Accentuate the Positives Presented by Neville White Head of SRI Policy amp Research Ecclesiastical Investment Management Ltd Ecclesiastical Investment Management Ltd Part of the Ecclesiastical Insurance Group founded 1887 ID: 179612
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24 April 2014
Accentuate the Positive(s)
Presented by Neville White – Head of SRI Policy & ResearchEcclesiastical Investment Management Ltd. Slide2
Ecclesiastical Investment Management Ltd
Part of the Ecclesiastical Insurance Group founded 1887Owned by All churches Trust – all distributable profits to good causesTop 10 UK donor – strategic plan to donate £50m over three years Ecclesiastical launched its first SRI UK retail fund in 1988
Suite of six ethical retail and charity funds – across geographies and asset classesTotal Assets Under Management £2.25bn*Award winning, experienced team with a strong retail proposition
*Source: Ecclesiastical as at 31/12/13Slide3
Investing Positively Slide4
The Many Models of SRI
SRI is an umbrella term which encompasses many approaches including ethical, responsible, sustainable, and environmental, social and governance (ESG)Positive criteria emerge after 2000 following changes to UK pensions legislation Negative criteria ‘ethical’ adopted by faith investors applying a moral dimension to investing Slide5
Applying negative criteria is (relatively) straightforward
Identifies moral imperatives, but adds little value to process
Does not allow investor to work for changeDoes not allow engagement to raise business standardsWhat would a sustainable tobacco company look like?Applying Positive Criteria to a PortfolioSlide6
Holistic, integrated investment methodology
Represents a ‘complete’ active strategy
Material ESG risks should be seen as core management issues Adds valueReduces long-term riskSupports long-term investment horizonsProvides engagement platform for change Dovetails with wider UK Stewardship Code responsibilities Advantages of Applying Positive Criteria to a PortfolioSlide7
Our SRI Process – an Integrated Approach
Negative Screen10% Threshold: Alcohol Production Gambling Operations Pornographic or Violent Material Strategic Armaments Tobacco Production
Other Factors: Animal Testing (cosmetics) Intensive Farming
Positive Screen
Business Practices
Community Relations
Corporate Governance
Human Rights
Labour Relations
Environmental Management
Healthcare Education Urban Regeneration
Positive criteria may serve as a brake on investment; e.g. no oil or mining Slide8
Our Nine Positive Investment Pillars
Positive Screen Business Practices Community Relations Corporate Governance Human Rights Labour Relations Environmental Management
Healthcare Education Urban RegenerationEach stock is monitored and assessed against the nine positive criteriaEssentially we are looking for each stock to earn its place in the portfolios
The investment case and the sustainability case are given equal weight
Six areas of business behaviour (risk)
Three sustainable sectors
Identifies engagement need
BUT how do you assess the environmental, social and governance positives? Slide9
Evaluating Environmental, Social and Governance (ESG) Positives
EnvironmentalSocial/Governance Air & Water PollutionAccess to MedicineBiodiversityAffordable HealthcareOzone-Depleting ChemicalsEqual OpportunitiesPesticidesBribery & Corruption
Climate ChangeHealth & SafetyResource ProductivityHuman RightsEnvironmental ManagementChild LabourEnergyLabour StandardsTransportSupply Chain ManagementTropical HardwoodCommunity GivingNuclear PowerCommunity Initiatives
Mining & QuarryingCorporate Governance
Waste & Toxic Chemical Management
Diversity
Water Management
Executive Remuneration
Unlike negative criteria, positives can be subjective and challenging Materiality, and risk weighted factors of primary importance Slide10
Research, Research, Research
EIM employs Sustainalytics as its principal ESG data research provider One of several distinctive ESG providers that analyse ESG risk (EIRIS; MSCI etc.) Quantitative and qualitative data; controversies monitor; peer group ranking; ESG ratings
Provides first stage ‘data dump; and materiality analysis
Secondary research conducted in house including engagement
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Investing in Bullion – is it Ethical?Slide12
Investing in Bullion – is it ethical?
Mining and extractives avoided as part of failing positive criteria tests Fund managers had appetite to invest in an ETF bullion fund for diversification reasons Ethically, bullion could be viewed as ‘benign’ i.e. a store of value But we asked – where does the gold come from and is it ethical?c40% of supply is recycled
c15% is artisanal or illegal Slide13
The rise and rise of Gold ETFsSlide14
Gold - Utility
Whilst gold does have multiple applications its principle utility is investment Gold is effectively a ‘parallel’ currency and highly portable Gold is unique in that it is extracted principally as a “store of value” Held as bullion in State and national reserves and as private wealth Half of all gold entering the supply chain is directed at the jewellery industry Only 10% is used for industrial and electronic purposes Ethical utility given health, safety, conflict and environmental impact is low Precious metal mining (gold and coltan principally) is fuelling conflict Traceability challenges fuel phenomenon of “dirty gold”Slide15
Gold - Traceability
Gold supply chain is not linear “Scrap gold” may be recycled, pre-owned, laundered Gold can be owned by many participants within the supply chain “Dirty gold” has become an industry issue owing to traceability concerns Mine supply is broadly traceable apart from unregulated artisanal mines (15%) Integration of mining and refining provides some assurance Industry is beginning to coalesce around reputation and “conflict free” gold Chain of custody is vital – i.e. integrity of inventory, bar serial numbers Slide16
Gold – Ethical Issues
Gold is a primary conflict mineral particularly in Democratic Republic of Congo 2007 Uganda produced $500 worth of gold, but exported $75m mostly from DRC
Specific ethical challenges associated with gold are – human rights issues in high impact emerging markets – Congo, Burkina Faso, Mali etc (up to 15m enslaved)toxicity: gold is benign but requires cyanide in refining; tailings require intense management corruption – the industry is open to bribery, theft and forcible sequestration risk in theatres of conflictgold produces more waste per ounce mined than any other metal e.g.
at state of the art Newmont Mine in Indonesia one ounce of gold is recovered from 250 tonnes of rockone ring generates 20 tonnes of mineral waste
smelters add 142 million tonnes of sulphur dioxide to the atmosphere every year – 13% of global emissions
the disparity between environmental impact and the amount recovered is at its starkest with gold
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Gold – Accentuating the Positive
We engaged intensively with the World Gold Council The only investor to engage with the WGC on conflict free gold Industry increasing its efforts around eliminating the worst practices Kimberley rejected as a model as gold is not easily identifiable Industry started from scratch on a new verification and accreditation standard Conflict Assessment Company Assessment Commodity Assessment Slide18
Gold – Accentuating the Positive
EIM led investor engagement with WGC on global conflict-gold standardHeld two seminars for investors in London to outline the Standard Offered advise on draft StandardRemained an informed and engaged investor throughout process Concluded Gold ETF could be held given the contribution of engaging
Engagement and informed contribution significantly added value to our investmentAnd all because we asked….Is holding gold in an ETF bullion fund ethical?Slide19
Questions and Answers
Thank You!