Closing panel presentation

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Closing panel presentation
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l Team\Jane A\SRI\Canada\UofT Environmental
Finance\UofT SRI Oct 2004 panel v2.ppt
Okay, so now what?

• Environmental Finance Workshop
• University of Toronto, October 2004

Jane Ambachtsheer Toronto
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Socially responsible investing Todays
umbrella

• Socially Responsible Investing is among the
  more ambiguous terms used in the investment
  industry today

Traditional
Emerging
Integrating social responsibility, governance,
and environmental sustainability with investment
(Mainstream investors)
The process of selecting or managing investments
according to social or environmental criteria
(Mission based investors)
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What Does this have to do with Environmental
Finance?
Socially responsible investors typically
separate non-financial indicators into three
groups
Social
Ethical
Environ- mental
?
?
SE
E
SEE
Therefore, E is treated the same as SE
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Why hasnt SRI become the next big thing?

• It is associated with knowingly jeopardizing
  financial returns
• Proponents of SRI are often dismissed on the
  grounds that they are pushing a social agenda
  (rather than a financial one)
• Mainstream investors are not associated with an
  explicit social, ethical or environmental agenda
• Fiduciaries may be reluctant to adopt SRI
  principles because they do not know what
  beneficiaries expect

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SRI Converging with the mainstream?

• But a growing body of literature argues that
• corporate social performance can impact stock
  price
• SRI funds can produce risk/return characteristics
  comparable to those of traditional portfolios

• and
• SRI proponents argue that indications of superior
  social and/or environment performance can
• be a proxy for good management
• be a source of superior financial performance

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The 1 million questionHow we tried to find out

• In August 2004, we hosted an industry
  consultation with mainstream stakeholders
• Even defining the issue is hard
• SRI is like any other issue investors face, its
  a world of gray
• We cant make investment decisions based solely
  on SRI variables
• Hmm, why not use SRI as another input?
• In fact, should my investment manager look at
  these things in order to fulfil his fiduciary
  duties?
• As long as it has an aura of being about a
  social agenda trustees will not want to do it

They started
and ended
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SRI Less agenda, more materiality

• Industry Consultation The conclusions
• SRI needs to rebrand (sustainable or responsible
  investing?)
• Proponents need a new angle
• Overall, incorporating social and environmental
  criteria into investment decision making seems
  like a prudent thing to do (although need more
  empirical evidence of benefits)
• But this isnt happening today

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Converging agendasWhat were often cited night
and day
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Converging agendasare edging towards centre
Mission- based Investors
Mainstream Investors
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Converging agendasto differ only at the margins?
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Implications of such convergence

• Predictions
• Widespread incorporation of social and
  environmental factors by investors in the
  decision making process could function to raise
  the bar for corporate social responsibility or
  CSR
• This would raise the cost of capital for
  riskier (i.e. bad) firms, creating a financial
  reward for good firms
• Bonus This brings positive social change

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Reality check Were not there yet! What can
investors do today?
Discuss
Discuss the issues, enhance investment
principles, governance
Vote
Develop proxy voting guidelines (directly, or
delegate) publish voting record
Engage
Engage as a shareholder (directly, or in
consortium)
Review
Review existing portfolios for exposure to social
environmental risks
Delegate
Delegate to/monitor social and environmental risk
analysis by mainstream managers
Invest
Invest in a niche sustainable investment product
 
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Implementation - Pros and Cons of Various
Strategies

Discuss Vote Engage Review Delegate Invest
Determine relevant strategy Fulfil fiduciary duty Demonstrate active ownership Convey activity to stakeholders No restriction of investment universe Can influence companies behaviour (International strongly encouraged by governments) More information should allow better decision making E is a small component of pension management Sustainability could be a winning investment style Avoids companies hit by adverse publicity Feel good factor Sustainability could be a winning investment style
Requires effort/cost Unclear incentives, expectations Other priorities Requires effort/cost Unaccustomed to monitoring actively/what to ask Requires effort/cost Availability of engagers Requires effort/cost Process of reviewing Requires effort/cost Availability of experienced investors Difficult to monitor Requires effort/cost Reduced universe Difficult to decide criteria Can you really influence? Sector bias / volatile results
PROS
CONS
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Expectations

• Corporate governance and activism will remain
  hot ticket, ahead of social and environmental
  issues
• Growth of engagement type products, and further
  emphasis on engagement/activism within mainstream
  investing
• Most activity among large non-corporate plans
  (public plans, universities)
• Evolution of specific approaches into measurable
  styles
• SRI service/provider market consolidation
• Role of clean technology/eco-venture cap?

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Shaping the future