Após o sucesso do ciclo de Conferências HUMAN HABITAT 2010 e 2011, a CONSTRUÇÃO SUSTENTÁVEL® propõe-se em realizar um ciclo de seis Conferências HUMAN HABITAT 2012, dando continuidade e consolidando a plataforma de comunicação aberta dedicada ao tema das Cidades Sustentáveis, no âmbito da renovada parceria com o OCEANÁRIO DE LISBOA.
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Karina Litvack - Human Habitat 2012
1. Sustainable Investment: How active shareholders drive positive change
Karina Litvack, Director, Head of Governance & Sustainable Investment
Lisbon, 7th May 2012
www.fandc.com
2. Agenda
F & C’s Approach to Responsible Investment
Market Drivers of Responsible Investment
What are the Hot Issues?
Case Studies
Q &A
3. F&C Investments – responsible investment
overview
Overview Leading European Fund Manager
European asset manager with
€120bn* under management
London-based
Listedon London Stock
Exchange
28-year track record in ethical
and sustainable investment
funds
*€120.1 bn as at 31.12..2011. ***Strategic partners
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4. F & C’s Ethically-Screened Funds
Growingconsensus that best long-term performance will come from
companies that take seriously their wider environmental, social &
governance responsibilities
Highenergy prices & awareness of climate change have spurred
investor interest in clean energy & related investments
Need to meet ethical considerations that are becoming increasingly
important in the minds of investors
“
You cannot escape the responsibility of tomorrow
b
y evading it today”
A
braham Lincoln
6. Market Drivers Behind Responsible Investment
Systemic concerns
Investment drivers
Corporate scandals and crises: downside protection
Reducing risks, Spotting opportunities
Regulations & Codes:
From divestment to active investment
Pensions laws and codes
Corporate leadership: will investors follow?
Stock Exchanges: JSE, Novo Mercado, Borsa Italiana Star Index
Sell-side research: Integration of ESG into investment analysis
7. Changing Definition of Fiduciary Duty
“Where fiduciary duties apply, there is no general requirement in law for
investment decision-makers to invest according to ESG considerations,
but ESG considerations are relevant considerations that must be taken
into account in the process of investment decision-making.
The weight to be given to ESG considerations, however, is for the
investment decision-maker empowered to make discretionary
investment decisions in the interests of all beneficiaries.
Itis not a breach of fiduciary duties per se to have regard to ESG
considerations while pursuing the purposes of the trust. Rather, in
our opinion, it may be a breach of fiduciary duties to fail to take
account of ESG considerations that are relevant and to give them
appropriate weight.”
Freshfield Bruckhaus Deringer, October 2005
8. A Philosophy: Shareholder Engagement
r
eo®: Responsible Engagement Overlay
Responsible
Uses shareholder influence to encourage adoption of best practices
Focuses on risk reduction and long-term shareholder value
Engagement
Recognises common interests of company & shareholder
Builds on constructive dialogue with companies
Overlay
Does not screen out companies = no impact on portfolio construction
Investment decisions driven by financial considerations
A
pplies to all of F&C’s equity holdings + third-party funds
9. Where do investors engage?
Environment Social Governance
Environmental management Human rights Corporate Governance
Environmental standards Security Remuneration
Supply chain environmental Privacy & free expression Board structure
standards
Community relations Shareholder rights
Pollution control
Weak governance zones Audit & control
Waste & recycling
Product opportunities
Labour standards Sustainability Management
Health & safety Disclosure & reporting
Ecosystem services
ILO core conventions Governance of sustainability
Biodiversity management issues
Diversity
Water UNGC compliance
Supply chain labour
Access to land standards Stakeholder engagement
Climate change Public health Business Ethics
Emissions management & Nutrition Bribery & corruption
reporting
Access to medicines Political influence
Climate change strategy
Product safety Whistleblowing systems
Access to land
HIV/AIDS Responsible marketing
Biofuels
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10. Case Study: Tackling the Credit Crunch
E
ngaging with banks
Banking sector has experienced a series of seismic shocks
I
ssue:
Inadequate oversight of risk and link to pay
Lack of transparency and accountable practices
Disregard for systemic impacts
A
ction:
Engage with banks – 4 key themes:
Disposal of toxic assets and recapitalisation
Reform of incentive structures to ensure pay-for-performance and appropriate risk-taking
More robust boards that hold executives to account
Cultural reform - Lobbying
Using voting rights to challenge poor practices
Tackling systemic factors: Dialogue and engagement with regulators
Regulation that sets good governance standards and encourages greater transparency
without inhibiting competition.
11. Aligning bank remuneration with risk
Credit quality as a bonus underpin
Excessive focus on Return on Equity for banks
F&C pioneered Credit Quality Underpin as precondition for bonus awards
Engaged over 50 banks globally
To date: RBS and Barclays accept idea
See F&C Viewpoint
“There is an underpin whereby awards will only
vest if the Remuneration Committee is satisfied
that risk management during the performance
period has been effective and that financial and
non-financial performance has been satisfactory”
“The Remuneration Committee has the
discretion to reduce the vesting of deferred
incentives and long term incentive awards (to nil
if appropriate) if, in its sole opinion, the financial
health of the Group has significantly
deteriorated”
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14. Tokyo Electric Power Company - TEPCO
TEPCO and the Fukushima nuclear accident
Background
In March 2011, Japan suffered a major earthquake and tsunami
Fukushima nuclear power plant suffers a catastrophic safety
failure
Market Reaction leads to plant shutdown and subsequent rolling
Safety failure
power outages
Share price has fallen 80% since the earthquake
TEPCO’s credit rating is downgraded by Moody’s from A1 to Baa1 and
remains under review
TEPCO’s credit default swaps peaked at 400bps over risk-free, in line
with sub-investment grade risk, compared to 8bps pre-disaster
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15. TEPCO
F&C Acts
Meeting with TEPCO at Tokyo offices to discuss ESG strategy, practices
and reporting
Recommendations to:
Improve independent oversight of the company through appointment of outside
board directors
Enhance safety and reporting systems at key nuclear facilities
Implementcomprehensive climate change policy to include emissions targets,
renewable energy goals
Encourage responsible consumer behaviour towards energy use
F&C leading collective engagement on behalf of UK investors to:
Urge management strategies to lead business out of the crisis
Safety review and post-mortem will shape F&C’s ongoing engagement
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16. ESG risks and Credit risk: BP and TEPCO
ESG risk hits investors in the wallet
Impact of Macondo oil spill on
BP’s cost of credit Impact of nuclear blast on
Tepco’s cost of credit
Source: Bloomberg.
17. Technology and media industries
Since 2004, active involvement in Global e-Sustainability Initiative (GeSI)
and Electronics Industry Citizenship Coalition (EICC).
EICC: de facto standard for technology hardware companies to improve
labour and environmental standards in electronics factories
From an initial group of three US computer companies, now over 40 global
companies throughout value chain.
Majorcriticism of factory labour standards of Apple’s popular
iPhone and iPod
F&C engaged Apple and Foxconn, its outsourced manufacturer
Encouraged both to join the EICC, implement policies and publish
factory audits.
Dell
introduced a comprehensive take-back programme for its
obsolete products as early as 2004.
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18. Deforestation & Climate Protection
Forest protection essential to safeguard rainfall and
avoid soil erosion
Poor government enforcement and company practices
High-profile scandal linking Unilever to rainforest
destruction
F&C Acts
Site visits: Indonesian palm oil plantation
Pressed Unilever, Golden Agri and 12 companies to curb deforestation
Collaborative engagement : Forest Footprint Disclosure Project, government action
Results & Next steps
Golden Agri undertaken remedial action
Unilever will halve environmental footprint of its products by 2020
Consumer Goods Forum goal: zero net deforestation by 2020
78 participants in a new Forest Footprint Disclosure Project
Government support for forest protection at Cancun
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19. Market failure: “Universal investor” factors
The challenge: Diabetes an escalating social and economic burden
Cost to
health
service
($ billion)
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26
China to see 80%
increase in diabetes
15 cases by 2030
2007 2011 2030 Years
Investor engagement:
ood & beverage companies:
F
Incl. Access to Nutrition Index (ATNI)
etailers and restaurants
R
arge employers on employee general health
L 19
20. Global Engagement: Examples of Milestones
UK: Standard UK: Petrofac France: Danone NL: Heineken Germany: Adidas Italy: Bulgari Pledged to
Chartered actively addressed implemented a committed to new joined SEDEX, an responsible jewelry
incorporated humanitarian and strict policy not to ideas for limiting initiative to promote sourcing, addressing Russia: Novatek
climate risk into human rights market to children water usage in labor standards human rights concerns increased the
UK: HSBC
its lending issues in Sudan breweries over conflict diamonds number of
Improved board
criteria and Burmese gems independent
independence
board directors
enhancing
oversight of
group risk
management
Japan: Mitsubishi
leveraged
suppliers to
US: Pfizer raised improve labour
animal welfare standards
standards
throughout its
supply chain
Korea:
Shihan Financial
improved shareholder
rights
US: Motorola
introduced more
energy efficient China: China Telecom
batteries into its took active steps to
mobile phones eliminate corruption by
India: TATA
Brazil: BM&F enhancing employee
Consultancy
Mexico: Alsea Bovespa protected conduct standards
developed Australia: Arrow Energy
integrated the rights of minority
capacity to lead committed to comprehensive
US: Hewlett-Packard environmental impact shareholders in the
clients in biodiversity management
Supported US laws to targets into company Brazil Stock
sustainability throughout its supply chain
improve shareholder performance goals Exchange
influence over executive strategies
compensation
21. Thematic investment approach
Alternative energy Energy efficiency Sustainable mobility
Solar, wind, Insulation, energy Alternative fuels,
geothermal… demand management… efficient cars…
Mitigation
Waste Advanced materials Forestry & agriculture
Recycling, landfill, Bioplastics, Forestry
gas capture… silicon… projects…
Water Acclimatisation
Adaptation Desalination, water New crop varieties,
purity testing… catastrophe insurance…
Supporting services
Supporting
services
Consultancy, carbon trading...
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22. Investment themes
Theme: Energy efficiency
Huge untapped scope for energy efficiency
improvements
Doubling
the rate of energy efficiency
improvement worldwide could save energy
equivalent to 2,000 coal-fired plants by 2030 –
and save consumers $500bn/yr
Governments are becoming increasingly bold
in their approach, using regulation to set
minimum standards in buildings and products
(e.g. EU action on the old-style lightbulb)
Improvements to electricity distribution systems
also critical – over $90bn of fiscal stimulus
money directed towards investments in grids
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23. Mitigation: Energy Efficiency and Informatica
Climate Change Rationale
Running servers at higher utilization
rates means less total energy usage,
which results in lower carbon
emissions. Cloud data centres are
also more energy-efficient compared
with more decentralised systems.
Large UK companies that use cloud
computing could reduce CO2
emissions associated with their IT
estate by 50% compared to predicted
levels without the adoption of this
technology. This would be equivalent
to the annual emissions of over 4
million passenger vehicles, and that’s
the potential for UK companies alone.
1
Data is power hungry: the average
data centre consumes as much
energy as 25,000 households. 2
1Source: Carbon Disclosure Project 23
2 Source: McKinsey Analysis
Investment Rationale
24. Waste
3.6% of global greenhouse
gas emissions come from
waste: largely gases from
landfill sites
Recycling also offers
significant energy savings
compared with producing
goods from new
The sector is already subject
to heavy regulation (eg EU
Landfill Directive). Climate
change concerns are adding
to the pressures
Growth opportunities include
recycling and waste-to-energy
projects
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