trends and tremors in the sustainable investing landscape

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The New Metrics of Sustainable Business

Trends and Tremors in the Sustainable Investing Landscape

The New Metrics of Sustainable Business 2013

Paul Herman, HIP Investor, Inc.Joy Poland, Building Bridges, LLCBart Houlahan, B LabStephen J. Donofrio, CDP North AmericaBill Baue, Corporate Sustainability Architect

TrendsTremorsToolsCONFIDENTIAL 2006-2013 HIP Investor Inc. 2

80% of Market Value = Intangiblewww.AgeOfVolatility.com

2006-2013 HIP Investor Inc. 383%68%32%20%20%17%32%68%80%80%

2006-2013 HIP Investor Inc. 4

Ocean Tomo Patent ETF (OTP)Intangibles Index Beats S&P500 (12/29/06 to 3/05/12)

+7.7%-3.9%

FUTURERISK, UPSIDECONFIDENTIAL 2006-2013 HIP Investor Inc. 5

ESG in Each Asset Class StillRipe for Sustainability PortfoliosCONFIDENTIAL 2006-2013 HIP Investor Inc. 6Source: Mercer ratings

How Much Carbon Do You Own?CONFIDENTIAL 2006-2013 HIP Investor Inc. 7Fund Tons of CO2 = 2602Fund Tons of CO2 = 778

Note 2 Values as of 6/30/2013

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IMPACT-RATED MUNI BONDSCity of Seattle = 72%15 of possible 25 WEALTH points forMedian IncomeAffordability of HousingVacant HousesUnemploymentPoverty

24 of possible 25 EARTH points forCommuting Method and Duration17 of possible 25 HEALTH points forObesity/DiabetesCrime RateGraduation RateHealth Insurance Coverage75%16 of possible 25 EQUALITY points for Gender Diversity & Ethnicity Reflected in Business Ownership72%

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IMPACT-RATED BONDSCONFIDENTIAL 2006-2013 HIP Investor Inc. 9Seattle Public Utilities Wastewater = 59%15 of possible 20 HEALTH points forSewer Overflow management34 of possible 60 EARTH points for Treatment techniquesSeparated pipesBiosolids practices5 of possible 10TRUST points for3rd Party certifications59%5 of possible 10 EQUALITY points for Gender diversity on the board and executive management

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CONFIDENTIAL 2006-2013 HIP Investor Inc. 10

* Past 5 years, as of 8/31/2013; HIP Scores (2011/12)Source: XYZ 401(k); Morningstar; HIP Investor ScoresTOP 50 Funds (ETFs)RETURNS: Annualized 5- Yr Returns*RISK Standard Deviation of 5-Year Returns*VALUE: size of circles relative to $ Invested in FundIMPACT: color of circles: Green = higher IMPACTYellow = medium IMPACTRed = lower IMPACT

CONFIDENTIAL 2006-2013 HIP Investor Inc. 11

RETURNS: Annualized 5- Yr Returns*RISK Standard Deviation of 5-Year Returns*VALUE: size of circles relative to $ Invested in Fund

IMPACT: color of circles: Green = higher IMPACTYellow = medium IMPACTRed = lower IMPACT* Past 5 years, as of 8/31/2013; HIP Scores (2011/12)Source: XYZ 401(k); Morningstar; HIP Investor ScoresTOP ETFsIndustry-Sector

CONFIDENTIAL 2006-2013 HIP Investor Inc. 12

RETURNS: Annualized 5- Yr Returns*RISK Standard Deviation of 5-Year Returns*VALUE: size of circles relative to $ Invested in Fund

IMPACT: color of circles: Green = higher IMPACTYellow = medium IMPACTRed = lower IMPACT* Past 5 years, as of 8/31/2013; HIP Scores (2011/12)Source: XYZ 401(k); Morningstar; HIP Investor ScoresTOP ETFsFixed Income

CONFIDENTIAL 2006-2013 HIP Investor Inc. 13

RETURNS: Annualized 5- Yr Returns*RISKStandard Deviation of 5-Year Returns*VALUE: size of circles relative to $ Invested in Fund

IMPACT: color of circles: Green = higher IMPACTYellow = medium IMPACTRed = lower IMPACT* Past 5 years, as of 8/31/2013; HIP Scores (2011/12)Source: XYZ 401(k); Morningstar; HIP Investor ScoresTOP ETFsEquities

CONFIDENTIAL 2006-2013 HIP Investor Inc. 14

CONFIDENTIAL 2006-2013 HIP Investor Inc. 15

Billion+ IMPACTMillion JOBSTrillion $ MARKETCONFIDENTIAL 2006-2013 HIP Investor Inc. 16

Building Bridges Joy PolandBuilding More Value + Profit:The Rhode Island MVP Program

17Slide 1We created a program in RI - collaboration with the RI state society of CPA's, Providence College, HIP Investor/ SNW asset Management and a group of other business thought leaders called THE MVP MORE VALUE & PROFIT PROGRAM WHOLE PREMISE TO PROGRAM BY LOOKING AT THESE INTANGIBLES, SUSTAINABILITY ISSUES, AND SUSTAINABILITY STRATEGIES WE CAN CREATE MORRE VALUE & PROFIT FOLL ALL COMPANIES BOTH PUBLIC AND PRIVATE

Tremors

Flying in the fog of False Estimates of real corporate value is a threat of planetary proportions. These can be fixed with fundamental shifts in measurement, reporting and rating companies.Allen White, (Guardian Professional) February, 2013

Answer: Bridge the GAAP

18Allen L Whiteis vice president of theTellus Institute, co-founder of the Global Reporting Initiative, and founder of theGlobal Initiative for Sustainability Ratings GOES ON TO SAY Change is happening, but not fast enough. The collective voice of enlightened business, civil society, and government is needed to accelerate this necessary transformation. The planet's, and society's, patience is not limitless.

threats like environmental costs not being not factored into the value of companies - and litigation prone industries - fines etc they are obvious threats and we all know in this room that these false estimates of value can be fixed with a shift in measurement, reporting and ratings but from our perspective the threat that we perceive to this movement and what is preventing it from changing fast enough because the is a sense of urgency with this - is the lack of understanding about the relevance of sustainability issues intangibles, new metrics etc on the privately-held business and the lack of understanding by mainstream to how these issues are directly impacting our personal lives it is our belief that these factors/issues etc AFFECT ALL BUSINESSES EVEN ORGANIZATIOONS NON-PROFITS there has to be a deeper penetration into mainstream CPAs and Financial ADVSIORS specifically ABOUT THE RELEVANCE AND THE IMPLICATIONS THAT THESE INTANGIBLES MEAN TO BUISINESS THIS CANT JUST BE ABOUT PUBLICLY-TRADED COMPANIES and Shareholders it has to be about stakeholders which is all of us

For example I see the financial institutions listed as sponsors to these types of events however on the street so to speak the average financial planner wealth advisor, that are affiliated or registered with these entities do not know what ESG stands for ? Does not know what sustainable/impact investing is? And the ones that do think they know automatically assume it is SRI socially responsible investing which is really a completely different concept - There are so many mandated venues for advisors, CPAs that they must participate in for CPE that we could be delivering this information but it is not happening

Privately held businesses AND MOST cpaS think that these issues do not pertain to them CLICK SO THE ANSWER TO US IS THAT WE HAVE TO BRIDGE THE GAAP

There is a huge disconnect between the relevance and understanding of the implications of this to the privately held business. SO FOR US THE THREATS ARE ABOUT CONNECTION COMMUNICATION OF THIS TO MAINSTREAM AND HENCE THE GENESIS OF THIS mvp PROGRAM We have to bridge the GAAP so to speak if we want to success in this movement. BRIDGE THE SECTORS AND BRIDGE THE GAP TO THE CONSUMER

we have to do a better job about educating the consumer - the consumer HAS TO BE EDUCATED ABOUT THE SYSTEMIC NATURE OF THESE issues THE CONNECTIVITY OF THESE ISSUES - and how these FALSE ESTIMATES OF VALUE AND IMPACT ARE SHOWING UP IN OUR PERSONAL LIVES

Kevin

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So this is Kevin "Kevin's Law is named in memory of 2 1/2 -year-old Kevin Kowalcyk, who died so tragically in on August 11 2001 after eating a hamburger contaminated with E. coli O157:H7. WHAT THIS LITTLE BOY AND HIS FAMILY WENT THROUGH WAS HORRIFIC no family should have to bear witness to a loved one suffering in the way that Kevin did.

The meat that Kevin ate had been produced by a subsidiary of one of Americas largest agribusinesses. In July 2000 one year before Kevins illness - this company failed USDAs Salmonella test for the second time. In December 2000, this same company had a positive random E.coli test and 1.1 million pounds of ground beef were recalled. After the recall, USDA performed another random E. coli O157:H7 test, which was negative, but then, in July 2001, an outbreak in northern Illinois and Chicago was traced back to the same offending plant. As a result, USDA performed a non-random test for E. coli O157:H7 on August 2, 2001 and this test came back positive. Finally, on August 27, 2001 after 25 days of USDA-industry negotiations the plant recalled 530,000 pounds of ground beef. The PFGE pattern (or DNA) for Kevins E. coli matched the PFGE pattern of the August 27th recalled meat

Was the intent of this company to kill kevin I doubt it what the substandard meat processing a way to cut costs and increase profits for shareholders probably however the focus solely on profits and short term value and quarterly earnings is a catalyst for these types of tragedies.Question could this company have been in one of the portfolios of Kevins parents or grandparents ? Could We be investing in companies that are creating the very challenges and painful experiences we say we wish to stop Would reporting and disclosure of these issues prevent these things from happening. The system is broke

Kevins Lawwas introduced in 2005 was proposed legislation that would have given theU.S. Department of Agriculturethe power to close down plants that produce contaminated meatThis bill never became law, as it was referred to committee but never reported on. Versions of the bill have been introduced in each subsequent Congress, but as of April 2010 have never been reported out of committee.

Corporate meat processors have and continu

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