This communication is intended for institutional investors only and must not be relied on by anyone else. Responsible Investment Next generation of investors March 2016
Growth in responsible investment 54% of UK stock market owned by wealthy individuals (1963) Quakers prohibit members from participating in slave trade (1758) Religious boycott of Dutch East India company s shares (1609) PAX Fund launched by Methodists in USA (1971) Social investors on the rise (1970s) Stewardship products launched (1 st UK) (1984) First social investment forum launched in the US (1981) First UK pension fund adopts responsible investment policy (1999) Over 1bn held in UK Ethical retail funds (1996) Bishop of Oxford vs. Church Commissioners for England (1992) UKSIF launched (1991) Sell-side develops SRI research (2001) FTSE 4Good launched (2001) Eurosif formed (2001) SRI disclosure regulation became law (2000) UK national ethical investment week launched (2008) Stern review (2006) PRI established (2006) Over 5bn held in UK retail ethical funds (2004) Norwegian sovereign wealth fund establishes ethical council (2008) Less than 12% of UK stock market owned by wealthy individuals (2014) UK stewardship code introduced (2010) UK ethical and green market over 15bn (2015) Rise in green bonds (2012) Kaye review (2012) 1609 1970 1980 1990 2000 Infancy Source: Standard Life Investments, December 2015 2010 Maturity 2
Top 5 Global Risks in Terms of Likelihood 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1 st Breakdown of critical information infrastructure Asset price collapse Asset price collapse Asset price collapse Storms and cyclones Severe income disparity Severe income disparity Income disparity Interstate conflict with regional consequences Large scale involuntary migration 2 nd Chronic disease in developed countries Middle East instability Slowing Chinese economy (<6%) Slowing Chinese economy (<6%) Flooding Chronic fiscal imbalances Chronic fiscal imbalances Extreme weather events Extreme weather events Extreme weather events 3 rd Oil price shock Failed and failing states Chronic disease Chronic disease Corruption Rising green house gas emissions Rising green house gas emissions Unemployment and underemployment Failure of national governance Failure of climatechange mitigation and adaptation 4 th China economic hard landing Oil and gas price spike Global governance gaps Fiscal crises Biodiversity loss Cyber attacks Water supply crises Climate change State collapse or crisis Interstate conflict with regional consequences 5 th Asset price collapse Chronic disease in developed countries Retrenchment from globalization (emerging) Global governance gaps Climate change Water supply crises Mismanagement of population ageing Cyber attacks High structural unemployment or underemployment Major natural catastrophes Economic Environmental Geopolitical Societal Technological Source: Global Risk Reports, World Economic Forum, 2016 3
Who are the Millennials? 4
US population distribution by age, 2013 5000000 4500000 4000000 Millions Millennials (1980 2004) Homeland Generation (2005-Present) Generation X (1965-1980) Baby Boomers (1946-1964) 3500000 3000000 2500000 Silent Generation (1928-1945) 2000000 1500000 1000000 500000 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 Source: Standard Life Investments, Census Bureau, 2013 5
Millennials environmental and social views Source: Rise of the Millennials and the impact on Values Based Investment, Standard Life Investments, 2015 6
The new Millennial economy: Impact on business Reaching prime working & spending years Largest proportion of population Hierarchy of needs has changed 75% have said that it s important or very important that a company gives back to society instead of just making a profit Forbes survey on Millennials Estimated $200 billion in annual buying power Digital natives affinity to technology driving change in attitudes and behaviour Disrupting traditional business models - changing the way we buy and sell Brand is less important than impact products have on wider society and environment Half of 18-24 year olds want to invest in companies that achieve positive social outcomes 7
Megatrends driving the investment industry Source: KPMG, Investing in the future: How megatrends are reshaping the future of the investment industry, Standard Life Investments 8
Views of respondents with an investment product To what extent, if at all, do you agree or disagree with the following statements? 18-24 25-34 35-44 45-54 55+ I want to invest my money in/with companies that achieve positive social outcomes 58% 42% 44% 34% 27% I want to invest my money in ways that minimises any environmental damage 51% 47% 49% 41% 38% I think companies that follow sustainable business practices are more competitive/profitable than companies than don't focus on these issues 44% 30% 29% 21% 22% I would actively choose to invest in companies that target specific, positive environmental outcomes 42% 40% 39% 32% 22% I want my investments (including my pension) to help make a positive difference to the world 50% 40% 38% 35% 31% I am more concerned in investing in a company that provides high returns on investment rather than social/environmental issues 39% 35% 47% 43% 45% Positive correlation between positive values and youth 49% 40% 40% 33% 28% Source: Standard Life Investments YouGov poll 2015 9
Digital age disrupting markets and business Moving from an ownership to a sharing economy The world s largest taxi company owns no vehicles (Uber) The world s most popular media company creates no content (Facebook) The world s largest retailer has no inventory (Alibaba) The world s largest hotel group owns no real estate (Airbnb) The world s largest telecoms company owns no infrastructure (Skype) The world s largest movies provider owns no cinemas (Netflix) Business models are evolving to adapt to the changing hierarchy of needs 10
Keeping up with the Millennials Global Societal Challenges Climate Change Hunger and Malnutrition Inadequate Housing Limited access to Clean Water Limited sanitation and hygiene Renewable and Clean Energy Access to Nutrition Affordable Housing Water Delivery & Treatment Solutions Sanitation and Hygiene Provisions Unemployment and Under Employment Unproductive Agriculture Limited Access to Financial Services Rise in neglected diseases Jobs and Education Sustainable Agriculture Techniques Financial Inclusion Access to Medicine Investing in Solutions 11
The Sustainable Development Goals 17 UN Goals set to guide development for next 15 years Source: The Global Goals for Sustainable Development, http://www.globalgoals.org/ 12
Impact Investing Focusing on measurable high-impact solutions Delivering competitive financial returns Pursuing environmental and social opportunities Mitigating environmental and societal risk 17 UN Goals set to guide development for next 15 years Address long-term challenges Climate change Rising inequalities Unsustainable production and consumption Unemployment and precarious jobs All economies and societies Public and private sectors Businesses role as solution providers Addressing societal challenges that generate a competitive financial return 13
Implications for the financial industry The future belongs to people who see possibilities before they become obvious John Sculley, Business Executive John Sculley, Business Executive 14
Appendix 1
Biography Amanda Young Responsibilities Relevant Experience Professional Qualifications Head of Responsible Investment Heads a team of analysts in integrating environmental, human rights, labour and business ethics factors into investment portfolios. 17 years of financial services experience with 13 years experience in responsible investment. BSc (Hons) Amanda Young Head of Responsible Investment Amanda has a long-standing career in responsible investment within the financial services industry. As Head of Responsible Investments, she leads a team of analysts focusing on the sustainability issues affecting Standard Life Investment s investee companies. The team focuses on integrating human rights, environment, labour standard and business ethics issues into the mainstream investment process, as well as providing oversight to its Sustainable and Responsible Investment (SRI) and ethical investment propositions. Prior to joining Standard Life Investments, Amanda was the SRI Officer at Newton Investment Management where she integrated environmental, social and governance matters into Newton s mainstream investment process. Amanda started her career in responsibility investment at CCLA Investment Management where she has responsibility for CCLA s charity clients. Amanda s first research position was at Rabobank International, in the economics department. Amanda graduated from Lancaster University with a BSc in Psychology. Amanda current sits on the FTSE ESG Advisory Committee. She was a member of the board of the UK Sustainable Investment and Finance Association for six years. 16
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