ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SURVEY

Transcription

1 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SURVEY CFA Institute Webinar Review of Findings and Q&A August 26, :00 AM ET

2 AGENDA Welcome & Logistics Introductions Survey Results IRRCi s Perspective Q&A 2

3 LOGISTICS Attendees in listen only mode. Questions encouraged. In control panel, type using Questions function. We will answer following survey review. Survey available at Share survey results on Replay will be available; watch for link. Any technical issues during webinar, contact GoToMeeting at

4 INTRODUCTIONS Matt Orsagh, CFA, CIPM Director of Capital Markets CFA Institute Jon Lukomnik Executive Director Investor Responsibility Research Center Institute 4

5 ABOUT IRRC INSTITUTE Not-for-profit established in Funds, disseminates research on range of issues at intersection of corporate responsibility, investors informational needs. Examines the capital market context that impacts how investors and companies make decisions. Sponsors annual research award. All research available at no charge. 5

6 BROAD RESEARCH SCOPE Driving Revenue Growth Through Sustainable Products and Services The Materiality of Human Capital to Corporate Financial Performance The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design Nanotechnology and the S&P 500: Small Sizes, Big Questions The Impact and Future of High Frequency Trading What Investors Need To Know About Cybersecurity Informed Options Trading prior to M&A Announcements: Insider Trading? Controlled Companies in the Standard and Poor s 1500: A Ten Year Performance and Risk Review Executive Superstars, Peer Groups and Over-Compensation Voting Decisions at US Mutual Funds: How Investors Use Proxy Advisors Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing 6

7 ABOUT CFA INSTITUTE CFA Institute is a global, not-for-profit professional association of more than 130,000 investment analysts, advisers, portfolio managers, and other investment professionals in 146 countries, of whom nearly 115,000 hold the Chartered Financial Analyst (CFA ) designation. The CFA Institute membership also includes 139 member societies in 60 countries and territories 7

8 ESG IN CFA CURRICULUM ESG Readings at every level of the curriculum (I, II, III). Over 160,000 people worldwide sat for a CFA exam this past June. Practice analysis to update curriculum ongoing. Current and future generations of financial professionals learning to incorporate ESG into analysis. 8

9 ESG IN CFA CONTINUING EDUCATION ESG Manual (2008) being updated (Oct. 2015) ESG 100 webpage ESG presence in our blogs Active speaking at industry events CFA Societies active in ESG - New York, Boston, Chicago, Toronto, London, Japan 9

10 SURVEY RESULTS 10

11 ABOUT THE SURVEY Background & Purpose The purpose of this survey is to better understand the perceptions of CFA Institute membership concerning ESG issues and ESG data, as well as how members use such information in their investing processes. Methodology On 26 May 2015, 44,131 CFA Institute members that are portfolio managers and research analysts were invited via to participate in an online survey. The survey closed on 5 June ,325 valid responses were received, for a response rate of 3% and a margin of error of ± 2.7%. 11

12 73% OF SURVEY RESPONDENTS TAKE ESG ISSUES INTO ACCOUNT IN THEIR INVESTMENT ANALYSIS AND DECISIONS, WITH GOVERNANCE BEING THE MOST COMMON. Which, if any, of the following ESG issues do you take into account in your investment analysis or decisions? TOTAL AMER APAC EMEA INSTITUTIONAL PRIVATE 78% 74% 64% 59% 68% 59% 63% 58% 56% 56% 57% 55% 50% 49% 45% 46% 44% 42% 27% 33% 18% 24% 33% 9% N=1,322 Governance Environmental Social I do not take ESG factors into consideration 12

13 N=955 THE MAIN REASON SURVEY RESPONDENTS TAKE ESG ISSUES INTO CONSIDERATION IN THEIR INVESTMENT ANALYSIS/DECISIONS ARE TO HELP MANAGE INVESTMENT RISKS. Why do you take ESG issues into consideration in your investment analysis/decisions? 70% 60% 50% 40% 30% 20% 10% 0% To help manage investment risks Clients/ investors demand it ESG performance is a proxy for management quality It s my fiduciary duty To help identify investment opportunities My firm derives reputational benefit Regulation requires it TOTAL 63% 44% 38% 37% 37% 30% 7% 5% AMER 65% 43% 38% 37% 37% 29% 4% 5% APAC 57% 34% 45% 37% 34% 31% 13% 3% EMEA 63% 50% 35% 38% 40% 34% 11% 4% INSTITUTIONAL 66% 47% 38% 41% 33% 36% 7% 5% PRIVATE 60% 44% 33% 34% 45% 28% 4% 5% Other 13

14 57% OF THOSE CONSIDERING ESG ISSUES INTEGRATE THEM INTO THE WHOLE INVESTMENT ANALYSIS AND DECISION MAKING PROCESS. How do you take ESG issues into consideration in your investment analysis/decisions? 70% 60% 50% 40% 30% 20% 10% N=946 0% ESG integration into the whole investment analysis and decision making process Best-in-class investing / positive alignment Exclusionary screening Active ownership Thematic investing Impact investing TOTAL 57% 38% 36% 26% 23% 21% 4% AMER 55% 38% 37% 23% 23% 20% 6% APAC 60% 25% 28% 24% 17% 22% 1% EMEA 61% 44% 37% 35% 25% 21% 2% INSTITUTIONAL 63% 37% 34% 29% 19% 20% 3% PRIVATE 50% 39% 42% 22% 27% 23% 6% Other 14

15 THE MAIN WAYS SURVEY RESPONDENTS GET ESG INFORMATION IS THROUGH PUBLIC INFORMATION, FOLLOWED BY THIRD PARTY RESEARCH. N=953 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Public information How do you get ESG information/data? Third party research Reports and statements from the company Direct engagement with company Regulatory filings TOTAL 75% 66% 64% 50% 46% 4% AMER 77% 65% 65% 48% 51% 4% APAC 81% 62% 64% 51% 43% 3% EMEA 68% 71% 62% 54% 32% 4% INSTITUTIONAL 74% 68% 66% 58% 48% 4% PRIVATE 75% 67% 61% 36% 42% 5% Other 15

16 SURVEY RESPONDENTS INDICATE THE MOST IMPORTANT ESG ISSUE IN THEIR INVESTMENT ANALYSIS/DECISIONS IS BOARD ACCOUNTABILITY, FOLLOWED BY HUMAN CAPITAL AND EXECUTIVE COMPENSATION. Please rate the following ESG issues in terms of importance to your investment analysis/decisions on a scale of 1 to 5, where 1 is not important at all and 5 is very important. Board Accountability 78% Human Capital 62% Executive Compensation 61% Environmental Degradation 54% Resource Scarcity 52% Demographic Trends 50% Supply Chain 47% Board Diversity 41% N= per item Climate Change 40% Chart showing the % selecting 4 or 5 (top 2 box importance) 16

17 OF THOSE NOT TAKING ESG FACTORS INTO CONSIDERATION, 47% SAY IT IS BECAUSE THEIR CLIENTS/INVESTORS DO NOT DEMAND IT. Why do you not take any ESG issues into consideration in your investment analysis/decisions? What, if anything, would cause you to begin considering ESG issues in your investment analysis/decisions? Lack of demand from clients/ investors 47% Demand from clients/investors 57% These issues are not material no added value 35% Proven link between ESG and financial performance 48% Lack of information/data 21% Regulatory / legal requirements to consider ESG issues 29% Insufficient knowledge of how to consider these issues 21% Better information on ESG risks/ opportunities 25% Inability to integrate ESG info in my quantitative models 15% Clarity that it doesn t conflict with my fiduciary duty 22% Not relevant to my job 7% Development of the internal capability on how to consider these issues 20% Market practices requires me to focus on short-term performance 5% Nothing 8% Other 17% Other 5% N=357 17

18 28% OF SURVEY RESPONDENTS INDICATE EMPLOYEES AT THEIR FIRM RECEIVE TRAINING ON CONSIDERING ESG ISSUES. Do any employees at your firm receive training on how to consider ESG issues in investment analysis/decisions? TOTAL AMER APAC EMEA INSTITUTIONAL PRIVATE 66% 53% 56% 53% 40% 44% 46% 34% 28% 26% 23% 21% 18% 18% 23% 16% 21% 14% N=1,244 Yes No Not sure 18

19 OF THOSE RECEIVING TRAINING, THE MOST COMMON WAYS ARE THROUGH MISCELLANEOUS SOURCES AND LEARNING BY DOING. How do employees at your firm receive training on how to consider ESG issues in investment analysis/decisions? TOTAL AMER APAC EMEA 72% 77% 67% 58% 58% 61% 61% 53% 46% 31% 26% 21% 24% 13% 12% 13% 7% 8% 12% 3% Miscellaneous sources (research papers, books, conferences) N=349 Learning by doing, it s an art Live, in-person structured training course Online structured training Other 19

20 61% AGREE THAT PUBLIC COMPANIES SHOULD BE REQUIRED TO REPORT AT LEAST ANNUALLY ON A COHESIVE SET OF SUSTAINABILITY INDICATORS IN ACCORDANCE WITH THE MOST UP-TO-DATE REPORTING FRAMEWORK. Do you agree or disagree that public companies should be required to report at least annually on a cohesive set of sustainability indicators in accordance with the most up-to-date reporting framework? TOTAL AMER APAC EMEA INSTITUTIONAL PRIVATE 84% 82% 61% 65% 51% 53% 30% 30% 23% 6% 20% 19% 16% 8% 10% 9% 15% 17% N=1,246 Agree Disagree No opinion 20

21 69% THINK IT IS IMPORTANT THAT ESG DISCLOSURES BE SUBJECT TO INDEPENDENT VERIFICATION. Do you think it is important that ESG disclosures be subject to some level of independent verification? Who do you think is best positioned to provide independent verification of ESG disclosures? TOTAL AMER APAC EMEA 83% 82% Other 2% 69% 63% No preference 14% 18% 19% 15% 16% 10% 9% 9% 6% Independent Professional Services Firm (e.g. public accounting firm) 31% Professional Services Firm skilled in ESG matters 53% Yes No No opinion N=1,247 N=856 21

22 SURVEY RESPONDENTS ARE SPLIT ON WHAT LEVEL OF INDEPENDENT VERIFICATION IS NECESSARY. What level of independent verification do you believe is necessary? Which best represents your view on how much should be spent to obtain independent verification? 26% Not sure 8% Other 2% Limited verification, lower level of assurance 46% 10% 18% 21% 16% 6% N=856 Similar to an audit, high level of assurance 44% As much as the cost of the audit of the financial statements Less than half as much as the cost of the audit of the financial statements Less than a quarter of the cost of the audit of the financial statements Less than 10% of the cost of the audit of the financial statements Less than 5% of the cost of the audit of the financial statements 3% Other Don t know 22

23 IRRC INSTITUTE PERSPECTIVE 23

24 FROM IRRC INSTITUTE PERSPECTIVE We shouldn t be surprised by nuance and some internal inconsistencies. That s the real world of investing. That s what creates markets. Hot topic: Corporate reporting and assurance - Large regional differences. - 51% of Americas respondents supported mandatory ESG reporting. (61% overall) - If you report it, verify it. 69% want independent assurance, but - Little agreement on what that means: 51% want to use independent ESG firm - But virtually equal number of respondents want high level of verification such as that provided by CPA firm as those who would accept a more limited assurance - Little agreement on how much verification should cost 24

25 FROM IRRC INSTITUTE PERSPECTIVE Important that this is a CFA Institute study - Investor focused Overall, great data that explodes many myths about ESG use by investors. The new truths: - ESG works in conjunction with traditional financial analysis; it s not primarily a screening tool. - ESG lens gives different information from that in traditional financial statements. - It s all about risk and opportunity the classic investment decision 25

26 Q&A! 26

27 FOR MORE INFORMATION Matt Orsagh, CFA, CIPM Director of Capital Markets CFA Institute +1. (434) Jon Lukomnik Executive Director IRRC Institute