The process of ethical investing: the case of Etica SGR. Francesca Colombo ESG Research

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1 The process of ethical investing: the case of Etica SGR Francesca Colombo ESG Research Università degli Studi di Bergamo October 2013

2 Shareholders activism and engagement activities

3 Shareholder engagement Etica SGR is an active shareholder on behalf of subscribers of Etica s funds. The approach is positive and patient and aims to attend the companies in their long term way of improvement in the sustainable management. Shareholder activism is developed through a constant dialogue with the companies, by attending AGM companies and by voting resolutions. Etica SGR is a pioneer in Italy in shareholder engagement on social, environmental and governance issues and it was the first Italian asset management company to publish, in 2007, extensive Proxy Voting Guidelines, updated on March 2013 and available on (recent issues: human rights respect (child labour, supply chain monitoring), remuneration of Board, women in the Board, enviromental performance, water use). 3

4 Shareholder engagement 4

5 Shareholder engagement Italian companies Etica is keeping a dialogue with the some Italian companies, as: Brembo Automobiles & Parts Landi Renzo Automobiles & Parts Piaggio Automobiles & Parts Yoox E-commerce ACEA Electricity Terna Electricity Prysmian Electronic & Electrical Equipment Snam Gas, Water & Multiutilities Indesit Household Goods & Home Construction Sabaf Household Goods & Home Construction Dialogue issues are: corporate restructuring water use supply chain monitoring remunerations sustainability report 5

6 Shareholder activism in Italy March 2013 SNAM: allocation of income, specific Human Rights policy and its management and monitoring system for supply chain. April 2013 PIAGGIO: payout ratio, policies on human rights and labor respect, guidelines about bribery and governance, renewable energy. April 2013 PRYSMIAN: stakeholders' relationships report, policies on human rights and labor respect, variable part of the remuneration linked with ESG objectives. April 2013 YOOX: policies on human rights and labor respect, variable part of the remuneration linked with ESG objectives. May 7th 2013 INDESIT: remuneration linked with ESG objectives, salary gap, executive incentive Bonus Plan 6

7 A good dialogue partner: Indesit Company The company is the European leader of household goods and it is present in the universe of Etica SGR from the beginning (2003); According to the Etica SGR methodology, Indesit got a good ESG score, on corporate governance and environmental policies mainly; For the ninth consecutive year, in May 2013, Etica SGR voted and had a speech at Indesit AGM; Etica SGR suggestions in AGM 2013 have been: More transparency and details on the remuneration Plan (corporate governance) ESG goals for management bonus definition Information about corporate restructuring strategies in Northern Italy Etica Sgr asked the difference between the medium remuneration of the Company s employees and it s CEO one. Recommendations of Etica SGR are reported in the Sustainable Report of Indesit every year; Indesit is involved in Human Rights Supply chain project, promoted by Etica SGR; Indesit is facing a hard situation in terms of job-cutting policy: it is speaking with Etica Sgr s Ethics Commeette constantly. Etica wants to be sure about Italian workers rights guarantees. 7

8 A good dialogue partner: Indesit Company 8

9 A successfull story: YOOX YOOX Group is the global Internet retailing partner for leading fashion & design brands (the multi-brand stores yoox.com, thecorner.com and the new online destination shoescribe.com, all Powered by YOOX Group. ) The Group has offices and operations in the United States, Europe, Japan, China and Hong Kong and delivers to more than 100 countries worldwide. For the second year, Etica joined the Yoox AGM, voting in favor of all points in agenda. Together with some socially responsible investors such as The Cooperative Bank, Boston Common Asset Management, CREA and Tri-State Coalition, Etica stressed the following important ESG issues. ESG Reporting; Logistic center and supply chain: Etica encouraged YOOX to have a stronger ESG selection and monitoring of suppliers and logistics center, especially in China; Management remunerations. Thanks to Etica SGR s suggestions as well, YOOX published this year its first Sustainability Report, very detailed (GRI level B). but 9

10 No answer about management remunerations ISSUES BY ETICA SGR MANAGEMENT REMUNERATIONS Etica underlined the good details level of the Policy 2012 and suggested the introduction of some criteria, such as return on equity, ROI and ROS, in the definition of variable parts of CEO remuneration, because it believes that they could be useful to link the variable remuneration to a good Company management. Moreover, Etica suggested to introduce ESG goals in the remuneration plan and asked the data concerning the difference between CEO remuneration and the average of employees one both in Italia and abroad for 2011 and YOOX RESPONSE MANAGEMENT REMUNERATIONS Mr. Marchetti, the Chairman and the Chief Executive Officer of YOOX, stressed the presence of ESG goals in remunerations schemes for some professional profiles and the presence, since January 2013, of the Mobility Manager and Energy Manager. Then, he communicated that the difference between CEO s remunerations and the average of employees one is lower compared to YOOX s competitors. Specific data hadn t been provided. No answer about the introduction of ESG target in CEO s remunerations. 10

11 Our first time: SNAM Snam is an Italian gas distributor which closed 2012 with a net income of 779 million Euros and about 6,000 employees. For the first year, Etica joined the Snam AGM, voting in favor of all points in agenda except for the proposal concerning the allocation of income (vote against) Together with some socially responsible investors such as The Cooperative Bank, Boston Common Asset Management, CREA and Tri-State Coalition, Etica stressed the following important ESG issues: Allocation of income; Human Rights and Supply Chain. Snam is involved in Human Rights Supply chain project, promoted by Etica SGR; 11

12 Our first time: SNAM 12

13 Shareholder activism abroad 2013 April 2013 STRAUMANN: Swiss Company operating in implant and restorative dentistry and oral tissue regeneration. ISSUES: remunerations linked to ESG targets, more women in the Board, lower pay out ratio in order to have an higher income for investments. April 2013 CARREFOUR: French multinational retailer operating in 33 Countries all over the world. ISSUES: remunerations linked to ESG targets, authorizations issuance of equity, Board renewal, job-cutting policies. May 2013 SANOFI: French multinational pharmaceutical company operating in 112 plants all over the world. ISSUES: remunerations linked to ESG targets, Employee Stock Purchase Plan, vote against the Stock Options Plan, ratio fixed/variable part of CEO s remuneration too high. May 2013 INTEL: American multinational IT company. ISSUES: remunerations linked to ESG targets, abstention from auditor ratification, support minority shareholders motion for the introduction of lock up clauses. 13

14 Shareholder activism abroad 2013 June 2013 TESCO: British general retailers. ISSUES: approval of financial statements, directors remuneration report, purchase of new shares, corporate governance structure, final dividend plan, political donation, reappoint of the auditors; September 2013 GENERAL MILLS: American food producer and retailer company. ISSUES: remunerations linked to ESG targets, more women in the Board, separation Chariman/CEO, support of minority s shareholders motion related to responsible packaging; September 2013 CONAGRA FOODS: American food producer and retailer company. ISSUES: remunerations linked to ESG targets, ratio fixed/variable part of CEO s remuneration too high, more women in the Board, more detailed health&safety systems. 14

15 Shareholder engagement - Networking ICCR (Interfaith Center on Corporate Responsibility): a coalition of nearly 300 faith-based institutional investors including denominations, religious communities, pension funds, corporations, foundations and dioceses representing over $100 billion in invested capital, who envision a civic economy that integrates ethical, environmental and social values. Through this affiliation, Etica SGR co-files and votes for resolutions on social and environmental issues at US based companies AGM and joins some international campaigns. For example, issues: - Human Trafficking and new slavery initiative - Access to water - Human Rights in Bangladesh - Forced and child labor in supply chain - Congo Conflict Minerals For example, companies: - Bristol Myers Squibb (2005 Political donations) - Eli Lilly (2007 Separation Chairman/Managing Director) - General Mills (2011 Responsible packaging) - Cisco Systems (2012 Congo Conflict Minerals) PRI (Principles for Responsible Investments) by United Nations: a coation of nearly financial players with the aim of developing the ethical approach to finance. Through this affiliation, Etica SGR joins resolutions and initiatives for companies all over the world. For examples, issues: - Gender Dialogue Initiative - Human Rights in Burma - UK/US political donations/lobbying 15

16 The last International ESG initiatives Carbon Disclosure Projects: to encourauge companies to adopt a correct behaviour regarding emissions, water use and forest impacts. Conflict Minerals: to face the HR and ILO violations (forced and child labor mainly) of American companies suppliers in Democratic Republic of Congo. Emerging Market Disclosure Project: to encourauge EM companies in reporting about ESG issues. Human Rights In Burma: to introduce the European companies commitment to monitor HR respect by their suppliers in Burma and to report transparently. Senior Gender Diversity: to encourauge companies to pay attention to gender equality in the Baord and top management. Supply Chain Questionnarie: to provide with companies some specific instruments and tools to monitor their suppliers, regarding child and forced labor especially. Human Rights in Bangladesh: to introduce companies commitment to monitor HR respect by their suppliers in Bangladesh and to report transparently. UK/US political donations: to ask to companies to disclosure about payments to political parties and lobbying partnerships. 16

17 Human Rights in Congo Issue: minerals extraction in Congo represent a controversal item concerning forced and child practices thanks to others troubles such as: Mines controls by army forced of corrupted government Lack of labor standards Etica SGR action: Etica Sgr co-signed a letter sent to SEC to encourage it to approve 1502 Section of «Wall Street Reform and Consumer Protection Act». American companies will be obliged to: Disclosure about suppliers in Congo (YES/NO) If YES, create a specific management and monitorng systems of suppliers, by indipendent body as well Disclosure about monitoring activites (on website and to SEC and markets) Results: the law had been approved the last August effecting from January 2014 Network: the project is driven by As You Sow, through Responsible Sourcing Network, wich met SEC several times in 2011 and

18 Human Rights in Bangladesh Issue: in Bangladesh, one of the poorest Countries in the world, in 2012 and 2013 three dramatic accidents at plants of American and European apparel and textiles suppliers caused the death of 1,500 people and over than 1,000 injured. Etica SGR Action: some responsible investors (representing about 1,2 trillion dollars) signed «Investor Statement» that has been sent to companies with suppliers in Bangladesh in order to ask to them: To join to multi-stakeholder initiative Accord on Fire and Building Safety, with ILO and several NGO; To get stronger the trade unions role in Bangladesh and to guarantee minimum pays to workers; To publish the list of suppliers and to report health&safety systems in Bangladesh; To pay families of people involved in controversies. Network: project is driven by ICCR (Interfaith Center of Corporate Responsibility). 18

19 Main issues in Etica Sgr Financial Sector A current issue is represented by the evaluation of financial sector (banks, insurance companies, investment companies) in which Etica SGR s funds don t invest actually because of troubles linked to governance and transparency. We believe that this sector needs several improvements to be better, in ESG aspects as well, and the role of responsible investors is important to make it gradually. So, together with the Ethical Committee, Etica SGR is trying to identify and understand the controversial items and also the best issues of this sector in order to develop a specific set of indicators (such as Water criteria in 2012). ISO9001 certification In order to improve continually the quality of services provided to clients, Etica SGR is working on the achievement of ISO9011 certifications concerning the quality of the management process of ESG research and analysis activities. 19

20 Microcredit Our funds have got no front or back-end loads. Instead, 0,1% of the invested capital can be donated to a guarantee fund for microcredit projects in Italy. Thanks to Etica Sgr s guarantee fund, Banca Etica can grant small loans to: disadvantaged people; small entrepreneurs; social co-operatives. The guarantee fund amount is close to a 1 million Euro. It has ensured 215 micro-credit projects classified into: 44% for social co-operatives capitalization; 28% for disadvantaged people financing; 28% for small entrepreneurs projects. Source: Etica Sgr 20

21 Web: Follow us on: New graphics Updated contents Newsletter subscription Funds performances updated daily Positive and negative criteria list Shareholder activism policy and engagement activities Microcredit projects English version ( Web

22 Contacts Francesca Colombo ESG Analysis Team Disclaimer This document is purely informative and should not be considered an offer to buy or sell or solicitation in any financial product. Past performance is not indicative of future results. Before investing, please read the prospectus and the settlement of funds. These documents are available on site 22