PRI

People, prosperity, planet, partnerships, peace

owner and manager do not have same interests --> need to be aligned

• Agency Theory
• Stakeholder theory (voice of all stakeholders)
• Stewardship (work together for a common goal)

• shareholder representation
• Board independence
• Transparency
• Risk mgt
• Executive remuneration
• Sustainability

Inernational Corporate Governance Network (ICGN)

OECD

• integration
• Screening
• Thematic

SASB materiality map (for i365)

= active ownership, ie. influence as owner of securities

max. LT value incl. value of common

• engagement
• voting
• Other

1.1.2023

The revision of the system of standards has been made to address gaps between current disclosure frameworks and intergovernmental expectations for responsible business practice, including human rights reporting.

It also aims at improving the overall transparency on companies’ impact on the environment and society.

3 series of GRI 2021 Standards:

• Universal standards (for all)
  • focus on defining policy and how commitment are embeded
  • Grievance and remediation stronger
  • DD for IDing negative impacts on ESG
  • Prioritization
• New Sector Standards
  • 40 different
• Topics Standards
• Divided into 31

Previous reporting under Core and Comprehensive replaced by one single way of reporting. 

na (source KPMG)

Sustainable Finance Disclosure Regulation, March 12, 2021

The Sustainable Finance Disclosure Regulation (SFDR) will bring a binding transparency framework for European sustainable investment products and a certain harmonization on the definition of what constitutes such products. Even if many Swiss financial institutions may not be directly in the scope of the requirements, they will feel the push towards more transparency from their clients and should learn from the struggles of their European peers.

It aims at clarifying the duties of financial institutions regarding the integration of sustainability considerations into their investment decisions, while also promoting transparency.

What is important to note is that SFDR does not mandate specific approaches to sustainable investing. However, it does raise the bar for money managers who are looking to market their products explicitly as “sustainable” or as “impact investing” products. 

NB: While there is currently no equivalent Swiss regulation, it is becoming ever more apparent where the journey is headed – both in terms of the regulatory and societal (including investor) expectations.

Economic Value Added (

who? FMP and FA

Purpose? transparency, comparability to prevent greenwashing

When? as of 3/2021 some later in 2023 (PAI by Jan 2023)

Main disclosures? PAI (entity and product), pre-contract product discl., website discl., product periodic discl. 

negative, material or likely to be material effects on S factors, that are caused, compounded by or directly linked to investment decision and advice performed by legal entity.

32 mandatory (16 E, 16 S)

18 voluntary (11 E, 7 S)

1st mandatory reporting probably delayed to Jan 2023

E-factors

• Climate change
• Water scarcity and security
• Energy security
• Deforestation
• Biodiversity loss

Data                                                                                  Ratios

• Total GHG emission                                              Water intensity (consumption unit per asset, sales, etc.)
• Total Energy consumption                                     GHG intensity (ditto)
• Total Waste                                                            Energy intensity (ditto)
• Total fines
• No of spills

Social factors                                                                                      Data

• Community concerns (eg. health impacts from ops)               # of workplace safety violations
• Supply chain issues (eg. child labour)                                    # of community protests or incidents
• Labour relations (eg. gender)                                                 # and cost of product recalls
• Product safety
• Trade practices (bribery and corruption)
• Community involvement (infrastructure dev. )

Social ratios

• % of women in workforce and mgt
• lost time incident rate
• unionisation rate
• employee turnover rate

Factors                                                                                       Data

• Board accountability (eg. independence of board)          # of board meetings
• Internal control (eg. independence of audit comm.)         board meeting attendance
• Financial disclosure (eg. inappropr account. policies)     # of audit committee meetings
• Shareholder rights (eg. voting rights)
• Remuneration (eg. LT incentives)
• Corp. litigation (eg. consumer prot. issues)

Ratios

• % of independent directors
• % of female board members
• Av CEO to worker pay

INTEGRATION 

• of material ESG factors
• Risk, Return and opps
• Assess materiality

SCREENING

• positive, norms based, negative

THEMATIC

• certain ESG outcomes
  • IMPACT 100% ESG outcomes with possibly financial tradeoff
• Examples
  • Project bonds
    • Funds allocated to specific projects
  • Revenue bonds
    • Typically issued by states, municipalities or government agencies to finance income-generating projects such as public transport
  • Green labelled bonds (use of proceeds)
    • Asset linked for ring-fenced future investments (unspecific) that qualify as green (as defined by issuer)
      • Corporates
      • Finance industries
      • Agencies and local authorities
  • Securitised green bonds
    • Backed/secured by income from loans/leases on green assets
  • Climate themed bonds
    • Broader definition for climate change solutions

Fundamental strategies

• adjust forecasted financials or valuations for expected impact of ESG factors

Quantitative Strategies

• integrate ESG factors alongside factors such as value, size, momentum, growth, and volatiliy

Smart Beta Strategies

• create excess risk-adjusted returns ??

Passive strategies

• adjust weights in portfolio to certain ESG risks

1. Qualitative Analysis (ID key issues, then ID material ESG factors)

• Economy, Industry, Co Strategy, Quality of mgt
• --> assessing ESG Materiality, ID Co' ESG factors, Summary of material ESG factors

2. Quantitative Analysis

• Financial FC, Models
• --> Sector comparison, Deep dive into water related risks, assessment results, now how will ESG identified impact financial modelling and investment decisions
• --> scoring and rating, Integrating ESG into DCF, ESG Macro modelling

3. Investment Decision

• Buy/Increase/Hold/maintain/sell/decrease/dont invest

4. Active Ownership

• Co engagement/voting

=active ownership, i.e. the us of investors influence as owners of secucrities. to maximize LT value, incl. value of common economic, social and E assets

• Engagement (good engagement id's relevant ESG issues, sets objective, tracks, mitigates...)
• Voting
• Other
  • being on investee boards
  • as service provider
  • contributing to public goods
  • Litigation as escalation tactic

• Improving risk return
• Fiduciary duty
• Regulation (comply or explain basis)
• Focus on Real-World Outcomes
• Universal ownership

Engagement dynamics that create value for both co and investors

• Communicative
• Learning
• Political

• Exposure (what are largest holdings9?
• Filter further by geography or market
• Look at materiality of ESG factors
• Real-world impact (i.e. highest value at risk or highest potential of impact)
• Consultation with cients/beneficiaries

Launched in 2017, is a corporate climate action benchmark that ranks 415 co based on their mgt of GHG, as well as risks and opps to the low carbon transition. --> can be used to trigger Engagement in a positive and negative sense, ie. other co having to catch up.

• Issue focused (eg. climate change)
• Co focused (what are most relevant ESG risk of co, and then enter into discussion with them)
• Proactive
• Reactive

Climate change, labour standards in supply chain, deforestation, palm oil procurement, remuneration, CEO chair separation 

Outlines how an investment manager exercises voting rights on behalf of its clients. It includes typically following aspects:

• Scope of voting activities (ie. positive list or negative, where it will not vote)
• Voting guidelines (how to vote on specific issues)
• Oversight of voting activities (who is responsible for implementation of voting policy)
• Proxy voting execution
• Reporting on voting