From Policy to Portfolio - What is ESG integration?

Floris Lambrechtsen & Masja Zandbergen Double Dividend

From Policy to PortfolioTBLI Academy Integrating ESG

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

0

Projections

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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

2

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

3

Trends are interlinked

Source: Netherlands Environmental Assessment Agency, Growing within Limits, 2009

Integrated approaches are needed, leads to impasse and predictable surprises

4

} Impasse

Today’s investments shape tomorrows economy

5

clean energy & efficiency

2030

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

6

Evolution in responsible investing

7

StrategyStrategy Process redesignProcess redesign Process supportProcess support FilterFilter

Management of RI of a pension fund

8

RI SupportRI Support

RI ControlRI Control

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)

9

Levels of ESG capability

10

Manager screening on ESG integration

11

• Managers are ranked according to development in RI: Risk Management, Integration and Value Creation

Manager screening on ESG integration

12

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

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)

13

• 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

14