Morningstar Sustainable Investing Initiative

Transcription

1 Morningstar Sustainable Investing Initiative Nikolaj Holdt Mikkelsen, CFA, CIPM Chief Analyst & Head of Office, Morningstar Denmark ESG Ratings, 9 July 2018, CSR Link 2018 Morningstar, Inc. All rights reserved.

2 Morningstar Sustainable Investing Initiative Our mission is to create great products that help investors reach their financial goals. Morningstar Sustainability Ratings and analytics are integral to our mission of creating great products that help investors reach their financial goals. We want to provide a new lens that investors, advisors, and asset managers can use to evaluate how well the companies in a fund are managing their environmental, social, and governance risks and opportunities so they can put their investments to work in ways that are meaningful to them. 2

3 Morningstar Sustainable Investing Initiative Has Investor Interest Really Been Growing? g 1,712 UNPRI signatories globally with $63 Trillion in Assets Under Management g $23 Trillion in Sustainable Investments Globally: 25% growth since 2014 g $8.72 Trillion in Sustainable Investment Assets in the U.S.: 33% growth since 2014 g $5.57 Trillion in Retail Assets; 96% growth since 2014 g Newer wealth holders think differently: ESG allows managers reach new audiences 3

4 Socially Responsible Investing traditional valuesbased approach that used exclusionary screening to avoid exposure to certain types of products or industries Products Energy/Chemicals Weapons Tobacco products Nuclear power Controversial weapons Alcoholic beverages Thermal coal Military contracting Gambling Pesticides Small arms Palm oil Animal testing 4

5 Sustainable Investing is a long-term oriented investment process that incorporates Environmental, social, and governance factors Environmental Issues Social Issues Governance Issues Climate change and carbon emissions Product safety Board composition Air/water pollution Data protection/privacy Audit committee structure Energy efficiency Gender and diversity Executive compensation Water scarcity Employee engagement Lobbying Waste management Supply chain management Political contributions Deforestation Labor standards Bribery and corruption Source: Environmental, Social, and Governance Issues in Investing, CFA Institute,

6 Morningstar Sustainable Investing Initiative Two firms, one commitment to research Bottom-up research. Transparent methodologies. Global reach. Independent voice. Global leader in independent ESG research and analysis Serves investors and financial institutions around the world Deep commitment to bottom-up research: Over twenty years of local expertise, global research coverage, and highly experienced analyst team Transparent methodology providing up to 70 indicator level scores at the company level for over 4,000 companies Leading provider of independent investment research Serves individuals, advisors, asset managers, retirement plan sponsors and providers, and other businesses around the world Deep commitment to bottom-up research: Thirty years of local expertise, global research coverage, and a deep analyst bench Transparent methodologies to track, research and rate more than 250,000 managed products 6

7 Sustainalytics Company ESG Research - Two Main Signals: Company ESG Ratings Overall ESG Score (0 100) Environmental Score Social Score Governance Score Company Controversy Assessments Based on 10 issue areas Scored from 1 (low) 5 (high) Outlook Ratings are generated on the basis of a weighted balanced score card. Companies are assessed within a sector specific context. Transparent assessment of companies based on up to 70 indicators per sector. Analyst provides rating commentary based on key ESG issues. 7

8 Sustainalytics Company Report Controversies Mærsk 8

9 Morningstar Sustainable Investing Initiative Measure how well a portfolio's holdings manage ESG risks and opportunities 9

10 Sustainalytics company ESG scores are normalized across sectors - Illustrated with a fund portfolio with only two stocks Retail 100 Oil & Gas 100 s 70 o s EEEEEE nnnnnnnn. = 5555, o EEEEEE nnnnnnnn. = 6666, 6666 s Sustainability Score: 55 o 46,6 :Sustainability Score Morningstar Sustainability Fund Score: 50,8

11 Funds within the category: Global Large-Cap Value Equity The Sustainability score is now calculated and the only thing left to do is to compare the fund with its peers in the category. In the table below the funds in the category are listed in descending order. Our Fund Sustainability Scores for funds in the category Global Large-Cap Value Equity Funds Funds Funds Funds

12 As with the Morningstar Rating the Morningstar Sustainability Score will be visually presented with symbols. The symbols will be globes as seen below. Thus our example fund would receive two globes. However if the underlying stocks in the fund had 0 in Controversy Score, the funds Sustainability Score would have been 62.8 and thus resulted in five globes. Sustainability Score for our example fund

13 Morningstar Sustainable Investing Initiative Measure how well a portfolio's holdings manage ESG risks and opportunities 13

14 Using the Morningstar Sustainability Ratings & ESG Metrics The Morningstar Sustainability Score, Rating, Methodology Paper etc. available for free on our global websites to help investors better understand the sustainability performance of companies held in a fund portfolio Investors, advisors and institutions may use the metrics: To build portfolios of sustainable investments To learn how well an existing portfolio is doing on sustainability To assess how well an intentional sustainable fund is living up to its mandate To expand the universe of funds acceptable to a sustainable investor To set a sustainability threshold for funds, as part of fund-selection criteria To ask questions of asset managers about their ESG process To report to clients on the sustainability performance of their portfolio 14

15 Company ESG Summary Danish Equities Name Score - ESG Score - Environmental Score - Social Score - Governance Sustainalytics Peer Group Sustainalytics Peer Group Classification Company Highest Controversy Level Company Highest Controversy Topics Coloplast A/S B Healthcare Industry Leader Moderate Customer Novo Nordisk A/S B Pharmaceuticals Industry Leader Significant Customer ISS A/S Commercial Services Industry Leader Low Employee SAS AB Transportation Industry Leader Moderate Customer Nordea Bank AB Banks Industry Leader Moderate Business Ethics,Customer Chr. Hansen Holding A/S Chemicals Industry Leader None Danske Bank A/S Banks Outperformer Significant Business Ethics GN Store Nord A/S Healthcare Outperformer None Novozymes A/S B Chemicals Outperformer Low Business Ethics,Governance Vestas Wind Systems A/S Electrical Equipment Outperformer Moderate Society & Community Orsted A/S Utilities Outperformer Low Social Supply Chain,Customer Carlsberg A/S B Food Products Outperformer Moderate Business Ethics,Employee,Customer Pandora A/S Textiles & Apparel Average Performer None H. Lundbeck A/S Pharmaceuticals Average Performer Significant Customer William Demant Holding A/S Healthcare Average Performer Low Business Ethics A. P. Moller Maersk A/S Transportation Average Performer Significant Operations G4S PLC Commercial Services Average Performer Severe Society & Community FLSmidth & Co. A/S Construction & Engineering Average Performer Low Customer DSV A/S Transportation Average Performer Low Customer SimCorp A/S Software & Services Average Performer None Topdanmark A/S Insurance Average Performer Low Customer Tryg A/S Insurance Average Performer None Jyske Bank A/S Banks Average Performer Moderate Business Ethics,Customer 15

16 Highlights in a Broader Context Sustainability Score ESG Score Controversy Score Environmental Score Social Score Governance Score

17 How Well Does SRI-Funds Do Within ESG-Rating? Fund 17 Portfolio Sustainability Score Sustainability Percent Rank in Category Morningstar Sustainability Rating Sparinvest INDEX DJSI World KL 55 4 High 5 Maj Invest Global Sundhed Above Average 4 Nykredit Invest Engros Glb Akt Basis ESG Above Average 4 Nykredit Invest Engros Eurokredit SRI Above Average 4 Nordea Invest Global Stars Above Average 4 Nykredit Invest Euro Virksomhedsobl SRI Above Average 4 Nykredit Invest Bæredygtige Aktier Above Average 4 Nordea Invest Nordic Stars Above Average 4 Danske Invest Engros Global Restricted Above Average 4 Nordea Invest Engros Int. Aktier - Etisk Above Average 4 Nordea Invest Engros Abs Return Eq II Et Average 3 Sydinvest Verden Etik KL W DKK Average 3 Danske Invest KlimaTrends KL Average 3 Wealth Invest AKL SEB Gl Aktier SRI P Average 3 Nordea Invest Emerging Stars Average 3 Nykredit Invest Engros Glb Aktier SRI Average 3 Nykredit Invest Globale Aktier SRI Average 3 C WorldWide Globale Aktier Etik KL Average 3 Nordea Invest Klima og Miljø Average 3 Danske Inv Eng Euro IG Corp Bds Rest KL Below Average 2 BankInvest Virksomhedsobl IG Etik A Below Average 2 BankInvest Basis Globale Aktier Etik A Below Average 2 Investin K Invest Low Carbon Global Eq Below Average 2 Avg ,3 Globes

18 Any link between sustainability and performance? Sustainability Score Portfolio Controversy Score Morningstar Star Rating Morningstar Star Rating 70 R² = R² = Portfolio Controversy Score Portfolio Sustainability Score Total Return 3 Yrs. Percent Rank Total Return 3 Yrs. Percent Rank

19 Intentional ctr. Mainstream funds European Domiciled Funds Characteristics of intentional and mainstream funds Star Rating Mainstream Intentional Sustainability Score Controversy Score Mainstream Intentional Mainstream Intentional 19

20 Controversy - Coloplast Based on results for European Domiciled Funds 20

21 100m Sprint

22 Morningstar Landingpage: Nikolaj Holdt Mikkelsen, CFA, CIPM

23 New Carbon metric - Why Carbon? ginvestors and Scientists agree gworld Leaders agree gincrease in national pledges to reduce emissions gregulatory and industry pressures mount gfossil fuel divestment rising globally ginvestors want to make social and environmental impact gclimate change is a risk and an opportunity ginvestors are increasingly looking to manage carbon risk in their portfolios gglobal warming has to be contained under 2 degrees C g170 countries ratified COP21 agreement in 2015 (UN United Nations Climate Change Conference) gfrench Energy Transition law gtcfd gindividuals, foundations and endowments joining Divest-Invest coalition genvironmental issues drive interest to sustainable and impact investing 23

24 Investors Taking action against climate change g Global Agreement: 174 of 197 Countries agreed to keep global temperature from rising by more than 2 degrees Celsius during COP21 (UN Conference on climate change) DECARBONIZING Pension Plans Respond: low carbon mandates g AP4: $17 bn global equity portfolio changed policy benchmark to low carbon g FRR: invested $4 bn into low carbon g UK EAPF: invested $500k g CalSTRS: invested $2.5 bn 24 g Divest-Invest Coalition unites individuals, endowments and foundations with the total AUM of $4.6 trillion in a pledge to divest out of fossil fuels and invest into renewable energy g Growing Climate Related Disclosure: BlackRock, Vanguard and State Street committed to pressuring companies for better climate-risk disclosure DIVESTING DISCLOSING RISK Pension Plans Respond by divestment: g Norway Pension Fund / Norges Bank (Coal) g UK local authorities (Southwack, Waltham Forest, Hackney) g Church of England (Coal and tar sands) g SF Employees Retirement Fund g Task Force on Climate-related Financial Disclosures (TCFD) : driving voluntary and consistent climate-related financial risk disclosures in mainstream filings

25 Morningstar Low Carbon Designation Funds must have a carbon risk score < 10 Carbon Risk Score (12 Month Average) High Intensity Fossil Fuel Involvement (12 Month Average) Funds must have <7% exposure to fossil fuels g The low carbon designation helps investors easily identify low-carbon funds across the global universe and encourages funds to minimize their carbon risk it s not a rating g The low carbon-risk threshold is consistent with Sustainalytics threshold for a low carbon-risk company; it represents unmanaged and unmanageable carbon risk inherent in a firm s operations g Exposure to fossil fuels is the biggest source of carbon intensity; funds with less than 7% of assets are underweight fossil fuels relative to a global universe 25

26 Carbon SAL Fund Component 26

27 Why Morningstar s carbon metrics? g g g g g g g A unique Carbon Risk Score, which moves beyond carbon footprinting to an assessment of the carbon risks and opportunities embedded in a portfolio Carbon metrics covering more than 30,000 funds and managed portfolios across the global Morningstar database integrated with the vast financial data across Morningstar platforms An in-depth set of more than 70 portfolio carbon metrics Reaches a broad audience of more than 10 million investors globally Helps investors achieve positive asset societal and environmental impact by combating climate change Helps asset managers tell their story on successful de-carbonization and fossil fuel divestment using Morningstar s Low Carbon Designation via ESG Essentials Supports Morningstar s goal to provide a comprehensive sustainability solution 27