Sustainable Investing: Focusing on Long-Term Value Creation

Transcription

1 Sustainable Investing: Focusing on Long-Term Value Creation United Methodist Foundation of West Virginia Foundation Academy of Faith and Generosity September 17, 2018 Kirsty Jenkinson Managing Director, Sustainable Investment Strategies

2 UMC Sustainable Investment Directives discharge its fiduciary duties solely in the interest of the participants and beneficiaries with care, skill, prudence and diligence 717 make a conscious effort to invest with the goals outlined in the Social Principles 2

3 Wespath s Investment Beliefs Investor Focus Optimistic Worldview Sustainability Low Carbon Transition Long Term Perspective Diversification Stewardship Culture Expertise Active Management 3

4 Remind Us to Always Act as Long-Term Investors A long-term focus best aligns investment returns and risks with investor needs 4

5 Five Global Shifts Reshaping Our World Shift in Economic Power Climate Change Resource Scarcity Demographic Shifts Accelerating Urbanization Technology Advancement 5

6 6 Demographic Shifts

7 Demographic Shifts World s Middle Class Population 50% In 1950 less than 10% of the world s population [was classified] as middle class. Today the figure approaches 50%. The Brookings Institution 7 < 10% 1950 Today Middle class is defined as having daily family income between US$11 and US$110, per person per day (based on 2011 purchasing power parity terms).

8 Economic Power Shifts In 2016, emerging markets filed more patents annually than developed markets for the first time in history and built 9 out of every 10 skyscrapers completed globally. PGIM 8

9 9 Accelerating Urbanization

10 10 Climate Change and Resource Scarcity

11 11 Climate Change and Resource Scarcity

12 Technology Advancement Years to Adoption (90% of Countries) Adoption of New Technologies has Become Faster Over Time Steamships and Motorships Railways Telegraph Telephone Electricity Cars Aviation 20 Blast Oxygen Steel PCs Cellphones 0 MRIs Internet Source: D.A. Comin & B. Hobijin (2008), An Exploration of Technology Diffusion

13 Technology Advancement 5 Exabytes (every 48 hours) 13 In the entire history of the world up to 2010, 5 exabytes (10 18 bytes) of data had been created. In 2010, that same amount of data was being created every 48 hours. Eric Schmidt, ex-ceo of Google

14 Wespath s Investment Beliefs Investor Focus Optimistic Worldview Sustainability Low Carbon Transition Long Term Perspective Diversification Stewardship Culture Expertise Active Management 14

15 Encourage Us to Invest Sustainably Positioning for and influencing a more sustainable global financial economy 15

16 Sustainable Investment Meet the needs of the present without compromising the ability of future generations to meet their own needs 1987 United Nations World Commission on Environment and Development Bruntland Commission 16

17 Wespath s Three Main Strategies Avoid Engage Invest Avoid Avoid Engage Invest Ethical exclusions Financial risk exclusions Proxy voting Shareholder resolutions Dialogue with corporations and policymakers Assessment of external asset managers Positive Social Purpose Lending Program Thematic impact investments (e.g. lowcarbon solutions) 17

18 Integration of ESG Issues to Create and Preserve Value ESG Environmental Social Governance 18

19 Positioning for a Sustainable Economy: UMC Values Alignment and Risk Mitigation Avoid Ethical Exclusions Financial Risk Exclusions Climate Change Guideline Human Rights Guideline 19

20 Financial Risk Exclusions: Managing Excessive Sustainability Risk Avoid Climate Change Guideline Pure-play thermal coal Electric utilities heavily dependent on coal Human Rights Guideline Countries with prolonged human rights violations; areas with conflict; areas in breach of international law Companies with significant exposure 20

21 Influencing a Sustainable Economy: Improving Long-Term Performance Engage Proxy voting Shareholder resolutions Dialogue with corporations and policymakers Environmental Social Governance Proxy Voting 0 21

22 Proxy Voting 5,000 Companies Engage Total Times Wespath Voted For and Against Management (2017) For 82% Against 18% Compensation-Related Votes (2017) For 78% Against 22% 22

23 Proxy Voting Board Composition and Independence Engage 23

24 Proxy Voting Say on Pay Engage 24

25 World s Largest Investors Intensify Focus Engage Our focus on corporate governance and investment stewardship has been, and will continue to be, a deliberate manifestation of Vanguard s core purpose. Bill McNabb, Chairman Our mission is to invest responsibly.to enable economic prosperity and social progress over the long-term. Ron O Hanley, President and COO To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Larry Fink, CEO 25

26 (Board) Diversity Makes Headlines Engage 26

27 Engaging Midwest-Based Companies on Diversity Engage The Rooney Rule 27

28 Wespath s Low-Carbon Transition Belief A global transition to a low-carbon economy is underway, driven by the world s assessment of environmental risks. We believe public policies, emerging technologies and physical impacts associated with concerns about climate change are creating winners and losers across companies, industries and countries, impacting investment returns. As prudent fiduciaries, we must assess these global risks and opportunities in the management of our funds. 28

29 Preparing for the Low-Carbon Transition Engage 29

30 Transition Pathway Initiative (TPI) Engage Archbishop of Canterbury and TPI open London Stock Exchange Wespath joins global investor peers to discuss investment implications of the low-carbon transition 30

31 TPI State of Transition Climate Summit, July 2018 Engage In almost all faiths there is a common understanding of the responsibility of human beings for creation (stewardship, trusteeship) that we are responsible for caring for [creation] and handing it on to the next generation. Archbishop Justin Welby 31

32 Strategic Partnerships Global Engage Faith-Based Material ESG Disclosure Corporate Governance Environment 32

33 Investing in World-Class Managers xx Invest z a 33

34 External Manager Selection and Evaluation Invest 34

35 ESG Criteria Complements Traditional Criteria Invest Assessing a manager s ESG competency during the selection process is an important element of enhancing long-term investment returns and mitigating investment risks. 35

36 What Characteristics Do Best-in-Class Managers Demonstrate? Invest Take a long-term view of all factors that could impact strategy and performance, including ESG issues Recognize that ESG integration provides a greater understanding of a truly sustainable economy 36

37 Positioning for a Sustainable Economy: Creating Competitive Returns & Positive Impact Invest Positive Social Purpose (PSP) Lending Program Thematic Impact Investments 37

38 Positive Social Purpose (PSP) Lending Program Internally managed investment strategy Over $2 billion in PSP investments since 1990 Providing access to needed multifamily affordable housing Supporting jobs and local communities * International microfinance: supporting emerging markets Invest More than 52,000 affordable housing units financed More than 65,000 jobs created in the U.S. Over $1.9 billion in revenue and taxes for local communities $83 million invested in global microfinance investments since * Estimate based on data obtained from the National Association of Home builders in 2016

39 PSP Video Prairie Commons Apartment Homes Dallas, Texas Invest 39

40 PSP Case Study Invest Rochester View Apartments Henrietta, New York Loan: $5.4 million Units: 61 Affordable multifamily rental housing: 33 units for individuals involved with New York State s Office of Mental Health 28 units for members of the deaf community Social services include housing retention, coordinated and managed mental health, and general health care and stabilization 40

41 PSP Case Study Invest Landing Road Residence Bronx, New York Loan: $18.6 million Beds: 200 Transitional shelter for working homeless: Onsite social services available, including workforce development training Offsite mental health and substance abuse services Permanent affordable rental property is located on the upper floors of the property 41

42 Thematic Impact Investments Invest Invest Affordable housing and community development Low-carbon solutions Affordable, clean energy access Sustainable agriculture 42

43 Positive Impact: Investment in Impax Strategy Invest 43 1 Source: Impax Asset Management. U.S. Tons. Impact of $250 million invested in the strategy for one year. The UK Green Investment Bank s calculator was used to translate the impact into everyday equivalents (e.g., cars on the road, household energy use). Based on most recently reported annual impact data for holdings in the portfolio as of December 31, Methodology has been assured by Ernst & Young LLP.

44 Positive Impact: DWM Investment Product Examples Off-Grid Electric d.light Kingo Invest Sources for images: Off-Grid Electric, d.light and Kingo 44

45 Video: Meet Celeste, the Community Builder Wespath s partnership with Shared Interest supports small business owners in Mozambique Invest 45

46 UN Principles for Responsible Investment (PRI) 2018 Annual Assessment Over 1,900 global institutions representing $81 trillion in assets under management are PRI signatories Wespath is a founding signatory Signatories required to complete annual questionnaire on integration of ESG into investment practices PRI produces individual Assessment Reports grading performance across multiple categories and asset classes 46

47 Wespath PRI Assessment Results PRI Assessment Module Wespath PRI Scores Industry Mean Strategy and Governance A+ A+ A+ A INDIRECT MANAGER SELECTION, APPOINTMENT AND MONITORING Listed Equity A A A+ B Fixed Income C B A+ C Fixed Income Corporate Financial C B A+ C Fixed Income Corporate Non-Financial C B A+ C Fixed Income Securitized C B A+ C Private Equity C C A C Property C B A+ C Infrastructure C C A C DIRECT AND ACTIVE OWNERSHIP Listed Equity Active Ownership A A A B Fixed Income B B B B Fixed Income Securitized B B B C 47

48 Read More! Wespath Sustainable Investment Report Full Report Excerpts from the Sustainable Investment Report wespath.org/sireport 48

49 wespath.org 49