the process of ethical investing: the case of etica sgr
TRANSCRIPT
The process of ethical investing:
the case of Etica SGR
Francesca Colombo – Head of ESG Research
Marta Pievani – ESG Analyst
Università degli Studi di Bergamo October 2014
Agenda
ESG Analysis of securities
Etica SGR: Brief History
Shareholders’ activism and
engagement activities
Engagement&Voting
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JULY 2014 : FIFTH UPDATING
GOVERNANCE
Shares buy back transaction
Remuneration (revisions)
Remuneration plans based on financial instruments
Dividends
Independent auditing firm
SOCIAL
2.1 Respect for human rights
2.1.2 Child labour
2.1.4 Human trafficking
2.2 Suppliers and costomers
ENVIRONMENT
3.1.1 Sustainable packaging
3.2 Water
3.4 Exploitation of forests
3.5 Genetically modified organism
3.6 Animal rights
Etica SGR is an active shareholder on behalf of subscribers of Etica’s funds.
The approach is positive and patient and aims to attend the companies in their long
term way of improvement in the sustainable management.
Shareholder activism is developed through a constant dialogue with the companies, by
attending AGM companies and by voting resolutions.
Shareholder Engagement: 2014 Issues for Etica SGR
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Top Management remuneration
ESG issues
Supplier monitoring
Social and Environmental
Reporting
Water use and managemnt
CDP initiative
Health and Safety
Support of shareholder resolutions
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The Etica SGR 2014 «Say on Pay»
In 2013, almost all of the votes against the remuneration policy was represented by institutional investors (88% of minority voters);
Institutional investors demanded Italian listed companies for greater clarity about the link between bonus and management performance achieved (growth, profitability, competitiveness).
50%
23%
27%
Etica SGR
81%
19%
Proxy Advisor
Votes in favour
Abstention
Votes against
Clear and simple remuneration schemes
Link between performance objectives and
remuneration
Indication of targets and thresholds
Maximum limits to remuneration
Presence of remuneration plans based on
financial instruments
% fixed and variable salaries
Consideration of the average market remuneration
Link between variable remuneration and ESG indicators
Transparency of the data relating to the differences
existing between tha salary of the employee and the
CEO.
% of Independent Directors in the Committees
Severance payments
Shareholder activism in Italy - 2014
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March 2014 – SNAM: allocation of income, water resources and its management and
monitoring system for supply chain.
April 2014 – PIAGGIO: payout ratio, ISO 14001 Certification, CDP participation, calculation
of Piaggio carboon footprint, human right policy
April 2014 – PRYSMIAN: human right and labor respect policy, suppliers ESG selection,
complex paymix and variable part of the remuneration linked with ESG objectives
April 2014 - BREMBO: Share Repurchase Program, election of Directors, approve
remuneration report
April 2014 – YOOX: policies on human rights and labor respect, variable part of the
remuneration linked with ESG objectives.
April 2014 – DIASORIN: sustainability report, environmental policy, water usage, human
right policy, remuneration scheme
May 2014 – INDESIT: remuneration linked with ESG objectives, salary gap, executive
incentive Bonus Plan
May 2014 – TERNA: water usage, supply chain management, variable part of remuneration
linked to ESG issues.
Indesit it’s the European leader of household goods and is in Etica SGR Eligible Universe from the beginning
(2003);
According to the Etica SGR methodology, Indesit got a good ESG score, on corporate governance and
environmental policies mainly;
For the tenth consecutive year, in May 2014, Etica SGR voted and had a speech at Indesit AGM, well-aware of
its forthcoming merger in Whirlpool Company;
Etica SGR suggestions in 2014 AGM have been:
● Participation at the Carbon Disclosure Project Programm;
● Carbon footprint calculation;
● Attention to employees during the restructuring plan;
● ESG goals for management bonus definition
● Information about corporate restructuring strategies;
● Etica Sgr asked the difference between the medium remuneration of the Company’s employees and it’s CEO one.
Recommendations of Etica SGR are reported in the Sustainable Report of Indesit every year;
Indesit has spoken with Etica Sgr’s Ethics Commeette constantly about the hard situation in terms of job-cutting
policy. Etica wanted to be sure about Italian workers’rights guarantees.
A good dialogue partner: Indesit Company
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A good dialogue partner: Indesit Company
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A successfull story: YOOX
9 …But…
YOOX Group is the global Internet retailing partner for leading
fashion & design brands (the multi-brand stores yoox.com, thecorner.com
and the new online destination shoescribe.com, all “Powered by YOOX Group.”)
The Group has offices and operations in the United States, Europe, Japan, China and Hong Kong and delivers
to more than 100 countries worldwide.
For the third year, Etica joined the Yoox’ AGM, voting in favor of all points in agenda.
Together with some socially responsible investors such as The Cooperative Bank, Boston Common Asset
Management, CREA and Tri-State Coalition, Etica stressed the following important ESG issues.
● ESG Reporting: Etica SGR encouraged Yoox to answer to the CDP Water questionnaire;
● Calculation of its carboon footprint;
● Logistic center and supply chain: Etica encouraged YOOX to have a stronger ESG selection and monitoring
of suppliers and logistics center, especially in China;
● Management remunerations.
Thanks to Etica SGR’s suggestions as well, in 2013 YOOX published its first Sustainability Report, very detailed
(GRI level B) and in 2013 it reached GRI level A+.
Some «No answer»…
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WHAT WE ASKED WHAT YOOX ANSWERED
Management remuneration Introduction of ESG goals (CO2 reduction, renewable energies use)
in management remuneration schemes.
Data concerning the difference between CEO’ remuneration and
the average of employees’ one both in Italia and abroad for 2012 and
2013
Human Right Policy Etica SGR stressed the importance of
editing a human right policy in order to monitor the global companies operation and its supply chain.
Management remuneration Mr. Marchetti, the Chairman and
the Chief Executive Officer of YOOX, said to Etica SGR that Environmental goals will be
introduced in 2015 remuneration report. These goals are already present
for other roles in YOOX.
Mr. Marchetti communicated that the difference between CEO’s
remunerations and the average of employees’ one is lower compared
to YOOX’s competitors. Specific data hadn’t been provided.
Human Right Policy There have been no answers on this
point
Our first time: DIASORIN
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Headquartered in Italy, DiaSorin is a global leader in the field of biotechnologies.
It closed 2013 with a net income € 83,1 millions and about 1,603 employees.
For the first year, Etica joined Diasorin’ AGM, voting voted for all items in agenda, except for
the proposal to approve remuneration report, from which Etica SGR abstained.
Together with some socially responsible investors such as The Cooperative Bank, Boston Common
Asset Management, CREA and Tri-State Coalition, Etica stressed the following important ESG
issues:
● ESG Reporting following GRI standards;
● Adhesion to the Carbon Disclosure Project and adoption of an environmental policy;
● Remuneration schemes linked to ESG goals
Our first time: DIASORIN
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“…we believe that reporting on social and environmental issues can lead to an improvement of operational efficiency and leadership in the market, a strengthening of the position and reputation of the brand and a better management of the supply chain. The reporting of all aspects of the business is supported by a number of global initiatives, such as, for example, the Global Reporting Initiative, a nonprofit organization with a multi-stakeholder approach that introduced a global recognized standard on ESG reporting. We have learned with pleasure the willigness of DiaSorin to publish, by 2015, its first social-environmental report and we hope that this process will be carried out also through the establishment of a specific business unit to assign the responsibility for adopting social responsibility policies that may constitute an integrated strategy in the Company as a whole..”.
IT IS GOING TO PUBLISH ITS FIRST SUSTAINABLE REPORT….FULFILLED
PROMISE? ….WE WILL SEE IN 2015
Shareholder activism abroad – 2014
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Shareholder activism abroad – 2014
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April 2014– STRAUMANN: For the second year, on April 11, 2014, Etica SGR voted, through web platform, at the shareholder general meeting of Straumann Holding, a Swiss Company operating in implant and restorative dentistry and oral tissue regeneration.
ISSUES: lack of transparency concerning fixed and variable remuneration schemes, excessive CEO compensation, remuneration linked to ESG targets, more women in the Board.
May 2014 – RED ELECTRICA: operator of the Spanish electricity system.
ISSUES: remuneration linked to ESG targets, Etica asked for the data of the difference between CEO’s remuneration and the average salary of the Company’s employees
May 2014 – SANOFI: French multinational pharmaceutical company operating in 112 plants all over the world.
ISSUES: high level of payout ratio (ratio between the dividend and the income) remunerations linked to ESG targets
May 2014 – INTEL: American multinational IT company.
ISSUES: lack of detailed information on the indicators underlying the short term variable part of the compensation, remunerations linked to ESG targets, abstention from auditor ratification.
Shareholder activism abroad – 2014
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June 2014 – TESCO: British general retailers.
ISSUES: Etica SGR voted against the authorization to political donations by the Company and voted in favor of the remuneration policy, considering particularly positive the presence of a three years vesting period and a clawback clause relating the stock option plans, the inclusion of socio-environmental targets.
September 2014– GENERAL MILLS: American food producer and retailer company.
ISSUES: lack of remunerations linked to ESG targets, support of two minority’s shareholders motions related to responsible packaging and the removal of GMO from products.
September 2014 – CONAGRA FOODS: American food producer and retailer company.
ISSUES: the absence of remuneration schemes linked to ESG goals and the lack of reporting about the ratio between CEO’s remuneration and the average one of all Company’s employees. Moreover, Etica SGR sent a letter to the Company asking more information about some issues on labor rights controversies and Customer controversies.
International ESG initiatives
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Supply Chain Questionnarie: to provide with companies some specific instruments and tools to monitor their suppliers, regarding child and forced labor especially.
Financing Climate Change: writing to 63 global banks that include the largest underwriters of carbon-intensive industries: oil, gas, pipeline, electric power, and coal mining.
Cotton Campaign – Uzbekistan: showing support for the ending of
forced labor in the cotton fields of Uzbekistan.
Labour standards in the agricultural supply chain: the objectives are to Identify and assess existing company practice, encourage improved company practice and outcomes and encourage enhanced company communication and reporting.
Carbon Disclosure Projects: to encourauge companies to adopt a correct behaviour regarding emissions, water use and forest impacts.
Conflict Minerals: to face the HR and ILO violations (forced and child labor mainly) of companies’ suppliers in Democratic Republic of Congo.
Human Rights In Burma: to introduce the European companies commitment to monitor HR respect by their suppliers’ in Burma and to report transparently.
Senior Gender Diversity: to encourauge companies to pay attention to gender equality in the Baord and top management.
Conflict Minerals
Issue: minerals extraction in Congo represent a controversal item concerning forced and child practices thanks to others troubles such as:
● Mines controls by army forced of corrupted government
● Lack of labor standards
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Etica SGR action: Etica Sgr co-signed a letter sent to SEC to encourage it to approve 1502 Section of «Wall Street Reform and Consumer Protection Act». American companies will be obliged to:
Disclosure about suppliers in Congo (YES/NO) If YES, create a specific management and monitorng systems of suppliers, by indipendent body as well Disclosure about monitoring activites (on website and to SEC and markets)
Results: the law had been approved the last August effecting from January 2014 Network: the project is driven by As You Sow, through Responsible Sourcing Network, wich met SEC several times in 2011 and 2010.
Human Right: an International common issue
Human right in Uzbekistan: raise public awareness about the incessant human rights violations practiced on both children and adults. The campaign aims to stop the mobilization that is annually organized by the Uzbek government to collect the cotton fields of the state.
Tesco and Marks & Spencer are committed to not
supply with cotton from Uzbekistan
linked to workers exploitation
Etica SGR along with other socially responsible investors has co-signed a letter to the Uzbek government to stop the exploitation. (Cotton Campaign). The letter was handed over to representatives of the government and has helped to increase the visibility of the problem.
Web: www.eticasgr.it
New graphics Updated contents Newsletter subscription Funds performances updated daily
Positive and negative criteria list Shareholder activism policy and engagement activities Microcredit projects English version (www.eticasgr.it/eng/) Web 2.0
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Follow us on:
2014 - Main issues in Etica Sgr
Financial Sector
A current issue is represented by the evaluation of financial sector
(banks, insurance companies, investment companies) in which Etica SGR’s funds
don’t invest actually because of troubles linked to governance and transparency.
We believe that this sector needs several improvements to be better, in ESG aspects
as well, and the role of responsible investors is important to make it gradually. So,
together with the Ethical Committee, Etica SGR is trying to identify and understand
the controversial items and also the best issues of this sector in order to develop a
specific set of indicators (such as Water criteria in 2012).
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ISO9001 certification
In order to improve continually the quality of services provided to clients, Etica
SGR has achieved ISO9011 certifications concerning the quality of the
management process of ESG research and analysis activities.
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"Capital as such is not evil; it is its wrong use that is evil. Capital in some form or other will always be needed."
M. K. Gandhi
Contacts
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Francesca Colombo
ESG Analysis Team
Disclaimer
This document is purely informative and should not be considered an offer to buy or sell or solicitation in any financial product. Past performance is not indicative of future results. Before investing, please read the prospectus and the settlement of funds. These documents are available on site www.eticasgr.it.