Portland Rotary: The state of socially responsible investing and the drivers of change

An ERM Group Company
© 2018 BrownFlynn Ltd. All Rights Reserved.
Mike Wallace, Partner, BrownFlynn, an ERM Group company
Interim Executive Director, Social & Human Capital Coalition
November 6, 2018
The State of Socially Responsible
Investing and the Drivers of Change

/ 2© 2018 BrownFlynn Ltd. All Rights Reserved.
Context
The Four-Way Test:
• Is it the truth?
• Is it fair to all concerned?
• Will it build goodwill and better
friendships?
• Will it be beneficial to all
concerned?

Will it be beneficial to all?

Who is interested in sustainability?
Transparency
on
Sustainability
Investors
Employees
Consumers
Customers
Suppliers
Regulators/
Legislators
Boards of
Directors
Local
Communities
Activists/
Advocacy
Groups
Industry
Associations

Who has organized us the most?

© 2018 BrownFlynn Ltd. All Rights Reserved. / 6
What if the world were asked to define sustainability?
Environmental
 Materials
 Energy
 Water
 Biodiversity
 Emissions
 Effluents and Waste
 Products and Services
 Environmental Compliance
 Transport
 Supplier Environmental
Assessment
 Environmental Grievance
Mechanisms
Economic
 Economic Performance
 Philanthropy
 Market Presence
 Indirect Economic Impacts
 Economic Inclusion
 Procurement Practices
Human Rights
 Non-discrimination
 Freedom of Association &
Collective Bargaining
 Child Labor
 Forced /Compulsory Labor
 Security Practices
 Indigenous Rights
 Supplier Human Rights
Assessment
 Human Rights Grievance
Mechanisms
Labor Practices
& Decent Work
 Training and Education
 Employment
 Labor/Management Relations
 Occupational Health & Safety
 Diversity & Equal Opportunity
 Equal Remuneration for Men
and Women
 Supplier Assessment for
Labor Practices
 Labor Practices Grievance
Mechanisms
Society
 Anti-Corruption
 Public Policy
 Anti-competitive Behavior
 Local Communities
 Supplier Assessment for Impacts
on Society
 Grievance Mechanisms for
Impacts on Society
Product Responsibility
 Customer Health & Safety
 Product & Service Labeling
 Marketing Communications
 Customer Privacy
 Product Compliance

What if the world set sustainability goals?

© 2018 BrownFlynn Ltd. All Rights Reserved.© 2018 BrownFlynn Ltd. All Rights Reserved.
Will it build goodwill and better
friendships?

Investor Coalitions & Networks
Interfaith Center on Corporate Responsibility (ICCR)
 1972; nearly 300 members; representing over $400 billion
Institutional Investors Group on Climate Change (IIGCC)
 2001; over 150 members; representing over $20 trillion
Carbon Disclosure Project (CDP)
 2002; nearly 900 signatories; representing over $100 trillion
Investor Network on Climate Risk (INCR)
 2003; over 150 members; representing $25 trillion
Principles for Responsible Investment (PRI)
 2006; over 1,800 signatories; representing over $80 trillion
United Nations Guiding Principles Reporting Framework
 2013; over 67 investors; representing nearly $4 trillion
Task Force on Climate-related Financial Disclosures
 2015; over 32 members and 275 signatories;
representing over $86.2 trillion

© 2018 BrownFlynn Ltd. All Rights Reserved. / 10
Trends in
Responsible Investment
Within its 2018 Trends Report, US SIF examines three
basic Responsible Investment strategies (see chart).
Responsible Investment grew 38% between 2016
and 2018.
 ESG Incorporation = Inclusion of ESG risks and opportunities in
determinations for asset management (Passive)
 Shareholder Resolutions = A method for proposing changes to
a company as voted by fellow shareholders during the
company’s annual meeting; also referred to as Proxy
Resolutions (Active)
 Overlapping strategies = combination of ESG Incorporation
and Shareholder Resolutions

UN Principles for Responsible Investment (PRI)
The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international
network of investors working together to put the six Principles for Responsible Investment into practice.
Its goal is to understand the implications of sustainability for investors and support signatories to
incorporate these issues into their investment decision making and ownership practices.
Source: http://www.unpri.org/
$7 $10 $13 $18 $21 $24
$32 $34
$45
$59 $62
$68
$82
63
185
361
523
734
890
1,050
1,186 1,251
1,384
1,501
1,714
1,961
-
500
1,000
1,500
2,000
$-
$20
$40
$60
$80
$100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
UN PRI Growth Over Time
Assets under management (US$ trillion) Number of Signatories

UN PRI Signatories
(sample)

© 2018 BrownFlynn Ltd. All Rights Reserved. / 13© 2018 BrownFlynn Ltd. All Rights Reserved.
RiskMetrics Group
buys Innovest
FEB 2009
Thomson Reuters
buys Asset 4
NOV 2009
Bloomberg
buys New Energy
Finance
DEC 2009
GMI and
The Corporate
Library merge
JUL 2010
Vigeo and
EIRIS merge
OCT 2015
MSCI acquires GMI
Ratings
JUN 2014
ISS buys IW Financial
JAN 2017
Morningstar buys
40% of Sustainalytics
JUL 2017
SEP 2009
Sustainalytics and
Jantzi Research
Inc. merge
NOV 2009
RiskMetrics
Group buys KLD
MAR 2010
MSCI buys
RiskMetrics
Group
JUN 2012
Sustainalytics acquires
Responsible Research
SEP 2015
ISS acquires Ethix SRI
Advisors
OCT 2016
Standard & Poor’s
buys Trucost
JUN 2017
ISS acquires South Pole
Group’s Investment
Climate Data Division
ESG Research Market Evolution

The ESG Ecosystem
Based on sustainability reporting standards and frameworks, there are 100+ organizations producing
lists, rankings, ratings, and scorecards of the “top companies” and “most sustainable” companies.

© 2018 BrownFlynn Ltd. All Rights Reserved.© 2018 BrownFlynn Ltd. All Rights Reserved.
Is it fair to all concerned?

Investor Interests
Investors are increasingly asking companies to disclose strategies for long-term value creation and
incorporation of ESG into business strategies.
I want to reiterate our request, outlined in
past letters, that you publicly articulate
your company's strategic framework for
long-term value creation and explicitly
affirm that it has been reviewed by your
board of directors…you must also
understand the societal impact of your
business as well as the ways that broad,
structural trends — from slow wage
growth to rising automation to climate
change — affect your potential for
growth.” – Larry Fink, BlackRock Letter
to CEOs, 2018
“As part of our stewardship review, we
classify companies according to how they
have: 1) identified material
environmental and social sustainability
issues; 2) assessed and, where necessary,
incorporated the implications into their
long-term strategy; and 3) clearly
communicated their approach to
sustainability and its influence on
strategy.” – Ronald O’Hanley, State
Street Letter to Board Members, 2017
“Shareholders rely on a strong board to
oversee the strategy for realizing
opportunities and mitigating risks.
Thorough disclosure of relevant and
material risks enables share prices to
fully reflect all significant known risks and
opportunities…Climate risk is an example
of a slowly developing and highly
uncertain risk—the kind that tests the
strength of a board’s oversight and risk
governance..” – F. William McNabb III,
Vanguard Letter to Directors, 2017
Further Reading: Why the world’s largest asset managers are pushing long-term thinking, Mark Tulay, Director, Strategic Investor Initiative, CECP

Principles for Responsible Investment (PRI)
1. We will incorporate ESG issues into
investment analysis and decision-making
processes.
2. We will be active owners and incorporate
ESG issues into our ownership policies and
practices.
3. We will seek appropriate disclosure on ESG
issues by the entities in which we invest
(i.e., GRI, UN Global Compact).
4. We will promote acceptance and
implementation of the Principles within the
investment industry.
5. We will work together to enhance our
effectiveness in implementing the
Principles.
6. We will each report on our activities and
progress towards implementing the
Principles.

January 2018 – Larry Fink’s Letter to CEOs
“Companies must ask themselves: What role do we play in the community? How are we
managing our impact on the environment? Are we working to create a diverse workforce?”
March 2018 – Investor Stewardship on Human Capital
“Research has consistently shown the importance of human capital to company
performance. Companies included in Fortune magazine’s “100 Best Companies to Work
For” lists earned, over the long-term, excess risk-adjusted returns of 3.5%.”
October 2018 – BlackRock to Expand Access to ESG Data
“BlackRock projects ETF assets in ESG to grow from $25 billion today to more than $400
billion by 2028.”
Recent Market Developments
Investor Activity

April 2018 – CEO of Salesforce Closes the Gender Pay Gap
 “One of the reasons we’re considered such a great place to work (Fortune rated them
#1 this year) is that from the time we founded the company, we emphasized
philanthropy and social responsibility. We pay employees to give their time to local
schools and charities, and we have donated more than $180 million to non-profits.”
 “The World Economic Forum says that it'll take more than 100 years for us to pay men
and women equally.”
 “We said we're going pay men and women equally at this company, and we're going to
go through and level set every job, every division, and every department. We’re going
make sure that we have gender equality.”
 “It cost us about $3 million for us to do those adjustments the first year.”
Recent Market Developments
Corporate Activity

Is it the truth?

/ 21
Bloomberg ESG Information
Publicly Available Social & Human Capital Metrics: What Investors See
 Bloomberg aggregates information from publicly available disclosures, like SEC
filings, annual reports, sustainability reports, and third-party analyses on almost
10,000 companies as a service offering
to the investment and business communities.
 Bloomberg captures more than 600 metrics related to
environmental, social, and governance fields.
 Nearly 15,000 subscribers (most of whom are
investors) used the ESG data function on a
Bloomberg terminal in 2017.
 Bloomberg provides their own rating, called an ESG
disclosure score, consisting of a rating from 0-100
based on a company’s level of transparency
(not performance). They also provide separate
disclosure scores for E, S, and G.
 To show social & human capital-related metrics
already being collected by Bloomberg, we developed
the following slides using examples from the
Oil & Gas industry.
Image from Bloomberg 2017 Impact Report

Single Security ESG Data (Alphabet)

ESG Company Comparison

ESG Company Comparison (cont.)

ESG Company Comparison: Scores, Ranks & Ratings
Name
Bloomberg ESG
Disclosure
Score
RobecoSAM Total
Sustainability
Rank
RobecoSAM
Governance
Rank
RobecoSAM
Environmental
Rank
RobecoSAM
Social Rank
Sustainalytics
ESG Rank
Sustainalytics
Environment
Percentile
Sustainalytics
Social
Percentile
Sustainalytics
Governance
Percentile
ISS
Governance
QuickScore
Alphabet 42.15 28 4 56 28 81.97 86.89 82.79 10.66 10
AMD 52.89 16 13 25 13 N/A N/A N/A N/A 1
Alibaba 7.85 5 9 20 27 N/A N/A N/A N/A N/A
Amazon 25.21 46 50 46 29 42.35 57.65 56.47 10.59 7
Apple 53.11 36 41 36 9 70.51 85.90 43.59 42.31 1
AT&T 59.67 68 66 63 70 56.72 62.69 59.70 43.28 4
Cisco 50.41 88 88 100 100 91.03 83.33 92.31 92.31 1
Facebook 24.38 4 0 62 5 61.48 61.48 80.33 3.28 10
Flex 30.99 64 67 50 67 82.05 71.79 85.90 64.10 2
Intel 55.37 84 90 74 87 98.08 92.31 100.00 96.15 2
Microsoft 54.55 93 97 90 87 93.44 95.08 91.80 77.05 1
Netflix 12.81 13 21 19 9 4.71 1.18 1.18 27.06 10
Salesforce 35.12 83 83 70 77 81.15 84.43 68.03 91.80 10
Tesla 15.29 4 31 4 0 30.43 43.48 21.74 39.13 7
Verizon 40.33 23 39 29 23 68.66 85.07 55.22 53.73 4

ESG Company Comparison: Environmental Metrics
Company
RobecoSAM
Environmental
Rank
Sustainalytics
Environment
Percentile
Total GHG
Emissions (Th
Tonnes) GHG Scope 1 GHG Scope 2
Total Energy
Consumption (MWh)
Renewable
Energy Use
(MWh)
Environmental
Supply Chain
Management*
Climate Change
Policy
Alphabet 56 86.89 2968.77 66.22 2902.55 6513.72 3539.24 Y Y
AMD 25 N/A 52.37 2.57 49.80 125 29 Y Y
Alibaba 20 N/A N/A N/A N/A N/A N/A N/A N/A
Amazon 46 57.65 N/A N/A N/A N/A N/A Y Y
Apple 36 85.90 633.84 34.32 599.52 1736.52 1538.14 Y Y
AT&T 63 62.69 8877.89 1140.63 7737.25 19627.8 298.242 Y Y
Cisco 100 83.33 781.72 47.41 734.31 1825 1263 Y Y
Facebook 62 61.48 552.86 7.18 545.68 N/A 786.9 N N
Flex 50 71.79 1057.06 N/A N/A N/A N/A Y Y
Intel 74 92.31 3415.00 976.00 2439.00 6420 N/A Y Y
Microsoft 90 95.08 2149.02 88.49 2060.53 5187.18 4852.64 Y Y
Netflix 19 1.18 N/A N/A N/A N/A N/A N N
Salesforce 70 84.43 135.00 3.00 132.00 N/A 98.05 Y N
Tesla 4 43.48 N/A N/A N/A N/A N/A N N
Verizon 29 85.07 5632.22 372.50 5259.73 N/A N/A Y Y
* Indicates whether the company has implemented any initiatives to reduce the environmental risks in its supply chain

ESG Company Comparison: Social Metrics
Company
RobecoSAM
Social Rank
Sustainalytics
Social Percentile
Health and
Safety Policy
Lost Time
Incident Rate
Total
Recordable
Incident Rate
Lost Time Incident
Rate-Contractors
Total
Recordable
Incident Rate-
Contractors
Social Supply
Chain
Management*
Human Rights
Policy
Alphabet 28 82.79 Y N/A N/A N/A N/A Y N
AMD 13 N/A Y N/A N/A N/A N/A Y Y
Alibaba 27 N/A N/A N/A N/A N/A N/A N/A N/A
Amazon 29 56.47 Y N/A N/A N/A N/A Y N
Apple 9 43.59 Y N/A N/A N/A N/A Y Y
AT&T 70 59.70 Y N/A N/A N/A N/A Y Y
Cisco 100 92.31 Y 0.31 N/A N/A N/A Y Y
Facebook 5 80.33 N N/A N/A N/A N/A N N
Flex 67 85.90 Y N/A .57 N/A N/A Y Y
Intel 87 100.00 Y .07 .47 N/A N/A Y Y
Microsoft 87 91.80 Y N/A N/A N/A N/A Y Y
Netflix 9 1.18 N N/A N/A N/A N/A N N
Salesforce 77 68.03 Y N/A N/A N/A N/A Y N
Tesla 0 21.74 Y N/A N/A N/A N/A N N
Verizon 23 55.22 Y N/A N/A N/A N/A Y Y

ESG Company Comparison: Governance Metrics
Company
RobecoSAM
Governance
Rank
Sustainalytics
Governance
Percentile
% Women in
Management
% Women in
Workforce
% Women on
Board
Number of Female
Executives
Percentage of
Female
Executives
% Minorities in
Workforce
% Independent
Directors
Alphabet 4 10.66 N/A 31.0 25.0 2 28.6 N/A 66.7
AMD 13 N/A 12 24.0 22.2 1 16.7 N/A 66.7
Alibaba 9 N/A N/A N/A 9.1 5 29.4 N/A 45.5
Amazon 50 10.59 25 39.0 27.3 1 14.3 N/A 90.9
Apple 41 42.31 28 32.0 25.0 1 10.0 N/A 87.5
AT&T 66 43.28 N/A 32.0 30.8 1 10.0 43 92.3
Cisco 88 92.31 20 24.0 27.3 3 42.9 N/A 81.8
Facebook 0 3.28 N/A N/A 25.0 1 14.3 N/A 75.0
Flex 67 64.10 N/A 40.3 0.0 0 0.0 N/A 88.9
Intel 90 96.15 N/A 26.0 18.2 1 16.7 N/A 81.8
Microsoft 97 77.05 17.9 25.8 27.3 3 42.9 N/A 81.8
Netflix 21 27.06 N/A N/A 33.3 0 0.0 N/A 88.9
Salesforce 83 91.80 19 30.0 18.2 3 30.0 N/A 81.8
Tesla 31 39.13 N/A N/A 14.3 0 0.0 N/A 71.4
Verizon 39 53.73 29.6 35.2 30.8 1 11.1 N/A 92.3

Context
The Four-Way Test:
• Is it the truth?
• Is it fair to all concerned?
• Will it build goodwill and better
friendships?
• Will it be beneficial to all
concerned?

Do Good. Do Well. Win.™
For more information on BrownFlynn’s services,
please visit www.brownflynn.com or contact us below.
Thank You
Mike Wallace
Partner
(424) 320 3501
mikew@brownflynn.com

Portland Rotary: The state of socially responsible investing and the drivers of change

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