From Policy to Portfolio - What is ESG integration?
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Transcript of From Policy to Portfolio - What is ESG integration?
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Floris Lambrechtsen & Masja Zandbergen Double Dividend
From Policy to PortfolioTBLI Academy Integrating ESG
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65 67 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 ..... 30........50
3,5
3,0
2,5
2,0
1,5
1,0
0,5
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Projections
091006-ICC-TT-Duurzaamheid-BD
Source: Goldman Sachs commodities research, Double Dividend
Food scarcity
Source: Goldman Sachs commodities research, Double Dividend
Climate change impact?!
Risks- Increasing uncertainty and volatility food prices.
Opportunities- Investments in increasing efficiency agriculture.- Increasing commodities trade.
Demand
Yield
Arable land
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091006-ICC-TT-Duurzaamheid-BD
Energy scarcity
Source: International Energy Agency, Clean Edge, New Energy Finance
Risks- Increasing uncertainty and volatility oil prices
Opportunities- Investments in clean technologies
120
100
80
60
40
20
01990 2000 2010 2020 2030
USD Billion
Mb
/d
New Investment in Renewable Energy
400
300
200
100
0
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Trends are interlinked
Source: Netherlands Environmental Assessment Agency, Growing within Limits, 2009
Integrated approaches are needed, leads to impasse and predictable surprises
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} Impasse
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Today’s investments shape tomorrows economy
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clean energy & efficiency
2030
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091006-ICC-TT-Duurzaamheid-BD
Source: Goldman Sachs commodities research, Double Dividend
20 year investment horizon requires incorporation of long term risks
nominal Correction for inflation
Expected Payments
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Evolution in responsible investing
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StrategyStrategy Process redesignProcess redesign Process supportProcess support FilterFilter
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Management of RI of a pension fund
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RI SupportRI Support
RI ControlRI Control
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What is ESG integration?
Obtaining ESG capability within the investment process at all levels – conviction, research, portfolio construction, risk management and reporting
versus
Removing from further consideration in the investment process possible investments which do not meet specified criteria related to ESG (negative
screening)
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Levels of ESG capability
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Manager screening on ESG integration
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• Managers are ranked according to development in RI: Risk Management, Integration and Value Creation
Manager screening on ESG integration
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0102030405060708090
ScoreValue Creation
Integration
Risk Management
ESG Capability
2008Relative
performance
2009 Relative
performance
1st quartile 9,25 6,19
2nd quartile 3,40 2,52
3rd quartile -4,16 -0,38
4th quartile -1,50 -1,16
Relative performance per quartile
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Examples of ESG best practice in non-SRI asset managers
•2-6 RI analysts support portfolio managers
•ESG analysis in Global Equity Buy List
•Platform for ESG analysis available to all portfolio managers
•Training of portfolio managers on ESG risks and opportunities
•Compliance/Risk Management involvement
•Reporting to clients on ESG analysis and decisions (on demand)
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• Involvement of portfolio managers
• Availability of ESG data in Emerging Markets and Small Caps
• Assessment of government bonds
• ESG integration in investment modeling
• Short term incentives structure
Dilemma’s and challenges
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