ESG Integration and Wither the Sell-Side?
Prof. Robert G. Eccles
Professor, Harvard Business School
Chairman, Arabesque Partners
International Council Of Securities Association Annual Meeting 2016
May 24, 2016
Stockholm
Trends in the Capital Markets
2
Sustainable Development Goals (SDGs)
3
Some Numbers
1
80% of studies show that stock price performance is positively correlated with sustainability.1
2
79% of CEOs see sustainability as a route to competitive advantage.2
3
73% of the 50 largest pension funds globally have made a public commitment to sustainable
investing.3
4
$21.4 trillion is invested in sustainable products.4
5
5,478 companies have published a sustainability report in 2015, up from 436 in 2005.5
(1): G Clark, A Feiner & M Viehs, From the stockholder to the stakeholder, 2015, http://goo.gl/G1dnGy
(2): UNGC & Accenture, The investor study: Insights from PRI signatories, 2015, https://goo.gl/CLk3IH
(3): Own calculations based on Towers Watson, The world’s 300 largest pension funds – year end 2013, 2014,
http://goo.gl/DCsWkx
(4): Global Sustainable Investment Alliance (GSIA), Global sustainable investment review, 2015,
http://goo.gl/mnaSmL
(5): GRI, Sustainability disclosure database, 2016, http://goo.gl/MAhrnk
4
Growth in Sustainability Reporting
as of May 2016
Evolution of GRI reporting
6,000
Number of reports
5478
2014
2015
4949
5,000
4455
3801
4,000
3,000
2572
1923
2,000
1473
975
1,000
0
5399
12
48
131
1999
2000
2001
161
182
313
436
670
2002 2003 2004 2005 2006 2007 2008 2009
2010
2011
2012
2013
Note: The 2015 numbers are being updated
Source: http://database.globalreporting.org/search
5
Investing For a Sustainable Future
•
75% of investment firm senior executives agree that sustainability
performance is materially important
•
75% cite improved revenue performance and operational efficiency from
sustainability as strong reasons to invest
•
Half of investors won’t invest in a company with a poor sustainability track
record 60% are prepared to divest if sustainability performance is poor
•
There is a lack of communication within corporations and investment firms
and between them (sustainability issues in 54% of earnings calls and
shareholder meetings)
•
Only 44% of companies and 36% of investors consider inclusion on a
sustainability index as an important investment decision factor
•
Although a sustainability strategy is considered important, only 60% of
companies have developed one and only 25% say a business case has been
developed
Reference: G. Unruh, D. Kiron, N. Kruschwitz, M. Reeves, H. Rubel, and A.M. zum Felde, “Investing For a Sustainable Future,” MIT Sloan Management
Review, May 2016
6
Pax Americana
Source: BofAML’s Transforming World Atlas
7
A Map of Hubris & Humiliation
Source: BofAML’s Transforming World Atlas
8
Concentration in Asset Under Management
80,000 bn
13%
70,000 bn
60,000 bn
10%
14%
50,000 bn
40,000 bn
19%
30,000 bn
12%
20,000 bn
10,000 bn
9%
19%
0 bn
Top 5
Top 10
Top 20
Top 50
Top 100
Top 200
Top 300
Top 400 All Others
Total
Source: The top 400 asset managers (IPE, 2015), Sparking growth with go-to-market excellence (BCG, 2015)
9
Battling Short-Termism
10
Changing the Conversation: Long-Termism and ESG Integration
THE CEO
FORCE FOR
GOOD
11
Integrated Reporting – Definition
“An integrated report is a concise communication about how an
organization’s strategy, governance, performance and prospects,
in the context of its external environment, lead to the creation of
value in the short, medium and long term”
Source:
12
Integrated Reporting – Value Creation Framework
13
Integrated Reporting – Social Infrastructure
14
Trends in the Asset Owner/Asset Manager Relationship
Asset
Owners
Policies on ESG Integration & Capabilities:
•
•
Selection & Evaluation
Longer-term Contracts
15
Asset
Managers
Sell Side
Perception
Progress
Opportunities
•
Focus on the short
term
•
ESG specialist teams
by large firms
•
Buy-side interest in
ESG is growing
•
Quarterly earnings >
long term prospects
•
•
•
Largely clueless
about sustainability
Sector analysts pay
more attention to
material sustainability
issues
Larger firms are
becoming
increasingly
sophisticated
•
Asset owners
evaluate managers
on ESG
•
Emerging boutique
firms
16
Thank You!
Prof. Robert G. Eccles
Professor, Harvard Business School
Chairman, Arabesque Partners
[email protected]