11259157507Conference_report_The_future_of_ESG_integration by shuifanglj


                              in association with

   The Future of ESG Integration
        Conference Report
     NH Barbizon Place, Amsterdam, Wednesday 11 November

     How institutional asset owners, advisors and fund
      managers are embedding ESG sustainability in
             their investments and operations

The Future of ESG Integration
Conference Report
Roderick Munsters

                                                              “Signing up
                                                                      is not a
                                                                free lunch”

Robeco chief Munsters warns against
watering down UN PRI
Roderick Munsters, chief executive officer of Robeco, the Dutch fund manager, has warned that the $18 trillion
United Nations’ Principles for Responsible Investment initiative risks being watered down as it becomes virtually
obligatory for the investment industry to sign up. In his keynote address to Responsible-Investor.com’s ‘The Future
of ESG Integration’ conference in Amsterdam on November 11, Munsters, former member of the management
board and chief investment officer of APG, said: “The UN PRI was a wake-up call, but let’s be careful not to let it
get watered down,” He said it had now become “almost mandatory” for asset managers to become a signatory
and queried to what extent are people taking it seriously. “Signing up is not a free lunch,” he said.
He told the 150 conference delegates that the industry’s next step would be action on the Principles, not just
teaming up. “It needs to be more than just a debate - we need to act on issues.” Munsters said he saw signing up
to the UN PRI as fitting in with Robeco’s fiduciary duty to its clients.
Munsters said Robeco plans to integrate ESG further into its investment processes and that the firm will make
further announcements next year. Failure to integrate ESG “will cost your licence to operate in the next 10 years”
Munsters said.
Munsters also called on the asset
management industry to take the lead
in ESG and “and show how we can set
an example instead of waiting for
government to impose rules on us”.
On executive pay he called on the
sector to “to look into the mirror and
make what didn’t work, work”. He
lamented the fact that shareholders
have almost no say in the US. Part of
the problem was that shareholders
themselves have differing views .It
shouldn’t be difficult to get to a
                                         Roderick Munsters & Hugh Wheelan
common set of principles, he said.

www.responsible-investor.com                                                                              page 2

The Future of ESG Integration
Conference Report
Marcel Jeucken
                                         PRI to grow staff to 50 and go
                                         Marcel Jeucken, head of responsible investment at PGGM and a board
                                         member of the PRI, said the UN PRI was responding to its growing
                                         importance by becoming a substantial organisation in its own right. He
                                         said there were plans to grow the current staffing levels of the body
                                         globally from 20 to 50 staff.
                                         The PRI recently kicked off its recruitment drive with plans to hire seven
                                         new permanent and temporary staff to guide its recently announced five-
                                         year expansion programme. The hires, mostly at its London headquarters,
                                         include three full time posts: a new business manager/finance director, an
                                         assistant manager for training and assessment and a full time manager for
the PRI Clearinghouse, the private intranet website which allows investors to collaborate on engaging with
companies and lobbying regulators and governments.
As a result of the expansion, Jeucken said that a mandatory fee system for members would be introduced from
2011, replacing the current voluntary system.
Jeucken talked through the PRI’s new five-year plan, which includes the launch of new work streams on alternative
assets including hedge funds, infrastructure and commodities as part of a major broadening across asset classes,
which started earlier this year with the creation of best practice ESG guidance for investors in private equity.
He said the PRI Clearinghouse was also expanding rapidly as a place for investor collaboration on corporate
engagement, with around 20 engagements on line at any one time: “We need to collaborate with other investors,
we can't engage with all those companies ourselves.”

“More to come” in ESG research
house buy-outs and consolidation
Tom Kuh was until recently managing director of KLD, the Boston-based
SRI research firm, before it was bought in October by RiskMetrics, the risk,
research and proxy voting group. He told the conference that the current
wave of consolidation was just beginning: “The anticipated consolidation
has started. I’m here to predict – now that the market is reshaping – that
there’s more to come.” Kuh said he estimated the value of the ESG
research market as €40-50m per annum including services such as
research, data and indices: “With around 20 firms chasing that amount of
business, the sector is fragmented and ripe for consolidation,” he said.
Kuh said he foresaw the end of a market that had started with owner-led          Tom Kuh

firms into businesses that were “more commercial, more focused and
more sophisticated.” He said the sustainability product palette would
broaden out into new areas such as derivatives. He predicted the market
could also split between firms that provide just ESG data, others that
provide qualitative analysis and specialists in engagement. He noted that
from a fiduciary perspective, institutional clients were demanding better
data and greater company coverage.

www.responsible-investor.com                                                                               page 3

The Future of ESG Integration
Conference Report

                                                 Sweden’s AP funds cite
                                                 engagement success
                                                 Talking on a specific panel about investor engagement, Christina
                                                 Kussofsky Hillesoy, chair of the ethical council for the Swedish AP
                                                 government buffer pension funds, said the fund had concluded that
                                                 collaborative dialogue was the most effective way of being heard.
                                                 She said the AP funds recent collaboration with APG and the New York
                                                 City Pension Funds to lobby mining firm Freeport McMoran Copper &
                                                 Gold on environmental issues, had made the company sit up and take
                                                 notice after the combined funds corralled more than 30% shareholder
Christina Kussofsky Hillesoy
                                                 support for a resolution to push Freeport to hire an independent
                                                 environmental consultant: “It’s an eye-opener for companies when
                                                 investors from different countries collaborate. It makes companies
                                                 understand that it is not just a local issue.”
                                                 Kussofsky Hillesoy cited its collaborative lobbying of Sodexo, French
                                                 facilities management firm, as another “very successful engagement”.
                                                 Following the engagement, the company, criticised for inhuman
                                                 conditions for inmates at a centre for immigrants in the UK, agreed a
                                                 review of its human rights practices.
                                                 On the same panel, Helena Mahoney, marketing manager, client
                                                 services at Hermes, the UK fund manager, which runs a specialist
                                                 engagement unit, Equity Ownership Services, said the manager had
                                                 devised a series of ‘milestones’ across potential lobby areas such as climate
                                                 change or waste management that enabled it to gauge the success of its
Helena Mahoney

l to r: Erik Breen, Christina Kussofsky Hillesoy & Helena Mahoney

www.responsible-investor.com                                                                                         page 4

The Future of ESG Integration
Conference Report
Philippe Desfossés
                                        Pension funds and ESG
                                        Among the asset owners speaking at the conference, Philippe
                                        Desfossés, managing director of ERAFP, the Paris-based €6.5bn ($9.5bn)
                                        retirement fund for 4.6 million French civil servants – which is 100% SRI
                                        invested – said the fund was launching its own SRI and risk-based index
                                        for investing in small and medium sized companies. Desfossés said the
                                        index, which will focus on French small and medium sized companies
                                        (PME in French), will hold between 60 and 100 stocks. He said the fund
                                        aimed to hire a manager to run a mandate against it worth tens of
                                        millions of euros per annum. Desfossés said the fund was also aiming to
                                        allocate hundreds of millions of euros to sustainable property investments
                                        and seed a responsible forestry programme, as it gradually broadens its
                                        asset palette away from a bond-heavy structure.

Sophie Barbier, senior analyst responsible investment at FRR, the €29bn                   Sophie Barbier
($40.5bn) French pensions reserve fund (FRR), told the conference about
the fund’s research work looking at the potential impact of climate on
strategic asset allocation. Barbier said likely direct implications were
unlikely to be felt before 2050. However, she said the FRR had developed
five economic scenarios on climate change to feed into its asset allocation
model where the fund felt policy changes could have an indirect impact
on its investments. She said the fund was also examining whether it
should introduce new climate change-related asset classes, such as carbon
funds or forestry mandates.
Jeroen Van der Put, director at PNO Media, the €2.5bn pension fund
for the Dutch media, said the fund was also weighing up direct
investments in the ESG space, notably allocations to microfinance and

Jeroen Van der Put                      l to r: Philippe Desfossés, Jeroen Van der Put & Alex Van der Velden

                                                                                                               continued . . .

www.responsible-investor.com                                                                                         page 5

The Future of ESG Integration
Conference Report
Pension funds and ESG (cont)
On the subject of microfinance, Alex Van der Velden, head of
responsible equity strategies at PGGM Investments, which has €200m
allocated to the sector with €130m still to invest, said the fund disagreed
with some of the recent criticisms about the increased presence of large
institutional investors into the asset class. “Our view is that there are too
many ‘soft core’ (development/social) investors who’ve slowed
professionalism and this has actually kept lending rates high. As investors,
our long-term view is that we don’t want to take action that would ruin
our client base. It’s a constant balancing act, though.”
There were critical voices as to the real commitment of institutional
investors to ESG and whether a lack of activity in fact breached their
                                                                                   Alex Van der Velden
fiduciary duty. Carlos Joly, advisor, scientific climate change committee at
Natixis Asset Management, said he saw “a real mismatch” between the
trillions of dollars of assets signed up to the UN PRI and what was
happening on the ground in terms of RFPs and mandates. Joly argued that
pension funds were breaching fiduciary duty in the sense of long-term
protection of assets and beneficiaries, by ignoring climate change. The
reason, he said, was that investors were waiting for climate change to be
factored into equity prices, which he called an “impossibility” at present.
In a keynote address, Stuart Berman, partner at Barroway Topaz Kessler
Meltzer & Check, a US class action law firm, suggested that climate
change litigation could follow the previous lawsuit route that hit the
tobacco industry, and that insurance companies were already considering
the issue. Separately, Berman said that failure to collect monies being won
in class action lawsuits – especially related to the financial crisis – might be
                                                                                   Stuart Berman
seen as reneging on fiduciary duty.

l to r: Carlos Joly, Tom Kuh & Michelle Cooksley

www.responsible-investor.com                                                                             page 6

The Future of ESG Integration
Conference Report
                               The future of ESG?
                               Both Henrik Steffensen, co-founder and vice president of marketing
                               and business development at ASSET4, and Andrew Ness, Investment
                               Director at Scottish Widows Investment Partnership, said they believed
                               corporate responsiveness to ESG issues was being looked at as a proxy for
                               corporate quality. Ness said: “We believe sustainability is a good lead
                               indicator for the strength of management.” Steffensen cited a recent
                               study by Société Générale, the French bank, which found a correlation
                               between low SRI scores and low p/e ratios at firms.
                               In a summary of the day, Matthew Kiernan, co-founder of Innovest and
Henrik Steffensen              author of ‘Investing in a Sustainable World’, warned however, against the
                               investment industry tail wagging the asset owner dog: “Do let us get the
                               investor food chain in order!” Kiernan said that investment consultants as
                               a group had previously neglected the ESG space, but that this was
                               He said concerns also remained about the value institutional investors
                               placed on ESG research: “I know one Canadian PRI signatory that spends
                               35 times as much on VaR [value at risk] assessments as on sustainability
                               research, and that didn’t seem to do much for them in the financial crisis!
                               One problem is that investors are used to getting research for free.”
                               And in a final shot, he warned against pretending that the integration of
                               ESG issues into investment was a panacea to addressing environmental,
                               social and governance concerns: “Let’s not hurt our own case by
Andrew Ness                    exaggerating.”

Matthew Kiernan                l to r: Andrew Ness, Xavier Desmadryl, Henrik Steffensen & Bruno Maradei

            “Let us not hurt our own case
                  by exaggerating”
                                                                                                          continued . . .

www.responsible-investor.com                                                                                    page 7

The Future of ESG Integration
Conference Report
                               The future of ESG? (cont)
                               Xavier Desmadryl, global head of SRI research at HSBC Asset
                               Management, looked at the growing interest in sustainable investment in
                               emerging markets. UNPRI signatories in developing countries, he said,
                               now numbered 81 and rising, although ESG research, was still scarce,
                               notably in the brokerage/sell-side field. He said: “The biggest challenge in
                               emerging markets is a lack of ESG disclosure by corporations, but this is
                               changing also with the growth of sustainability indices and tougher ESG
                               listing requirements in certain markets.”
                               Talking about the adoption of ESG standards in the private equity world,
                               Rhea Hamilton, senior investment manager for Robeco SAM Private Equity,
Xavier Desmadryl               said this had been prompted by a mix of pressure from asset owners,
                               employees and trades unions and a reaction by the sector’s trade bodies. She
                               said SAM engaged with its own clean tech fund-of-funds managers to ensure
                               they had adopted their own ESG measures. The rationale for investing in
                               clean tech private equity funds, she said, was a combination of rapid
                               population expansion, limited natural resources and ageing infrastructure
                               allied with government stimulus and a need to reduce CO2 emissions.

                                       “Do let us get the
                                      investor food chain
Rhea Hamilton                              in order”

www.responsible-investor.com                                                                       page 8

The Future of ESG Integration
Conference Report
Responsible-Investor.com would like to thank all the speakers, sponsors
and attendees at the Future of ESG Conference for an excellent event!
We look forward to seeing you at the next RI conference.

www.responsible-investor.com                                              page 9

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