ESG Why is it important and how does it make a difference? November - - PowerPoint PPT Presentation
ESG Why is it important and how does it make a difference? November 2017 For professional investors and advisers only. Environmental, Social and Governance is referred to as ESG throughout the presentation. What is ESG? Companies dont
Environmental, Social and Governance is referred to as ESG throughout the presentation. For professional investors and advisers only.
November 2017
Source: Schroders
Impact of social & environmental trends
investments Impact of companies
environmental challenges
3 Source: Schroders Global Investor Study, conducted between 1–30 June 2017.
Investment performance How much money they make The assets they
Business model and strategy How companies are run
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Source: Schroders
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Source: Schroders, World Bank, BP Statistical Review, UN, IEA, Thomson Reuters, Pew Center
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Source: Thomson Reuters, Schroders
4 5 6 10% 12% 14% 16% 18% 20% 1995 1999 2003 2007 2011 2015 Average years in top ROPIC quintile Top – bottom quintile average ROIC Top quintile (sector-relative) ROIC / average ROIC Avg years of top quintile ROIC prior to year shown
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Source: Schroders
Tracking and explaining performance against goals Measurement & reporting Active
influence Stewardship Construction and maintenance
Portfolio construction The factors that drive investment returns Company analysis Where investors look for performance Investment strategy
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270 290 310 330 350 370 390 410 GHG concentration
0.0 0.2 0.4 0.6 0.8 1.0 200 400 600 800 1,000 1,200 1750 1800 1850 1900 1950 2000 Population, GDP, Energy use, GHG emissions, all indexed, 1950=100 Population GDP Energy use GHG Emissions Temperature increase
Source: Maddison, EU Europa, UK Met Office, NOAA, Vaclav Smil, BP Statistical Review.
GHG concentration (ppm) Temperature increase vs. 1850–70 avg
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Source: Schroders
Schroders Climate Progress Dashboard
Political action Carbon prices CCS capacity Oil & gas production Political ambition Corporate planning Electric vehicles Oil & gas investment Coal production Renewable capacity Climate finance Public concern 100 200 300 400 500 600 2010 2015 2020 2025 20 40 60 80 100 2010 2015 2020 2025 1 2 3 4 5 6 7 2010 2015 2020 2025 1 2 3 4 5 6 2010 2015 2020 2025 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2010 2015 2020 2025 50,000 100,000 150,000 200,000 250,000 2010 2015 2020 2025 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 2010 2015 2020 2025 2 4 6 8 10 12 2010 2015 2020 2025 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2010 2015 2020 2025 10 20 30 40 50 60 70 2010 2015 2020 2025 1 2 3 4 5 6 7 2010 2015 2020 2025 10 20 30 40 50 60 70 2010 2015 2020 20252.2° 5.0° 9.4° 5.4° 3.6° 3.3° 3.3° 2.8° 2.8° 3.6° 4.2° 5.5°
Aspiration Action Entrenched industry Political change Technology solutions Business & finance Aggregate temperature rise impllied across all areas4.2°
The Climate Progress Dashboard tracks the speed and scale of progress towards decarbonisation Growth opportunities will emerge Tougher policies will impact profit pools Physical climate impacts will accelerate Fossil divestment is too limited Impacts
Carbon value-at-risk Climate growth theme exposure Carbon footprint Physical climate risk exposure Potential emissions exposure Measures the proportion of cash earnings at risk if carbon prices rise to $100/t, based on our proprietary modelling. Individual company exposures are weighted by their importance to the portfolio or benchmark Measures the extent to which portfolio companies are exposed to markets likely to benefit from faster growth resulting from a low carbon transition. Industries are assigned scores -2 (strong headwind) to +2 (strong tailwind) and combined with companies' market exposures to determine company scores. Measures the carbon emissions of portfolio companies relative to their sales. Divides companies' reported or estimated scope one and two carbon emissions by sales and combines those intensities with weights to determine portfolio footprints Measures the extent to which the company's assets are exposed to risks of physical disruption. Combines companies' reported assets in each geographic region with GermanWatch measures of national climate risk exposure. Higher values indicate more risk Measures the level of fossil fuel reserves held by portfolio companies. Divides the carbon contained each company's reported fossil fuel reserves by its sales. Portfolio values are calculated by combining companies according to their weights Weaker Stronger Individual portfolio holdings Portfolio aggregate position Benchmark aggregate positionPortfolio analysis across the range of climate impacts will become increasingly key to risk management
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The Climate Progress Dashboard provides a birds eye view of the pace
ambition across key aspects of climate progress
Source: Schroders analysis based on industry sources. Based on data available in September 2017. For further details please visit: http://www.schroders.com/en/sysglobalassets/digital/insights/2017/pdf/sustainable/climate-change-dashboard/climatedashboard-july2017.pdf
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Source: Schroders, All numbers in $mn. Sales, Costs, EBITDA values are averages over 2013-16. Assumption: CO2 prices increase to $100t/tonne.
decrease in profits
39,768 35,624 4,144
Before CO2 pricing
Profits Costs Sales
40,162 36,452 3,710
After CO2 pricing
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Source: Schroders Investment Management Note: Based on global universe of ~10,000 listed companies
0% 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Carbon VaR (%) Carbon footprint (t/$mn) Based on estimates Based on reported emissions Linear (Based on estimates)
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Dedicated ESG specialists With
Combined investment experience
Firm wide ESG integration
ESG engagements in 2016
Countries globally
UN PRI annual assessment 2 Across
2017 ShareAction Responsible Investment Survey of European asset managers3 With
2017 AODP Global Climate Index4 Company meetings voted on
Source: Schroders, as at 30 September 2017 unless otherwise stated. 1As at 31 December 2016. 2PRI, 2015, 2016 and 2017 Assessment Reports.
3 ShareAction, "Lifting the Lid: Responsible Investment Performance of European Asset Managers", March 2017. 4Asset Owners Disclosure Project, "Global Climate Index 2017“, April 2017 . 5 Financial Reporting Council 2016 Assessment
Ethically screened mandates (8.6% of total assets) 1
UK Stewardship Code5
For professional investors and advisers only. This material is not suitable for retail clients. This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for error of fact or opinion. Reliance should not be placed on the views and information in the presentation when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Schroders has expressed its own views and these may change. The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Issued by Schroder Investment Management Limited, 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Positioning Disclosure Sectors, industries, regions, countries or securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Weights will vary among accounts within the strategy, are subject to change and should not be viewed as an investment recommendation. Ex-ante Tracking Error is sourced from PRISM (Style Research). Attribution Disclosure Performance attribution is based on FactSet data and should be taken as indicative only. It will not match actual published performance due to several features of FactSet methodology. These include: timing differences on pricing of constituents; not accounting for transaction costs or management fees; assuming trades go through at closing prices rather than actual price dealt; using un-audited accounting data. Sectors, industries, regions, countries or securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Model Disclosure Ranks are constructed by ranking stocks within the relevant universe comprise a selection of Value terms (such as Earnings to Price, Book to Price, Sales to Price, etc.), and Quality terms (Profitability e.g. Return on Equity, Stability e.g. Sales Stability and Financial Strength Debt to Market Cap). The final construction of the rank is done using QEP proprietary weighting scheme Where model results have been included, there could be no assurance that any transactions actually performed in a managed portfolio could have been executed at the times or prices used for the purpose of calculating the performance in the model. No allowance was made in the model portfolio for advisory fees. The actual performance of managed accounts can also impacted by non-quantitative factors such as additional stock selection and risk management activities of the portfolio management
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