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Environmental, Social &
Governance Analytics
An overview and discussion on regulation and application
July 2014
Agenda
 Sustainable investment overview
 Key regulatory drivers
 Our approach and solutions roadmap
 Case studies
 Conclusion
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 Sustainable investment overview
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A broad context to sustainable investing
Level of engagement
Action
Why items
us
Corporate engagement & shareholder action
Impact Investing
Generate measurable social impact (microfinance,
community investing, social business funds)
Sustainability themed investments
Address specific sustainability issues (climate change,
etc.)
Integration
Integrate ESG factors in the investment decision
process, along with traditional financial analysis
Screening
Negative screening / Norms-based screening / Positive
screening
Sustainable investment is an approach where environmental, social and governance factors, in combination
with financial considerations, guide the selection, management and monitoring of investments
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Spectrum of investment approaches
Impact Investing
Responsible Investment
Traditional
Screening
Integration
Themed
Impact-first
Philanthropy
Competitive Returns
Examples
Focus
Targeted ESG impact
Environmental /
Negative /
Using ESG
Asset selection
social issues which
Limited / not
exclusionary
information in
Focused on ESG
focused on
create investment
focused on ESG screening / positive / investment process
issues with a 100%
addressing
opportunities
factors
best-in-class
at the portfolio /
financial trade-off
sustainability issues
(financial
screening
sector / issuer level
considerations 2nd)
 Clean energy
fund
 Traditional
 Traditional funds
 Emerging
 Capital provision
market-cap
with ESG
 Ethical funds
markets
fund to social
 Endowment
based strategies
integration in the
 SRI funds
healthcare fund
enterprise /
funds
 Absolute return
investment
 Microfinance
charities
strategies
process
structured debt
fund
Asset Owners
Source: Understanding the impact of your investments, UNPRI, July 2013
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Global overview and key themes
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RENGO (trade union: 585 bn USD) published The
Guidelines on Responsible investment
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Establishment of the Principles for Financial Action
towards a Sustainable Society which is industrydriven
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Most Super funds signatories to the UN Principles for
Responsible Investment (PRI) (34 AOs / 78 AMs)
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Super funds with dedicated ESG staff
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Major focus for the Australian Future Fund
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FSC standard No 20 has ESG risk management focus
Total global sustainability assets:
US13 trillion
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North America: 4329 billion
EMEA: 8987 billion
Asia ex Japan: 64 billion
Japan: 10 billion
Australasia: 178 billion
Source: 2012 Global Sustainable Investment Review, GSIA
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 Key regulatory drivers
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Regulatory landscape
UNPRI Principles – globally consistent principles, with US34trillion AUM and over
1200 signatories, including 268 asset owners and 788 asset managers
SEC CFR (section 501.15) – disclosure related to climate change, focusing on risk
factors related to regulatory needs, international accords and physical impacts
European IORP II Directive article 55 – how environmental, climate, social and
corporate governance issues are considered in the investment approach
Australia FSC Standard No.20 – RSE licensees to develop and implement an ESG
risk management policy
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Key aspects of the UNPRI
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
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
Principle
Investment
Analysis
Decision
Making
1
Yes
Yes
2
Yes
Yes
3
4
Support
Tools
Yes
Selection
Criteria
Yes
Yes
Yes
5
6
Yes
Communication
Example
Yes
Address ESG issues in investment
policy statements
Yes
Yes
Ask investment managers to undertake
and report on ESG-related
engagement
Yes
Yes
Ask for standardised reporting on ESG
issues (Global Reporting Initiative)
Yes
Yes
Yes
Disclosure
Include Principles-related requirements
in requests for proposals (RFPs)
Yes
Yes
Yes
Develop or support appropriate
collaborative initiatives
Yes
Yes
Report on progress and/or
achievements relating to the Principles
using a ‘Comply or Explain’ approach
UNPRI Principles for Responsible Investment
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Global reporting initiative (GRI)
Most widely used & comprehensive sustainability reporting global standard
Applicability
 Universal application across organisations / sector / size
 Consolidated framework for reporting performance against
sustainability codes (OECD Guidelines, UN Global Compact)
 Enhancing relevance, quality of sustainability reports
 Promoting integration of sustainability information in standard reports
Materiality
 Materiality focus to encourage strategic and focused reporting
 Threshold where sustainability is important enough to be reported
 Defined as “Aspects” that reflect significant ESG impacts /
substantively influence stakeholders’ decisions
 Boundary definition to assess inclusion / exclusion of each Aspect
Disclosures
 2 kinds: General Standard and Specific Standard
 General Standard: description of the organisation and reporting
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process, 7 types of disclosures
Specific Standard: Management Approach and Indicators
Omissions and partial application of the GRI Guidelines
G4 – fourth generation of the Guidelines, launched May 2013
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 Our approach and solutions roadmap
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Approach
Operating Model
ESG Data Provider
 Data capture from
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an independent
quantitative source
Characteristics
describing the
assets from a
company
perspective
Benchmarks to help
evaluate portfolio
performance
Database
Data
feed
IRP
 Reporting through
Database
Data
feed
DNA
Results
view
Investigate
Platform
Investigate
Analyst
C
L
I
E
N
T
Queries
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
flexible delivery
media
Frequency of
analysis suited to
client needs
Consultative
assistance in
interpretation and
analysis of results
 Leverage existing capabilities across performance, attribution,
exposure, risk and reporting
 Service support, not just data / reporting
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Range of ESG indicators
Coverage – 4600 listed companies including the S&P 500,
4 Pillars
18 categories
280 KPIs
750 data points
Russell 1000, MSCI Europe, FTSE 250, ASX 300, the MSCI
World Index and the 250 MSCI emerging markets
companies
Environment
Economic Performance
Resource Reduction
Client Loyalty
Emission Reduction
Performance
Product Innovation
Shareholder Loyalty
Social
Corporate Governance
Employment Quality
Board Structure
Health & Safety
Compensation Policy
Training & Development
Board Functions
Diversity & Opportunity
Shareholder Rights
Community
Vision & Strategy
Product Responsibility
Human Rights
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Examples of ESG indicators
Category
Indicator
Description
Environmental
Biodiversity Impact
Reduction
Does the company report on its impact on biodiversity or on activities to reduce its impact on the
native ecosystems and species, as well as the biodiversity of protected and sensitive areas?
Environmental
CO2 Equivalents
Emission Total
Total CO2 and CO2 equivalents emission in tonnes.
Social
Diversity and Opportunity Has the company set targets or objectives to be achieved on diversity and equal opportunity?
Social
Women Managers
Percentage of women managers.
Governance
Board Meeting
Attendance Average
The average overall attendance percentage of board meetings as reported by the
company.
Governance
Shareholder Rights
Controversies
Number of controversies linked to shareholder rights infringements published in the
media.
Economic
Net Income
Net income.
Economic
Operating Profit
Margin
Operating profit margin.
Calculation: indicators, categories, pillars and overall scores are calculated by equally weighting and zscoring all underlying data points and comparing them against all companies in the ASSET4 universe. The
resulting percentage is therefore a relative measure of performance, z-scored and normalized to better
distinguish values and position the score between 0 and 100%.
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Pillars of the ESG offer
• Multi-level scoring with drill
down to the companies
• Global coverage
• Transparent & credible
analysis at indicator level
• Best-in-class companies
1. Multi-level
ESG Scoring
2. Controversies
Exposure
• Controversy indicators
• Consistent with norms (UN)
• Flags system
ESG
Solutions
• Long-term view on
sustainability
• Large coverage
4. Country
Rating
3. Business
Involvement
Screening
• Wide range of screening
• True/False, % revenues,
% ownership
Multi-dimensional risk assessments, measuring ESG exposure of portfolios relative to benchmarks
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Roadmap
 Measurement against ESG indices,
 Full slice and dice exposue reporting,
including Reuters Corporate
Responsibility indices (Developed and
Emerging), US Large cap
 Extend coverage to other asset
classes and other vendors
including by ESG rating, country,
sector, top/bottom 10s
 Mapping to our bespoke equity, fixed
income, and multi-asset models
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3
2
1
Performance
Measurement
Delivery media
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PDF
Excel
Online portal
Tablet
Structure
Analysis
Attribution
Analysis
Service offering
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Analytics
Interpretation
Consultation
Research
Ex Ante Risk
Analysis
 Full slice and dice exposue
reporting, including by ESG rating,
country, sector, top/bottom 10s
 Business involvement screening
 Controversies exposures
 Country macro ratings
 Integration with our market and
liquidity risk engines
 Stress testing on ESG attributes
 Risk budgeting using ESG
characteristics
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 Case studies
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Enhanced investment oversight
What are the countries’ ESG risks
that I need to be aware of?
Country rating & analysis
How is my portfolio performing in
terms of ESG?
Consolidated & Mandate
ESG Scores / Ratings
Reports
& Dynamic
Online access
Needs
•Accuracy
•Comprehensive
•Integrated
•Intuitive
•Smarter delivery
How are my assets allocated vs.
my long term ESG objectives?
Asset class
ESG Scores / Ratings
Is my portfolio exposed to
unethical activities?
Controversies, business
involvement screening
Which assets have ESG value
added to the portfolio?
ESG
best-in-class companies
How successful are my managers
in terms of ESG integration?
ESG performance
tracking
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ESG Portfolio Summary
Total portfolio
rating, vs.
Benchmark rating
Decomposition of
ratings quality
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Business Involvement & Controversies Exposure
Exposures across
various Business
involvement
Any controversies
in the portfolio and
in the benchmark
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ESG Scores Evolution
Evolution of the
scores through
time for portfolio
and benchmark
Evolution of the
individual factors
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 Conclusion
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Key benefits
Helping our key clients’ strategic focus and building their business
Meeting increasingly stringent global regulatory needs
Sustainability principles in conjunction with financial analysis enhance long-term returns
Greater awareness and transparency into key risks impacting portfolios
Protecting and enhancing clients’ reputation
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