Webinar: Bringing the PRI Principles to life

Transcription

1 Webinar: Bringing the PRI Principles to life SASB as a toolset Sustainability Accounting Standards Board & PRI June 27, 2017 SASB

2 Your Panelists Janine Guillot Director of Capital Markets Policy and Outreach SASB Mandy Kirby Director Reporting, Assessment and Accountability PRI Deborah Ng Director, Strategy and Head of Responsible Investing Ontario Teachers Pension Plan Katarina Hammar Co-Head Senior ESG Analyst Nordea Asset Management 2 6/27/2017 SASB

3 Agenda For Today s Webinar Introductions The PRI Perspective (10 minutes) The SASB Perspective (10 minutes) The Investor Perspective OTPP (15 minutes) Nordea Asset Management (15 minutes) Q&A (5-10 minutes) 3 6/27/2017 SASB

4 The PRI Blueprint and Accountability Mandy Kirby, Director Reporting, Assessment & Accountability

5 THE SIX PRINCIPLES

6 AT A GLANCE Launched in April 2006 at the NYSE, the Principles for Responsible Investment has:

7 ABOUT THE PRI Our aim over the next 10 years is to bring responsible investors together to create a sustainable financial system that contributes to a more prosperous world for all.

8 The Blueprint Vision A framework for the next decade Responsible Investors Empower asset owners Support investors incorporating ESG issues Create an industry of active owners Showcase leadership and increase accountability Convene and educate responsible investors Sustainable Markets Challenge barriers to a sustainable financial system Drive meaningful data throughout markets Prosperous societies Champion climate action Enable real-world impact aligned with the SDGs 8

9 Enhancing Signatory Accountability A race to the top and a clear rulebook improve results Develop a responsible investment leadership table Launch PRI awards Define a minimum standard of activity that signatories must achieve; monitor and engage with those not meeting this delist any that fail to meet the standard over a two-year period Enhance access to the PRI s Data Portal, a transparency and accountability tool Collaborate with peer organisations on reporting standards Develop recommendations for assurance and verification of data Delist signatories that contravene the spirit of the Principles.

10 Signatory Accountability A race to the top and a clear rulebook improve results Stakeholder consultation Targeted stakeholder groups and open signatory consultation July through September 2017 Workshop session at PRI in Person in Berlin September 2017 Implementation begins in 2018 See the Blueprint at

11 Sustainability Accounting Standards Board Janine Guillot Director of Capital Markets Policy and Outreach 27 June, 2017 SASB

12 The SASB Mission Improved sustainability disclosure enhances market efficiency The mission of SASB is to develop and disseminate sustainability accounting standards that help companies disclose material, decision-useful information to investors in a cost-effective way. That mission is accomplished through a rigorous, transparent process that includes evidence-based research and broad, balanced stakeholder participation. Facts about SASB Develops & maintains industry-specific standards for 79 industries in 10 sectors Intended for use in mandatory SEC filings such as the Form 10-K and 20-F 12 6/27/2017 SASB

13 The SASB Difference SASB standards are created for the market, by the market 13 6/27/2017 SASB

14 Designed for Integration into Mandatory Public Filings An integrated reporting environment without regulation 10-K or 20-F US GAAP governs presentation of the financials True and fair representation of performance on material factors SASB Disclosure Topics and Metrics designed for integration into MD&A, risk factors, and other sections as appropriate 14 6/27/2017 SASB

15 Complementary Efforts Mandatory and voluntary reporting serve different purposes for different audiences Relevant Information All environmental, social, and governance topics of interest All Stakeholders Alignment is key (e.g., consistent approach to determining and disclosing material information, presentation of results) Material Information Sustainability factors likely to affect the financial condition or operating performance of a company 10-K or 20-F Investors 15 6/27/2017 SASB

16 Evaluation of the Materiality of Sustainability Issues in Each Industry SASB s research and prioritization starts with a broad set of sustainability issues Environment GHG emissions Air quality Energy management Fuel management Water and wastewater management Waste and hazardous materials management Biodiversity impacts Social capital Human rights and community relations Access and affordability Customer welfare Data security and customer privacy Fair disclosure and labeling Fair marketing and advertising Human capital Labor relations Fair labor practices Diversity and inclusion Employee health, safety, and wellbeing Compensation and benefits Recruitment, development, and retention Business model and innovation Lifecycle impacts of products and services Environmental and social impacts on assets and operations Product packaging Product quality and safety Leadership and governance Systemic risk management Accident and safety management Business ethics and transparency of payments Competitive behavior Regulatory capture and political influence Materials sourcing Supply chain management Leadership and governance Environment UNIVERSE OF SUSTAINABILITY ISSUES Business model and innovation Social capital Human capital 16 6/27/2017 SASB

17 Expected Value Drivers SASB s process identifies disclosure topics with evidence of impact on financial condition, operating performance or risk Financial Impact REVENUE COST ASSETS & LIABILITIES COST OF CAPITAL Types of Financial Drivers Demand for Core Products and Services Intangible Assets and Long-Term Growth Operational Efficiency/Cost Structure Valuation of Core Assets and Liabilities Governance, License to Operate and Risk Disclosure Topics Examples Drug safety and side effects Diverse workforce in technology Energy-efficient chemicals production Stranded coal assets Operational safety of gas pipelines 17 6/27/2017 SASB

18 Robust Standards Designed to Provide Decision-Useful Information SASB standards contain industry-specific disclosure topics, metrics, and guidance Accounting metrics for each disclosure topic Industryspecific disclosure topics Technical protocol for compiling data; activity metrics for normalization 18 6/27/2017 SASB

19 Ongoing Standards Development Process SASB standards will be maintained to evolve along with the markets they serve Stakeholder consultation Technical agenda, proposed changes Provisional Standards Codified Standards Standards maintenance Updates to Standards Public Comment 2017/1Q 2018: Stakeholder consultation, public comment, finalize standards Ongoing: Track emerging issues and revise standards periodically 19 6/27/2017 SASB

20 Institutional Investor Support for Improved ESG Disclosure SASB s Investor Advisory Group includes investors with over $20 trillion in assets 20 6/27/2017 SASB

21 SASB Investor Advisory Group IAG Statement The SASB Investor Advisory Group (IAG) comprises leading asset owners and asset managers who recognize the need for consistent, comparable and reliable disclosure of material, decision-useful ESG information. IAG members: Encourage companies to disclose material and decision-useful ESG information to investors Believe standards would improve the quality and comparability of sustainability-related information Believe SASB s approach which is industry-specific and materiality-focused will help provide investors with relevant and decision-useful information Agree to participate in SASB s ongoing standards development process, so that outcomes best reflect investor needs Agree to encourage companies to participate in SASB s ongoing standards development process, so that outcomes reflect both issuer and investor viewpoints Believe that SASB standards can inform integration of sustainability factors into investment and/or stewardship processes, such as corporate engagement and proxy voting 21 6/27/2017 SASB

22 Nordea Asset Management Responsible Investment Katarina Hammar

23 Nordea Asset Management Responsible Investment team Susanne Røge Lund Senior ESG Analyst Global and EM products Hetal Damani Co-Head Senior ESG Analyst Global and EM products Katarina Hammar Co-Head Senior ESG Analyst Nordic / Swedish products Emir Borovac ESG Analyst Global and EM products Josephine Ekros Roth Senior ESG Analyst Nordic / Swedish products Olena Velychko ESG Analyst Global and EM products TBC Senior ESG Analyst Julie Helm Trige ESG Analyst Global and EM products Emil Sundkvist ESG Analyst Nordic / Swedish products Source: Nordea Investment Management AB 23

24 Nordea Asset Management Responsible Investment Framework (based on PRI principles) 24

25 25 ESG Case: Antofagasta plc

26 Antofagasta plc - Profile Antofagasta plc (Antofagasta) is a Chile-based copper mining company that operates 4 open pit mines in Chile 2015 revenues of USD billion and copper production of 630,000 t 4th largest producer of copper in Chile; an essential material for the transition to a low-carbon economy (e.g. EVs, renewable energy infrastructure) Low-Med overall country risk (Emerging Markets context); particularly high around water supply High risk sector; numerous largescale mining projects have been delayed and cancelled due to ESG aspects Source: Bloomberg 26

27 Company key ESG issues Our main focus for Antofagasta* Water Energy Community Safety Corporate Governance Framework aligns with what the company states is material *Labour issues not a key focus due to positive track record Source: NAM ESG Sector Framework 27

28 Corporate Governance: Sufficient corporate governance practices, and in line with minority shareholder interests Controlling shareholder (Luksic family) owns 65% of Antofagasta shares 11 Board members of which 5 independent (Chilean law requires 1) Newly appointed 2nd female director on the board (comes from Codelco and has 25 years of experience from the mining sector) Audit committee fully independent and board level Sustainability and stakeholder management committee ESG KPIs linked to management remuneration (safety, water, carbon) and individual performance agreements with division execs NAM field visit to Los Pelambres Mine, Chile, November 2016 Sustainability and stakeholder management committee with Board oversight of ESG Remuneration appears to be aligned with shareholder value creation: TSR, Performance vs Peers/Index and EBITDA used as criteria for Long Term Incentive Plan 28

29 Water: Water scarcity addressed through new technologies albeit requiring increased capex EXPOSURE 3 of 4 mining sites are in the arid desert Water demand for mining expected to increase by 66% between Use of seawater expected to become regulatory requirement STRATEGY & IMPLEMENTATION First mining company to use thickened tailings at large scale Desalination plant (capex 400 mln USD) Pioneering use of sea water Average water consumption at existing mines is ~8 LpS/kt between (Morgan Stanley) PERFORMANCE Secured water rights Water consumption (intensity) better than peers Water recycling rate (80%) above industry average Seawater (untreated and desalinated) accounted for 45% of group water consumption in

30 Community: Source of community opposition appears largely addressed and expansion plans appear on track EXPOSURE El Mauro Tailings Dam has been the source of opposition from the local community (causing production loss of 8kt of copper about 1% of annual output in 2015). Expansion has already delayed by 3 years due to environmental permitting issues STRATEGY & IMPLEMENTATION Somos Choapas approach to community engagement implemented at Los Pelambres; collaboration agreement between the company and the municipality; being replicated at other projects PERFORMANCE Resolved dispute; Still some opposition but overstated by MSCI New agreement on water, safety and expansion of Los Pelambres mine (desalination plant) Source: RepRisk Global Business Intelligence 2015 Source: MSCI Controversy monitor

31 Energy: Energy consumption still an issue despite efficiency measures EXPOSURE The use of seawater and desalination requires increased energy use Power costs 14% of total operating costs Energy demand expected to increase by 80.3% between 2014 to 2025 Carbon tax starting January 2017 STRATEGY & IMPLEMENTATION Investments in renewable energy Investments in wind and hydro Installed solar plant at Centinela Energy efficiency initiatives No targets set and lack of broader climate strategy COCHILCO Expected consumption forecast, PERFORMANCE 47% of energy use at Los Pelambres is from RE (target of 80% by 2019) Energy intensity and CO2 intensity increasing due to use of seawater (but lower than industry average)

32 Safety: Safety setbacks experienced but clear priority for management (tied to remuneration) EXPOSURE All operations exposed to safety risks due to nature of mining activities; safety essential for human capital 60% of employees/contractors live in nearby regions- safety critical to fruitful community relations and recruitment and retention STRATEGY & IMPLMENTATION Safety reviewed by Board OHSAS certified operations 75% of labour force are contractors; contractor compliance enforced via internal audits. Use of near miss safety pyramid (industry norm) and incentivise near miss reporting Training and say No campaign Investigations after every critical fatality, injury or near miss PERFORMANCE TRIF increasing but below industry average LTIF increasing but below industry average Fatalities (2 in 2016; up from 1 in 2015 but still well below sector industry average at 7) Lost Time Injury Frequency Rate 2015 (Morgan Stanley) Total Recordable Incident Frequency 2015 (Morgan Stanley) Fatalities 2015 (Morgan Stanley) 32

33 ESG Conclusion: ESG risks managed and improving ESG Scorecard: ANTOFAGASTA PLC Rating: B Key issues Business model Corporate Governance Business ethics Environment Social Development Contribution Governance Quality Business ethics and Water and wastewater Employee health, safety and transparency of payments management wellbeing Red Country/Sector Risk - Independence of Board Regulatory capture and structure political influence Biodiversity impacts Labor relations Green White Lifecycle impacts of products - Board compensation Human Rights and Community Energy management and services practices Relations - Minority shareholder Waste and hazardous Accident and safety influence materials management management - Sustainability governance Fuel management - Diversity of Board & Executive management GHG Emissions Audit & Accounting practices Score B B B A B - Risk exposure Financial impact Reputational Weight 30% 10% 13% 23% 23% Specify Trend Positive Quality of ESG management of key issues assessed as sufficient and on a positive trend; Good management suggests lower cost of capital and increased duration of mine s useful life; Improvements still required on safety performance and energy Well positioned for use of seawater but negative impact on capex and capital intensity as a result of securing water for growth in production e.g. desalination, energy use, seawater infrastructure, etc. 33

34 Thank you!

35 Your Panelists Janine Guillot Director of Capital Markets Policy and Outreach SASB Mandy Kirby Director Reporting, Assessment and Accountability PRI Deborah Ng Director, Strategy and Head of Responsible Investing Ontario Teachers Pension Plan Katarina Hammar Co-Head Senior ESG Analyst Nordea Asset Management 35 6/27/2017 SASB

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