20051120_CF_Breakout by steves713


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									Straight to the Bottom Line
Risk, materiality, fiduciaries and opportunity along the investment chain
Bodhi Burgess bobubu@umich.edu

Risk Trends: Water and Climate UNEP FI (ESG: materiality, fiduciaries, PRI) Clean technology opportunities

Water Scarcity
An estimated third of the world's population currently lives in waterstressed countries. This is set to increase to two-thirds within 25 years. Africa and Asia are already hard-hit by water stress. Increasing populations will create more pressure in the coming decades.

The amount of water on Earth is fixed. Less than 0.01% of the planet's 1.4 billion cubic kilometers is easily accessible freshwater in lakes and rivers. About a fifth of the water used worldwide comes from the 30% of the world's freshwater which is stored in groundwater.

Source: BBC News

Water Scarcity

The world's population has tripled in the last 100 years, but water use has increased six fold. A surge in water use in agriculture is responsible for a large part of the increase

Planetary Warming Trend

The planet has been experiencing a warming trend. | *30-year period: 1961-1990 |

SOURCE: National Center for Atmospheric Research

Weather Related Losses
• Weather-related disasters in 2004 caused $105 billion in economic losses (in 2003 dollars)—almost twice the total in 2003. •Roughly 12,000 weather-related disasters since 1980 have caused just over 618,200 fatalities and cost a total of 1.3 trillion. •Average annual economic losses from such events have risen from $26 billion in the 1980s to $67 billion over the last decade. •Average annual fatalities due to weather jumped from 22,000 in the 1980s to 33,000 in the 1990s. Losses from Hurricane Katrina alone are expected to top $100 billion Source: Munich Re and the World Watch Institute

Real Risk
Increased drought Disease migration Increased flood risk Unreliability of wather and energy supplies Decrased agricutural yields in the tropics Diruption of the global supply chain Disruption to distibution, work force NGO Activism Consumer boycotts Changing regulatory environment

UNEP Finance Initiative
Academic research (SRI Studies) AMWG:
– Materiality 1: 1,000 pages of pro bono sell-side research (Goldman Sachs, UBS, Citigroup, ABN AMRO) – Materiality 2 (ABN AMRO, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, UBS)

Fiduciary Responsibility: Freshfields Bruckhaus Deringer PRI

Academic Research: ESG and Risk
“Portfolios of most eco-efficient companies outperform portfolios of least eco-efficient companies by about 6% annually”
– Derwall et al., FAJ, 2005

“These abnormal long-run stock returns should over time translate into a higher valuation for more eco-efficient companies”
– Nadja Guenster,RSM Erasmus University

Materiality I: ESG and Risk

Governance impacts risk, profitability, and price performance In our research, we have found a clear link between our corporate governance assessment and share price volatility, corporate profitability, and share price performance. Through these relationships, we conclude that the assessment of corporate governance standards is a valid measure of equity risk. Beyond the Numbers: Corporate Governance - Implication for Investors Deutsche Bank Global Equity Research

Fiduciary Responsibility:
A Study by Freshfields Bruckhaus Deringer
-Does the law in the largest capital markets jurisdictions permit institutional investors to consider ESG issues in their investment decision making and ownership practices? -Are investors obligated to take action on such issues in some cases? -What is the likely evolution of the (interpretation of the) law with respect to investors and ESG issues?

PRI: Principles for Responsible Investment
Commissioned by the Secretary General 22 Institutional Investors 12 Countries $1.7 trillion of assets under management 6 Principles Global roll out in March 2006

Clean Tech Investment
Markets for solar PV (modules, system components, and installation) will grow from $7.2 billion in 2004 (compared to $4.7 billion in 2003) to $39.2 billion by 2014 New wind power installations are projected to expand from $8 billion in 2004 (about the same as 2003) to $48.1 billion in 2014 Fuel cells and distributed hydrogen are projected to grow from $900 million (primarily for research contracts and demonstration and test units) to $15.1 billion over the next decade Already, these three clean-energy markets have expanded from $9.5 billion in 2002 to just over $16 billion in 2004. By 2014, they will grow another six fold, to more than $100 billion.

Source: Clean Edge research

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