environmental impact Conducting and disclosing risk assessments Sourcing locally and/or implementing strong tracking systems for global sourcing Know the supplier via regular audits/monitoring Stimulating and participating in industry-wide and multi- stakeholder collaborative actions 17 16. Recommendations for Investors Map supply chain risks by industry and relate them to the individual companies Assess companies preparedness, as well as actual performance and management response Discuss outcomes of supplier risk assessments with companies and encourage regular reporting on progress Stimulate company disclosure of information about supplier locations and traceability systems Inquire how companies mitigate risks (clear time bound action plans) Encourage leaders to share best practices and engage industry peers and other stakeholders 18 17. Amsterdam | Bogot | Boston | Brussels | Bucharest | Copenhagen | Frankfurt | London | New York City | Paris | San Francisco | Singapore | Timisoara | Toronto For more information please contact: Tal Ullmann Associate Director Phone: +31 20 205 00 04 tal.ullmann@sustainalytics.com Karin Bjrk Associate Responsible Investment Adviser Phone: +31 20 205 00 50 karin.bjork@sustainalytics.com