Ludovic FERRAS, Head of Investment Specialists

Presentation on theme: "Ludovic FERRAS, Head of Investment Specialists"— Presentation transcript:

Slide1
Ludovic FERRAS, Head of Investment Specialists
APAF
Presentation
, Lisbon, June 2016
SRI, Sustainable & Responsible Investing
Slide2
What is SRI?
Various approaches, all covered by Candriam
SRI is the consideration of Environmental, Social and Governance issues (ESG) when
analysing
issuers and making investment decisions.SRI covers different kind of approaches:
Candriam SkillsSelectionBest-in-classSelection of the best companies in their sector with regard to sustainable development ThematicSelection of the best companies according to a specific sustainable development theme (e.g. renewable energies, employee satisfaction...) while ensuring good ESG practices Norms-basedSelection of companies according to their observance of the main international treaties (e.g. Conventions of the International Labour Organisation)EthicalExclusion of companies involved in controversial activities (e.g. alcohol, gambling, tobacco…) ESG integrationSystematic and explicit consideration of ESG factors in financial selection and investment decisionsDialogueEngagementDirect private dialogue with companies, voting at general meetings, shareholder activism…PurposeImpact InvestingInvestment in solidarity projectsMicro Financing 
June 2016
SRI Presentation to APAF - Lisbon
2
Slide3
What is sustainable & responsible investment?
A closer look to the ESG factors
ESG factors refer to the
broad set of sustainable investment criteria
used alongside traditional financial criteria in managing and selecting investments.There is no one exhaustive list of ESG issues. They are often interlinked, and it can be challenging to classify an ESG issue as only an Environmental, Social, or Governance issue.Historically, many investors have considered ESG issues in fundamental investment analysis by including an assessment of reputational risk, regulatory developments, or such megatrends as an aging population. But now, ESG analysis refers to a systematic consideration of relevant and material ESG issues, it is a complement to (not a substitute for) traditional fundamental analysis, and ESG issues remain relevant throughout the investment process, from the initial analysis to the buy/sell/hold decision to ongoing ownership practices.
1
Environmental issuesSocial IssuesGovernance IssuesClimate change and carbon emissionsCustomer satisfactionBoard compositionAir and water pollutionData protection and privacyAudit committee structure BiodiversityGender and diversityBribery and corruptionDeforestationEmployee engagementExecutive compensationEnergy efficiencyCommunity relationsLobbyingWaste managementHuman rightsPolitical contributionsWater scarcity Labor standards Whistleblower schemes
These ESG issues can often be measured (e.g., what is the employee turnover for a company?), but it can be difficult to assign them a monetary value (e.g., what is the cost of employee turnover for a company?)
June 2016
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SRI: a growing market with increased interests
Global markets & trends
1
Proportion of SRI relative to total managed assets
Majority of European Assets now use SRI techniques
Significant Global Growth in SRI
US is fastest growing SRI market
Growth of SRI Assets by R
egion
2012–2014

2012
2014
Growth
Europe
$8 758$13 60855%United States$3 740$6 57276%Canada$589$94560%Australia/NZ$134$18034%Asia$40$5332%Total$13 261$21 35861%
Proportion of Global SRI Assets by Region
The proportion of SRI globally in relation to professionally managed assets in the regions covered has increased to 30.2%, from 21.5% in 2012. This proportion has increased in all regions.Most of the SRI assets referred Europe (63.7%), but the relative contribution of the United States has increased to 30.8% from 28.2% in 2012.
Source: GSIA 2014 survey (Global Sustainable Investment Alliance)
Asset values are expressed in billions
Significant SRI expansion in recent years  this 61% growth outpaced the growth in total professionally managed assets. Over this 2-yr period, the fastest growing region has been the US, followed by Canada and Europe. These 3 regions are also the largest regions in terms of assets, accounting for 99% of global SRI.
US$ 21.4 trillion
June 2016
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Slide5
SRI: a growing market with increased interests
Cultural
aspects play a role in the difference between
European and US SRI developments
1
Although the US was at the origin of the initial concept of SRI, it remained for a long time a niche and more focused on the philanthropy side. Europe is leading the way, for several reasons: European institutional investors see sustainable investing as part of their fiduciary responsibility (norms and exclusion have been more commonly accepted)Such as pension funds (i.e. ABP, the Dutch civil service pension fund which announced in October 2015 a radical change to its investment policy towards SRI)Or private banks and wealth managers which are also in the process of making their offerings more sustainable (i.e. Rabobank decided years ago to limit its offerings to funds which apply norms-based and exclusion screenings)Increased SRI-oriented regulations where European governments play a large roleMandatory exclusion for exposure to controversial weapons (Belgium, France, Switzerland and Netherlands)Creation, by the public authorities, of a SRI label for funds applying ESG criteria (France)Publication of the Pension Governance Code (Netherlands, September 2013). It gives guidance to pension funds on ESG themes such as transparency, accountability and communication, financial control, diversity, and good governance. The code also requires pension funds to define a “responsible investment” strategy and make it available for stakeholdersBut Europe is not a homogeneous market. Some notable differences and variations in ESG practices can be spotted between different European countriesAccording to Eurosif*, the French ESG market is traditionally defined by combining “best-in-class” and “sustainability-themed” strategies In the United Kingdom, the most practiced strategy is “engagement and voting”In the Netherlands, “exclusions” is the most popular strategy, followed by “norms-based screening” and engagement and votingThe latest trend in most European markets is growth of “impact investing” vehicles
* Eurosif: the pan-European sustainable and responsible investment membership organization
June 2016
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Slide6
is SRI good for your portfolio?
Combine SRI and performance
1
Historically, it was common to think that
ESG analysis comes
with a performance penaltyHistorical domination of negative/exclusionary screenings motivated by values considerations  mixed impacts on portfolio risk/returns depending on what is excluded, when it was excluded, size of the exclusion, over what timeframe performance is measured, etc. ESG issues do not fit well with short-termism in investing because they tend to affect financial performance over longer periods (e.g. the poor governance of a large company is more likely to affect the company over the long-term than in the next quarter)This perception should change over time. More and more academic and industry studies are demonstrating that sustainable investing does not underperform conventional investing, and there is mounting evidence that incorporating ESG factors can improved returns and lower risk57% of asset owners and other institutional investors believe incorporating ESG into alternative investments decision-making has a positive impact on risk-adjusted returns. The vast majority - 90% - think that incorporating ESG criteria has a positive or neutral impact on returns (LGT Capital Partners and Mercer1)A recent study of U.S.-based mutual funds and separately managed accounts (Morgan Stanley2) concluded that sustainable investments usually met and often exceeded the performance of comparable traditional investments on both an absolute and risk-adjusted basis.89% of academic studies show that strong ESG standards correlate stock price outperformance (Deutsche Bank3)
Taking into account ESG criteria is a source of long term value that cannot be captured by traditional financial analysis
1. Mercer and LGT Capital Partners, Global Insights on ESG in Alternative Investing, 2015.2. “Sustainable Reality: Understand Performance of Sustainable Investment Strategies.” March 2015. Morgan Stanley Institute for Sustainable Investing.3. Deutsche Bank, Sustainable Investing Report 2012
June 2016
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is SRI good for your portfolio?
Combine SRI and performance
1
A comparison of the returns for MSCI World index and MSCI World ESG Index; and MSCI KLD 400 Social and MSCI USA Index
This graph shows
the performance of two ESG-related indexes (one for the United States and one for the world) compared with equivalent non-ESG
indexes

ESG performance tracks closely with non-ESG and it’s even better for the U.S-focused indexes. The major difference is that ESG-focused investing has more potential to bring positive change, environmental or otherwise.
Source: MSCI indexes, as of Jan 29, 2016
June 2016
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Slide8
Candriam SRI Universe: the case of European Equities
From 628 Companies analysed to 262 selected (42%)
June 2016
628 Companies analysed
262 Companies eligible (42%)
Companies*

Best-in-Class
+
Norms-based Analysis
+
Controversial Activities Check
Countries /Local Authorities Best-in-Class + Norms-based Analysis
Agencies / SupranationalsMission Statement+ Norms-based Analysis
8
Slide9
Performances of our ESG selection
Financial performance

ESG selection

EuropeMSCI EuropeAnnualized total return 11,03%10,43%üSharpe Ratio 0,584 0,559 ü
Sources: MSCI, Candriam
ESG selection vs Index CO2 emissions (tCO2 eq/mio revenues)-37%üWater withdrawal-48%üCollective agreement=üEmployee satisfaction +1.8%üBoard independence+4.4%üWomen on board+1.8%ü
Companies*
Best-in-Class + Norms-based Analysis+Controversial Activities Check
ESG Global scoreSelect ESGBench79.557.8
ESG performance
The European Equity selection
June 2016
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Slide10
Outlook & key trends
A changing world
1
T
he
world is very different today, and it is likely to keep changing at a rapid pace for the foreseeable future. Climate Change and Other Environmental Issues Water and other natural resources are becoming constrained in certain parts of the United States and in countries such as ChinaMan-made carbon pollutants continue to increase concerns about changes in the Earth’s climateSocial IssuesThe global population passed the 7 billion mark in 2011, and is now headed toward 9 billion by mid-century, according to United Nations projectionsMiddle classes are rising in geographical areas long associated with increased povertyTechnology and biotechnology are altering how, and how long, we liveGovernance IssuesThe financial crisis led to a significant acceleration  highlight the importance of governance, which became mainstream. Accurate valuations and proper risk management require greater disclosure and consideration of ESG issues
All stakeholders (investors, asset managers, companies, governments…) must adapt to this changing world…Sustainable & Responsible Investment is one of the necessary responses
June 2016
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M
ajor
SRI drivers – 1. Increased SRI interests from the retail investors
1
What the U.S. and European countries have in common, is weakness in the retail ESG market  main reasons are likely the lack of clear definitions, the need for education but also the view that ESG comes with a performance penaltyIn the US, the significant increase in SRI/ESG AUM ($6.6 trillion) is mainly coming from the institutional segment, HNWI, Endowments and Foundations But the US retail segment is gaining appetite for SRI, AUM tripled between 2012 and 2014 with $2 trillion invested in various open-end, variable annuity, exchange-traded, and closed-end funds1
1. “Report on US Sustainable, Responsible and impact Investing”, 2014, The Forum for Sustainable and Responsible Investing (US SIF)2. “Sustainable signals: The Individual Investor Perspective”, February 2015, Morgan Stanley Institute for Sustainable Investing3. “The ‘Greater’ Wealth Transfer: Capitalizing on the intergenerational shift in Wealth”, 2015, Accenture
Institutional/Retail SRI Assets
(GSIA 2014 Report, based on Europe, US and Canada)
Institutional/Retail SRI Assets
(Morgan Stanley Institute for Sustainable Investing, Cerulli Associates)
A high percentage of Millennials and women say they are interested
in SRI
, two groups who are rapidly becoming more influential investment decision-makers84% of millennial investors were interested in sustainable investing and were twice as likely as investors overall to make sustainable investment decisions2By some estimates, $30 trillion is going to pass from baby boomers to younger generation over the half century3 Different interests: Financial Advisors are not yet highly interested  the need for education is a priority
These favourable demographic trends are just starting but they should accelerate in the coming years
June 2016
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Slide12
Major SRI drivers –
2.
Growing awareness and consideration of SRI and ESG issues
1
Asset Management industry – Rise in the number of signatories to the UN PRIThe United Nations-supported Principles for Responsible Investment (UN PRI) is the principal framework for investors (asset owners, investment firms, and professional service providers) who wish to integrate the consideration of ESG issues into their investment decision. There were six members in 2006 and more than 1400 in 2014  Candriam is a founding UN PRI signatory since 2006Companies – Increased number of companies focusing on ESGWith the population growth and the rising competition for resources, and what is almost certainly an accompanying rise in prices, companies are all but guaranteed to see their overhead costs climb  sustainability, increased vigilance about the use of resources (energy, water,…) could make the difference: The most resource-efficient companies often generate a greater return on assets, a greater enterprise value and greater shareholder value.Companies are also finding that consumers may favor good corporate citizens (i.e. companies that use alternative energy or purchase ethically sourced raw materials) which can also be good for the bottom line.Companies are becoming more transparent about their ESG commitments to publish metrics related to ESG issues.Data providers – Higher availability and usage of ESG data and professional services According to Bloomberg, the number of its customers using ESG data grew by 76% during 2013–2014 There is a growing number of ESG data and research providers as well as rankings and ratings from both mainstream and specialized providers, such as Reuters, MSCI, and Sustainalytics. Morningstar has also announced that it will start offering ESG scores for funds in 2016Even large firms such as Merrill Lynch, Morgan Stanley, and UBS are now providing information and analysis of sustainable investments by creating sustainable-investing platforms for their advisors.
June 2016
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Slide13
Major
SRI drivers –
3. Regulation and disclosure requirements
1
Regulation, policy developments, particularly relating to corporate ESG disclosure, are likely to further facilitate or promote sustainable investing strategies. Europe:The largest European companies could soon be required to report on diversity and other ESG information, while a proposed “Shareholder Rights Directive” could require institutional investors and asset managers to disclose their voting and engagement activities. Now with the issue of climate change coming at the front, environment and de-carbonization is also the key focus for the community and the regulatory institutions. As an example, we can mention the French energy transition law and the obligation to explain what institutional investors do to contribute to the energy and ecology transition as well as a certain number of indicators they have to provide (i.e. carbon footprint, $ invested in green activities, etc…).Canada: Developments in Ontario: action by the provincial government of Ontario now requires mandatory ESG reporting by pension plans under its jurisdiction. It is widely anticipated that other Canadian provinces will follow suit. The adoption of this legislation is perceived as a watershed moment for responsible investment in Canada.Federal Review of Canada’s Business Corporations Act: the federal government is reviewing the basic legislation governing corporations, providing an opportunity for responsible investors to give input.Asia:Many countries are adopting more comprehensive corporate and ESG disclosure requirements, a trend that is likely to advance sustainable investing in the region.
June 2016
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Slide14
Major
SRI drivers –
3. Regulation and disclosure requirements
1
The United States: The anticipated regulation (SEC/Dodd-Franck Financial Reform Law) to require disclosure of executive relative to non-executive employee compensation will provide a key tool to investors by which to assess portfolio companiesERISA guidance (Department of Labor) changed on Oct. 22, 2015 and issued Interpretive Bulletin 2015-01, a piece of guidance which should significantly expand the use of ESG investing principals under the Employee Retirement Income Security Act (ERISA). Federal Thrift Plan: Efforts are also underway to offer SRI options in the Thrift Savings Plan (TSP). The governing board of the TSP has recommended moving toward allowing a mutual fund investment window option for federal employees.Pressure from large pension funds and leading investment consultants: Some of the leaders (CalPERS, CalSTRS, New York State Common) have ESG questions in their questionnaires. They’re asking their investment consultants to prioritize ESG as one of the important selection criteria. CalPERS issued in May 2015 a set of manager expectations around ESG factors  It’s now increasingly getting built into the infrastructure of manager selection. Rather than waiting for regulatory oversight, multiple institutional investors are also actively filing shareholder resolutions to demand corporate sustainability disclosure (e.g. Shell and BP have recently backed shareholder resolutions to provide more climate-change disclosure, but voluntary compliance is pending). Around the world: an increased number of stakeholder organizations promoting voluntary disclosure frameworksGlobal Reporting Initiative (GRI), widely referenced in the U.S. and internationally  issues standards (currently “G4”) for disclosing the most material qualitative and quantitative ESG information in a comprehensive sustainability report, separate from its financial reports. Sustainability Accounting Standards Board (SASB)  issues industry-specific standards for the enhancement of existing U.S. Form 10-Kdisclosures.23 Exchanges, including the New York Stock Exchange, London Stock Exchange and NASDAQ, have joined the UN’s Sustainable Stock Exchange Initiative which aims to improve corporate transparency and performance on ESG issues1
1. www.sseinitiative.org
June 2016
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Slide15
1
The
practice of considering ESG issues in investing has evolved significantly from its origins in exclusionary screening of listed equities on the basis of moral
values There are, however, some lingering myths about ESG considerations
CONCLUSION
MythRealityInvestment firms consider ESG issues primarily for reputational reasonsThe top reason investment professionals consider ESG issues is to manage risks1ESG issues are mostly about climate changeThe top ESG issue investment professionals consider is board accountability1ESG methods are confined to exclusionary screening There are six major methods, providing diversified solutions to investment professionals
1. CFA Institute, A Guide for ESG Investing (November 2015)
With 20 years of leadership in Sustainable & Responsible Investments, Candriam covers all the SRI approaches to provide a broad range of SRI strategies across geographic regions and asset classes.
June 2016
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Slide16
2016: Launch of Candriam SRI
A One-Stop Lux UCITS fund for all types of SRI strategies
June 2016
NEW SRI FUND RANGECHARACTERISTICSSRI ANALYSISCOMPANIESCOUNTRIESSUPRANATIONALSAsset ClassFund nameFund domicileInceptiondateCcyProcessGeographical focusBest-in-classNorms-basedControversial activitiesBest-in-classNorms-basedMission StatementNorms-basedEquitiesCandriam SRI Equity EMULux. 29/12/15 EURFundamentalEMU Candriam SRI Equity EuropeLux. 29/12/15 EURFundamentalEurope Candriam SRI Equity North AmericaLux. 29/12/15 USDQuantNorth America Candriam SRI Equity PacificLux.Summer 2016JPYQuantAsia Pacific Candriam SRIEquity WorldLux.Summer 2016EURQuantWorld Candriam SRIEquity Emerging MarketsLux.Summer 2016EURFundamentalEmerging markets BondsCandriam SRIBond EuroLux. 29/12/15 EURFundamentalWorldCandriam SRIBond Euro CorporateLux. 29/12/15 EURFundamentalWorld Candriam SRIBond Euro Short TermLux.Summer 2016EURFundamentalWorldCandriam SRIBond GlobalLux.Summer 2016EURFundamentalWorldCandriam SRIBond Emerging marketsLux.Summer 2016EURFundamentalEmerging marketsMoney MarketCandriam SRIMoney Market EuroLux.Summer 2016EURFundamentalWorld
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SRI by Candriam: A powerful mix of sustainable & financial performance
Focus on Morningstar Sustainability Ratings - March 2016
Morningstar Sustainability Ratings
Candriam
FundESG RatingCandriam Equities L Sustainable EMUCandriam Sustainable EuropeCandriam Fund Sustainable Equities EuropeCandriam Sustainable North AmericaCandriam Sustainable PacificCandriam Equities L Sustainable Emerging MarketsCandriam Equities L Sustainable WorldCandriam Sustainable WorldCandriam Sustainable Euro Corporate Bonds
Peers comparison
Morningstar Ratings - 3
Years
Best
Rated

Share
Class
Candriam
SRI Peer
GroupAverage
June 2016
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June 2016
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Slide19
Appendix
June 2016
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Slide20
Rationale behind our SRI approach
A company’s business activities are sources of both opportunities and risks.These opportunities and risks cannot be fully evaluated using traditional financial metrics alone. We believe that taking into account environmental, social and corporate governance (ESG) criteria in the evaluation of company’s business activities is a source of long term value that can not be captured by traditional financial analysis.By selecting within each sector, the companies that manage ESG challenges best, our SRI Best-In-Class approach enables us to raise best practices standards in all economic activities and to contribute to a sustainable economic growth.
Candriam’s SRI Investment philosophy
Our Best-in-class approach combined with our financial processes produces well-diversified portfolios taking into account both financial and ESG criteria.
June 2016
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Slide21
SRI
Expertise
@ Candriam
1996
First SRI
Fund
2000
SRI
Fund
Range
2008
First SRI
Emerging

Markets

Fund
2009
Best-in-class country screening
2010
SRI
Indexed

Funds
2003
Proxy
Voting
System
In-house SRI
Analysis
2005
ESG Macro
Analysis
2011
ESG
Integration
2015
Launch
of new Lux
Ucits
Candriam SRI
O
ne
of the founding signatories to the UN
Principles

of Responsible Investment (PRI) back in
2006
All our SRI funds are signatory to the European SRITransparency Code

Active
Promotion of sustaina
ble
development as a member
of many
associations:
June 2016
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Slide22
Candriam SRI Analysis Team
Key Decision Makers
Sophie
Deleuze
Senior SRI
Analyst
18
years of
experience,
11 years at the firm
Isabelle
CABIE
Global Head of Sustainable and Responsible Investments
27
years of
experience,
23 years at the firm
Elisa
Vergine
Senior
SRI
Analyst
11 years of experience,4 years at the firm
Patrick
HaustantSenior SRI Analyst13 years of experience,9 years at the firm
Florent

GriffonSenior SRI Analyst12 years of experience,9 years at the firm
Lucia MeloniSRI Analyst7 years of experience,5 years at the firm
Charlaine
ProvostSRI Analyst8 years of experience,5 years at the firm
June 2016
Quantitative Equity Management
Emerging Markets Equity
Fixed Income
Bart GOOSENS
Global Head of Quantitative
Equity Management
Asset Allocation
Fundamental European Equity Management
Geoffroy
Goenen
Head
of European
Equity
Koen Maes
Global Head of Asset Allocation
Nicolas ForestGlobal Head of Fixed Income
Jan BOUDEWIJNS Head of Emerging Markets Equity
22
Slide23
Extensive and proprietary database
The SRI analysts use several sources of information:Company sustainability agencies: Vigeo-Eiris, MSCI ESG, Ethix, TrucostCompany publications & reportsMediaSpecialised NGO’sIndustry expertsIndustry associationsOur own in-house SRI database allows us to:Capitalize on data provided by sustainable agenciesEnhance database by our SRI analysis Integrate our SRI models and provide ESG profilesMonitor and update the SRI analysis on an ongoing basisPropose tailor-made SRI screenings
June 2016
The SRI database
23
Slide24
SRI analysis
How do we analyse the different types of issuers?
Companies*

* Traced back to parent company
June 2016
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Slide25
SRI Universe
Candriam’s Best-in-Class approach combines a
stakeholder approach
with a unique
long term macro approach, supplemented by a normative and controversial activities check
Company’s SRI analysis
A unique approach
June 2016
Companies*
25
Slide26
Macro analysis
Candriam has defined
six Global Sustainability Trends influencing companies’ business environment,
and shaping future market challenges and long-term growth
Long-term view
Examples of Macro’s Model
As rational water use becomes inevitable, companies offering water efficient technologies stand to benefit
Climate
change
Resource
depletion
Health &
wellness
Demographic evolutions
Developing
economies
Inter-connectivity
Renewable energy producers are enjoying growing markets
Healthy products offered by companies have a beneficial effect on health
As people grow older, the need for tailor made services and products will be in strong demand
Companies providing infrastructure services will benefit from growing and developing populations
As people interact
across borders, companies offering video-conferencing tools address a genuine need
SECTOR
/
COMPANY
Geographical
production
zones
Customer
segment
groups
Geogra
-
phical
markets
Products
Services
Companies*

Best-in-Class
+
+
Countries /
Local Authorities Best-in-Class + Norms-based Analysis
June 2016
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Slide27
Macro analysis
Objective:
to assess
the business model of the company towards global sustainability trendsResults: Climate Change & Resource Depletion are key risks Developing economies and Interconnectivity are key opportunities
Model overview
Companies*

June 2016
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Slide28
Macro
analysis
in action
Risks associated to Climate Change & Resource Depletion challenges drive the sector macro positioningThe most controversial sectors are among the bottom 5 positioned sectorsThe top 5 positioned sectors see their opportunities related to sustainable challenges taking the lead on the risks associated to their activities
Excluding
Defense and Aerospace Sector
Companies*
June 2016
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Slide29
Micro analysis
Stakeholder interactions
are a source of business risks and opportunities that are sector-specific
For each sector, the specific challenges and the degree of relevance for each stakeholder are definedThe capacity of each company to manage the sector-specific relationships with their stakeholders is assessed
Stakeholders view
Examples of Stakeholder’s Model
14%
4%
26%
30%
20%
7%
Investors
Suppliers
Employees
Customers
Environment
Society
33%
7%
9%
20%
1%
30%
Energy
Software, Internet & IT Services
Performance
Strategy
Implementation
SECTOR
/
COMPANY
Customers
Investors
Society
Environment
Suppliers
Employees
The quality of employment contracts, training and career management are all positive factors in attracting, developing and retaining talent
After sales services impact customers loyalty
The effective management of corporate governance issues is vital to maintain investors confidence in a company
In developing countries, integrating the expectations of the local population with the company’s activities is a real asset
New environmental legislation may require a significant investment for some companies whilst others that already observe higher standards can focus on increasing their market share (e.g.. CO2 emissions…)
Abuse of labour rights in the supply chain has a considerable impact on the reputation and brand image of companies
Companies*

Best-in-Class
+
+
Countries /
Local Authorities

Best-in-Class
+
Agencies /
Supranationals
Mission Statement
+
June 2016
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Slide30
Micro
analysis
Objective:
to assess the ability of each company to manage sector-specific and relevant stakeholders issues Methodology: Develop sector specific modelsEach stakeholder has a different weight in each sectorEach stakeholder is analysed via different themes & indicators for each sector
Model overview
32 themes
200+ indicators
Companies*

June 2016
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Slide31
Micro analysis in action
We notice a strong dispersion of the ESG scores in all areasThe 3 best positioned sectors on average were already part of the top 3 ranking macroThe sectors with strong ESG impact show the lowest average scoresHowever, some actors are distinguished by good management of ESG issues
Excluding Defense and Aerospace Sector
Companies*

June 2016
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Slide32
Norms-based analysis
We assess how companies live up to the ten principles of the United Nations’ Global CompactThe UN Global Compact consists of 10 principles covering:Human rights (HR)Labour rights (LR)Environment (ENV)Corruption (COR)Two basic principles of Candriam Norms-based analysis: a breach/non compliance and response-based approach
Company’s compliance to international standards
Exclusion of companies for which there is evidence of repeated and significant violations of Global Compact principles and where the organisation has adopted no appropriate response or change in behaviour
Companies*

June 2016
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Slide33
We exclude companies involved in
other controversial
activities:
Other controversial activities
Controversial activities assessment
Company exposure
Controversial activitiesExclusion thresholdActivities in oppressive regimes Large presence in highly oppressive regimesRevenues > 1%Adult contentRevenues > 5%AlcoholRevenues > 10% without any responsible policyAnimal testingResponsible policy if no legal requirementBreaches to legislation GamblingRevenues > 5%Genetic modificationRevenues > 10%NuclearRevenues > 30%TobaccoRevenues > 5%
We exclude companies that:Are involved in the production or sale of anti-personnel landmines, cluster bombs, depleted uranium and/or chemical/nuclear/biological weapons, regardless of the revenues involved, and/or Generate more than 3% of their turnover from the production or the sale of conventional weapons
Armament
Companies*
June 2016
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Slide34
SRI Universe
The results of the
Macro and Micro analysis
are combined and we select the companies with the top 50 % scores in each sector
Macro
60
+60
-
Micro
0
+100
On average an
additional 2.5% of the selected companies
are excluded as a result of our
norms-based
and
controversial activities checks
, mostly due to armaments exposure
Micro Analysis
Macro Analysis
Runner(s
) Up (5%)
Advanced (15%)
Leading
(15%)
In line (20%)
Below average (15%)
High risk
(30%)
Runners
Up
(5%)
Advanced (15%)
Leading
(15%)
In line
(15%)
Below average
(20%)
High risk
(30%)
Companies*

Best-in-Class
+
+
Countries /
Local Authorities

Best-in-Class
+
Agencies /
Supranationals
Mission Statement
+
June 2016
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Slide35
Candriam SRI Universe: the case of European Equities
From 628 Companies analysed to 262 selected (42%)
June 2016
628 Companies analysed
262 Companies eligible (42%)
Companies*

Best-in-Class
+
+
35
Slide36
Performances of our ESG selection
Financial performance

ESG selection

EuropeMSCI EuropeAnnualized total return 11,03%10,43%üSharpe Ratio 0,584 0,559 ü
Sources: MSCI, Candriam
ESG selection vs Index CO2 emissions (tCO2 eq/mio revenues)-37%üWater withdrawal-48%üCollective agreement=üEmployee satisfaction +1.8%üBoard independence+4.4%üWomen on board+1.8%ü
Companies*
ESG Global scoreSelect ESGBench79.557.8
ESG performance
The European Equity selection
June 2016
36
Slide37
SRI analysis
Companies*

June 2016
37
Slide38
Country SRI Analysis
Country SRI Universe
Best-in-Class
Analysis
Analyse countries’ ability to manage their human, natural, social and economic assets in order to ensure sustainable welfare
Exclusion screening
FATF / GAFI
Highly oppressive regimes
Companies*
Minimum standard screening on democracy & corruption
June 2016
38
Slide39
Country SRI analysis
Our Best-In-Class approach
Companies*

Best-in-Class
+
Norms-based Analysis+Controversial Activities Check
June 2016
39
Slide40
SRI analysis
Companies*

June 2016
40
Slide41
Supranational SRI analysis
Objective:
select only organizations whose
mission is to contribute positively to the economic and social development of regions and countriesExamples:Organisations have to be compliant to the UN Global Compact Principles
Companies*

Best-in-Class
+
+
Countries /
Local Authorities
Best-in-Class + Norms-based Analysis
June 2016
41
Slide42
Corporate Green & Sustainable bonds
Analysis Framework
SRI eligibility status delivered whenThe corporate issuer is SRI eligibleThe Green or Sustainable issue meets the following specific criteriaFinanced projects should fall into domains brought forward by the Green Bond Principles (Green Bonds) or into other recognized sustainability Detailed use of proceeds Transparent management of proceedsAt the time of the issue, second party’s consultation & opinion available to investorsRegular quantitative and/or qualitative (verified) reporting on environmental/social investments’ impacts
Climate
change
Resources

depletion
Health
&
wellness
Demographic

evolution
Developing
Economies
Inter-
connectivity
PROJECT
Renewable energy,
Energy efficiency (incl. efficient buildings),
Sustainable waste management,
Sustainable land use (incl. sustainable forestry and agriculture),
Biodiversity conservation,
Clean transportation,
Clean water and/or drinking water.
Green Bonds
Financed projects’ purpose
Climate
change
Resources

depletion
Health
&
wellness
Demographic

evolution
Developing
Economies
Inter-
connectivity
PROJECT
Education
Equal
opportunity
Demographic
evolution (including ageing)
Health
Sustainable cities and mobility
Sustainable
BondsFinanced projects’ purpose
June 2016
42
Slide43

Ludovic FERRAS, Head of Investment Specialists

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Ludovic FERRAS, Head of Investment Specialists

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