Can asset managers and bankers

promote corporate social

responsibility ?

FRDO-CFDD Seminar

Brussels, 29 January 2019

Many international initiatives are promoting ESG mainstreaming

Main objectives

Transparency & disclosure

Identification of risks & opportunities

Impact & materiality

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020040060080010001200140016001800

0

10

20

30

40

50

60

70

80

AO AUM ($ US trillion)

Assets under management (US$ trillion)

Number of AOs

Number of Signatories

Source: UNPRI

ESG is high on regulatory agenda

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Regulators, acting on institutional investment

US: ERISA, 2015 Department of Labor (DOL) Review: “ESG is

component of Fiduciary Duty”

EU Directive 2016/2341 “IORP II” (2016 2019) :

- Integration of SRI policy within the SIP

- Integration of ESG risks (climate change, stranded assets, social

risks, etc.) in risk management framework

EU Sustainable Finance Action plan

France: art.173 French Energy Transition Law (2015): ESG /

Climate comply or explain

The Netherlands: art.135 lid 4 Pension Law (2014): ESG /

Climate comply or explain

ART 173

Change in regulation, aligned economic policies

are key in the materiality of ESG risks

Sustainable Investments : a variety of approaches

Exclusion

Breach of

international

standards

❶ ESG approaches ❷ Climate & Energy

Transition approaches

E-S-G selection

Sector

exclusionLow carbon

Energy

efficiency

Exclusion

Controversial

activities

(eg. tobacco, coal)

Best-in-Class

Selection

Thematic

Selection

(eg. Demographics

Green economy)

Alternative

sources of

energy

Solutions & Management

❸ Dialogue & Influence

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Integration

ESG risks and

opportunities

explicitly and

systematically

included in the

financial analysis

and investment

decisions

Individual Collective Proxy voting

ESG / Climate risks & challenges

Risks

E-S-G

Climate

Reputational

Operational

Strategic

Financial

Companies assessment

Examples of Business Model

Risks/Opportunities

CLIMATE CHANGERenewable energy producers

are enjoying growing markets

HEALTH & WELLNESS

Healthy products offered by

companies have a

beneficial effect on health

RESOURCE

DEPLETIONAs rational water use becomes

inevitable, companies offering

water efficient technologies

stand to benefit

INTERCONNECTIVITYAs people interact across borders,

companies offering

video-conferencing and internet

solutions address a genuine need

DEMOGRAPHIC

EVOLUTIONS

As people grow older, the need

for tailor-made services and products

will be in strong demand

DEVELOPING

ECONOMIESCompanies providing

infrastructure services will

benefit from growing and

developing populations

Geographicalproduction

zones

Customer

segment

group

Geographical

markets

Products and

Services

SECTOR/

COMPANY

6

The Business Model risks

Companies assessmentCompanies practices

Examples of Stakeholder’s

Management Model

Investors

Suppliers

Employees

Customers

Environment

Society

14% 4% 26% 30%20% 7%

Energy

33% 7% 9%20% 1% 30%

Software, Internet & IT Services

SECTOR/

COMPANY

Performance

Implementation

Strategy

SUPPLIERSAbuse of labor rights in the

supply chain has a considerable

impact on the reputation and

brand image of companies

CUSTOMERSAfter-sales services

impact customers loyalty

SOCIETYIn developing countries,

integrating the

expectations of the local

population with the

company’s activities is a

real asset

INVESTORSThe effective management of

corporate governance issues is

vital to maintain investors

confidence in a company

EMPLOYEESThe quality of employment contracts,

training and career management are positive factors in attracting, developing

and retaining talent

ENVIRONMENTNew environmental legislation may require a significant

investment for some companies whilst others that already

observe higher standards can focus on increasing their market

share (e.g.. CO2 emissions…)

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Companies assessment

• Process-related impacts- Water Consumption & emissions- Energy & climate change- Other atmospheric emissions - Land use & biodiversity- Raw materials and waste

• Product-related impacts- Use- Disposal & recycling

• Sustainable relationships

• Practices of suppliers- Work conditions

- Environmental practices

• Community relations- Socio-economic interactions

- Site safety

- Access to products/services

• Public authorities relations- Lobbying

- Corruption

- Compliance

• Corporate Governance- Board accountability

- Audit & Reporting

- Investors rights

- Remuneration

• Sustainable outlook- Corporate Governance for

sustainable development

- Sustainable business model

- Long term profitability

• Commercial practices- Anti-competitive practices

- Commercial behaviour

• Quality & Safety assurance- Quality Assurance

- Client relations management

• Staff relations- Dialogue with employees

• Employability- Diversity & discrimination- Training & career management- Change management

• Work Conditions - Work time & flexibility- Remunerations- Health & Safety

CompanyEnvironment

Clients Investors

Society

Suppliers

Employees

8

Companies practices

Case Study - ESG challenges in the Chemical IndustryBusiness model

CLIMATE CHANGE - RESOURCE DEPLETION - HEALTH & WELLNESS

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Opportunities

Oxygen, industrial gases

Catalysts

Enzymes

Active Pharmaceuticals Ingredients

Risks

Commodity Chemicals

Conventional plastics, PVC

Conventional paints & coatings

BPA

Pesticides, fertilizers, GMOs

Geographicalproduction

zones

Customer

segment

group

Geographical

markets

Products and

Services

SECTOR/

COMPANY

Case Study - ESG challenges in the Chemical IndustryCorporate behaviour

MANAGEMENT OF ENVIRONMENTAL IMPACT - EMPLOYEES HEALTH & SAFETY - PRODUCT QUALITY

20%

8%

26%

2%

21%

23%

Investors Society Environnement

Suppliers Employees Customers

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Investors Corporate Governance 20%

Socio economic relations

Site Safety

Access to Product

Public Authority relations

Water consumption & releases

Energy & Climate change 8%

Other atmospheric emissions

Land use & biodiversity

Raw materials & waste

Product use 8%

Product disposal & recycling

Labor practices of suppliers

Environmental practices of suppliers

Sustainable relationships

Diversity

Training & Career Mngt

Change responsiveness

Remuneration

Work time & flexibility

Health & Safety 10%

Dialogue with employees

Quality & Safety Assurance 18%

Commercial practices

Anti-competitive practices

Society

Environment

Suppliers

Employees

Customers

Companies assessment

Framework example : the UN Global Compact Principles

Human rights (HR)

- e.g. “Principle 2: Not complicit in human rights abuses.”

Labour rights (LR)

- e.g. “Principle 3: Confirm the freedom of association and the effective recognition of the right to collective bargaining.”

- e.g. “Principle 5: Uphold the effective abolition of child labour.”

Environment (ENV)

- e.g. “Principle 8: Undertake initiatives to promote greater environmental responsibility.”

Corruption (COR)

- e.g. “Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.”

Compliance to international standards

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Assessment of Company’s Breaches & Approach

Companies assessment

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TOBACCO

Smoking kills 13 persons every

minute. That’s over 6 million per

year

A treaty on tobacco control was

adopted by the World Health Organisation

and signed by 168 countries “to protect

present and future generations from the

devastating health, social, environmental

and economic consequences of tobacco

consumption”

SCOPE All producers and distributors

Both direct and indirect exposure

THRESHOLD 5% of revenues or sales

THERMAL COAL

Coal over twice as CO2

intensive than natural

gas to produce electricity

80% of coal reserves are

stranded assets

Source: Carbon Tracker Initiative, 2013

0

500

1000

1500

2000

Coal Natural gas

CO2 equivalent emissions (lb/MWh)

SCOPE All thermal coal producers and coal

power generators

Both direct and indirect exposureTHRESHOLD 10% of revenues or sales

To limit temperature rise to 2ºC

humanity can produce max. 565bn

tons CO2 until 2050, whilst burning

remaining coal would emit 5x more

or 2.795bn tons of CO2

2.795 billion

tons of CO2

565 billion

tons of CO2

5x

Carbon budget

Coal reserves

Implementation example Implementation example

Exposure to potential stranded assets

Environment

Carbon Footprint

Analysis 2 Degrees

Water Footprint

Board Independence

Significant vote against Pay Practice

Auditor Independence

Targets to improve Health

& Safety Performance

Collective Labour Agreement

Female Directors

Companies fully compliant

with the UN GC

Social

Governance

Human Rights

UN Global Compact Compliance

Investments : from ESG assessment to ESG impact

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ESG IMPACT FACTORS

Engagement activities

Exercisingour Voting

Rights

Direct Dialogue

Collaborative Initiatives

PromotingSustainable

Development

uphold the principles of good

corporate governance and

sustainable development

raise issuers awareness about

ESG issues & encourage better

transparency, increased

responsibility towards those

interact with other large investors

on a non-discretionary basis &

exercise together a different

leverage on issuers

support ESG research and better

integration of ESG factors into

investment decision process

Dialogue with issuers

Encouraging

improved ESG

disclosure

Supporting

investment

decision-making

Influencing

corporate practice

on ESG issues

During sustainability analysis process, in case of

Lack of disclosure on specific ESG-related issues

Controversial activities analysis check

Recent controversies

At the end of the analysis process or following a controversial event

In case of breach to UN Global Compact principles

When a new ESG topic has arisen : contact to learn which are the main preventive or

healing measures adopted.

After the proxy-voting season : to incentivize the company

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ExamplesObjectives

Joining forces with other investors and third parties in order to

Secure greater leverage on issues or with stakeholders (eg. States) for which individual

dialogue is not relevant

Ensure economies of scale via the combination of resources and knowledge sharing

Open dialogues about sensitive topics.

Examples of recently launched initiatives

Collaborative initiatives

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Transparency

Art 173

Dedicated

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