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Shareholders: ESG Principles

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william griggs

on 1 December 2014

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Transcript of Shareholders: ESG Principles

Shareholders: ESG Principles

Environmental, Social, Corporate Governance
ESG stands for Environmental, Social and Governance. It has been integrated into investment analysis and decision making, offering investors potential long-term performance advatages.
ESG Concerns
Ambiguity
Disclosure
Standards
Regulations
Ambiguity and Disclosure
The primary issue for investors is knowing what the data is saying and that it is accurate.
Standards and Regulations
"What interests capital markets fascinates executives."
Global Initiative for Sustainability Ratings (GISR)
International Integrated Reporting Council (IIRC)
Sustainability Accounting Standards Board (SASB))
Global Reporting Initiative (GRI)
Investor Network on Climate Risk (INCR)
UN: Principles for Responsible Investing (PRI)
UN: Sustainable Stock Exchanges (SSE)
History
"There is one and only one social responsibility of business -- to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." - Milton Friedman, New York Times Magazine, September 1970
How is ESG Viewed Today
What is the impact of ESG today?
For the corporation :
Emphasis on ESG could increase the stability and reputation of the company
Emphasis on ESG could reduce the investment risk and increase the satisfaction from employees and customers
For the investors:
Investors are becoming more attracted to corporations which emphasize ESG principles due to their often transparent financial statements and stable, low-risk operations
Conclusion
The responsible investing landscape is changing. Formerly limited to SRI (socially responsible investing) processes characterized as philanthropy and associated with negative returns, responsible investing now sees the full range of benefits which techniques that emphasize positive environmental, social and governance factors offer.
With limited laws and regulations governing an organizations ESG practices, particularly the social practices, organizations are motivated by incentives and the power placed in consumers and investors (you) who choose to be informed and act with responsibility.
Environmental
Resource management and pollution prevention
Reduced emissions and climate impact
Environmental reporting
Sustainability
Social
Diversity
Human Rights
Consumer Protection
Animal Welfare
Employee Relations
Governance
Management Structure
Executive Compensation
Board accountability
Environmental
1989 - Exxon-Valdez spills 10.8 millions gallons of crude oil in Prince William Sound
1989 - Ceres formed to put pressure on companies to be more environmentally and socially minded
Social
1977 - Sullivan Principles fought against apartheid for human rights and equality
1988 -"Social Capital in the Creation of Human Capital" -
James S Coleman
Governance
1994 - John Elkington and the Triple Bottom Line
1998 - Robert Levening and Milton Moskowits - "Fortune 100 Best Companies to Work For"
Responsibility
United Nations Environmental Program Finance Initiative commissioned a report in 2005 stating that incorporating ESG principles into investment analysis is a fiduciary duty .
Profitability
A 2006 Oxford University study by Michael Barnett showed a correlation between strong ESG principles in a company and increased profitability.
Standardizing
September 24 - Obama announced to UN that the US govt would establish a national action plan to promote responsible business conduct.
Numerous organizations, coalitions, initiatives and 'acts' that rate and report on ESG related qualities of companies have been formed.
MSCI Rankings
UNPRI
Global Reporting Inititive
Sources for More Information
ESG Investing
• Ceres (www.ceres.org)
• The Hauser Center for Nonprofit Organizations at Harvard University (www.hausercenter.org)
• Investor Responsibility Research Center Institute (http://www.irrcinstitute.org)
• Sustainability Accounting Standards Board (www.sasb.org)
• Tellus Institute (www.tellus.org)
• United Nations Principles for Responsible Investing (www.unpri.org)
Based on Jim Harvey's speech structures
“Without question, the balance of power on the planet today lies in the hands of business. Corporations rival governments in wealth, influence, and power. Indeed, business all too often pulls the strings of government. Competing institutions-religion, the press, even the military-play subordinate roles in much of the world today. If a values-driven approach to business can begin to redirect this vast power toward more constructive ends than the simple accumulation of wealth, the human race and Planet Earth will have a fighting chance.”
Ben Cohen, Values-Driven Business: How to Change the World, Make Money, and Have Fun
Stock Market Listings
As of February 2014, 1,064 asset owners and asset managers and 183 professional service partners, representing combined assets of more than $34 trillion, had committed themselves to the six principles of the PRI.

The six principles of the PRI are:
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
Regulations
1969 - National Environmental Policy Act let to the creation of the EPA - Environmental Protection Agency
1986 - Emergency Planning and Right-To-Know Act
2002 - Sarbanes-Oxley Act
2010 - Mandatory Reporting of Greenhouse Gases Rule
Full transcript