#MICEU Fiona Reynolds. Managing Director, Principles for Responsible Investment

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1 #MICEU Fiona Reynolds Managing Director, Principles for Responsible Investment

2 Europe - the ESG Landscape, and why it matters Morningstar European Conference

3 The challenges currently posed by climate change pale in significance compared with what might come. The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security. So why isn t more being done to address it? Mark Carney, Governor, Bank of England

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5 Why Responsible Investment is important

6 The six principles We will incorporate ESG issues into investment analysis and decision-making processes We will be active owners and incorporate ESG issues into our ownership policies and practices We will seek appropriate disclosure on ESG issues by the entities in which we invest We will promote acceptance and implementation of the Principles within the investment industry We will work together to enhance our effectiveness in implementing the Principles We will each report on our activities and progress towards implementing the Principles

7 The world as we know it is changing changing in some dramatic ways

8 World population growth billion 7 billion 2050

9 World wealth 50 % of the world s wealth is owned by the richest 1 %

10 Executive pay* This is more than double the level of stock market growth 937 % US chief executive remuneration compared to 10.2 % Average American worker s pay Source: Washington DC-based Economic Policy Institute * Figures adjusted for inflation

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12 1 Trillion annual infrastructure gap

13 Civil Unrest Mass Migration

14 Food and Water Security

15 Governments

16 first year Today the system is broken: World Economic Forum Global Risks Report that environmental concerns have moved ahead of economic considerations 10 risks in terms of Likelihood 10 risks in terms of Impact Categories 1 Interstate conflict 1 Water crises Economic 2 3 Extreme weather events Failure of national governance 2 3 Spread of infectious diseases Weapons of mass destruction Environmental 4 5 State collapse or crisis Unemployment or underemployment 4 5 Interstate conflict Failure of climate-change adaptation Geopolitical 6 7 Natural catastrophes Failure of climate-change adaptation 6 7 Energy price shock Critical information infrastructure breakdown Societal 8 9 Water crises Date fraud or theft 8 9 Fiscal crises Unemployment or underemployment Technological 10 Cyber attacks 10 Biodiversity loss and ecosystem collapse

17 The Netherlands life expectancy Men 75.8 years 81.6 years Women A child born in 2016 in Europe will live to be 100 +

18 Europe is leading the way EU Non Financial Reporting Directive EU shareholder Rights Directive Institutions for Occupational Retirement Provisions Justice Directive FSB Taskforce on Climate related financial disclosures French Energy Transition Law EU Green Paper on Long Term Financing UK Stewardship Code

19 This is an inevitable agenda that is gathering momentum Assets under management (US$ trillion) Number of signatories Number of signatories Assets under management

20 The PRI - at a glance Launched in April 2006 at the NYSE, the Principles for Responsible Investment has:

21 PRI signatories in Europe Asset Owner Investment Manager Service Provider

22 PRI European Signatory Base Are Global signatories closing the gap? According to our Reporting & Assessment Framework, European asset owners have a higher rate of RI implementation than globally, but the global average is improving at a faster rate. More European asset owners include RI process in the selection, appointment and monitoring of managers than globally, particularly in fixed income. Appointment processes still lag in Europe and globally. Proportionally, European signatories report screening strategies in listed equity when compared to the global average (82%:77%) but fewer European signatories report integration (77%:83%) and thematic (23%:30%) strategies.

23 Europe leading the way Investment Trends Fee Pressures Passive vs Active Smart Beta ESG tilted indices Looking for returns ESG and Hedge Funds, Infrastructure, Private Placements

24 Our Environmental, Social and Governance (ESG) Priorities

25 COP 21 first global agreement on climate change

26 PRI Initiatives Climate-related activities Climate Activities: Montreal Carbon Pledge, Climate Lobbying, Green Infrastructure Coalition Investor Platform for Climate Actions: An online platform launched at Climate Finance Day in Paris last year. The platform will identify and record the wide range of actions on climate change being undertaken by the global investor community.

27 UN Sustainable Development Goals

28 Critical ESG themes for 2016 Global political and economic uncertainties will continue to be a theme across At the PRI, we are particularly looking at ESG issues around: Geopolitical risk and Income inequality Food and water scarcity exacerbated by climate change Labour disruption as a result of transitioning to a low carbon environment Cybersecurity Increased focus on governance including multinational tax avoidance

29 FUTURE COLLABORATIVE INITIATIVES NEW INITIATIVES STARTING IN 2016 CLIMATE CHANGE CYBER SECURITY DEFORESTATION RARE EARTH MINERALS MATERIALITY OF HUMAN RIGHTS POLLINATORS LABOUR STANDARDS IN THE GARMENT SECTOR

30 Morningstar ESG ratings of funds Morningstar has partnered with Sustainalytics, an ESG research house, for the project. Morningstar has started rating 20,000 funds by sustainability factors. The environmental, social and governance (ESG) factors used in the ratings will help investors evaluate mutual funds and exchange-traded funds based on how well companies in the funds manage their ESG risks and opportunities. The ratings will help investors determine whether the funds they own, or are considering adding to their portfolios, reflect best sustainability practices.

31 Institutional investors are the sumo wrestlers of the financial markets. Powerful but a little slow, the top 1,000 fiduciaries worldwide account for $25 trillion of global equity market value more than half. When these institutions act together, as they increasingly do in matters of corporate governance and market structures, they can shape the financial markets into the form they desire John Rogers, Former CEO CFA Society

32 Join the conversation: #MICEU