40 questions on the sustainable investment industry.

  1. How do you define “sustainability”?  There are many definitions for sustainability, and we prefer a definition that covers the understanding of financial and environmental, social and corporate governance [ESG] factors. We consider sustainability to cover the profitability of the firm but to explicitly include the definition adopted in 1987 by the Brundltland Commission, namely “"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs". It contains within it two key concepts: 1. the concept of 'needs', in particular the essential needs of the world's poor, to which overriding priority should be given; and 2. the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs”.
  2. How do you define “social responsibility”?  We define “social responsibility” as the responsibility of an investment organization for the direct and indirect impacts of its activities on the environment and society, through ethical behaviour that contributes to sustainable development in a transparent way, and considers the expectations of stakeholders including local and international norms; and is actively integrated throughout the organization and practiced in its relationships in a demonstrable way, including through regular reporting publicly of non-proprietary metrics, and internally of proprietary metrics.
  3. How much money is invested in sustainability investment?  Responsible investment in the U.S. now counts over US$ 3.1 trillion in assets under management [SIF, 2010] perhaps one-in-ten dollars invested. In Europe, nine countries identified in 2006 €1.6 trillion, approximately 10-15% of AUM [EuroSIF, 2006]. In February 2008, approximately US$ 250 billion was managed in some way factoring in ESG. In countries around the world we have rough figures, but the range of 1-5% is reasonably assumed.
  4. How much money is invested in sustainability investment in the US?  The 2010 USSIF Trends report identifies $3.1 trillion in total assets under management using one or more of the three core socially responsible investing strategies—screening, shareholder advocacy, and community investing. In the past two years, social investing has enjoyed healthy growth, increasing from $2.29 trillion in 2005. About one out of every nine dollars under professional management in the United States today is involved in socially responsible investing—11 percent of the $25.1 trillion in total assets under management tracked in Nelson Information’s Directory of Investment Managers.
  5. What is the Enhanced Analytics Initiative?   The Enhanced Analytics Initiative [EAI] launched in 2004 includes 30 institutional investors with US$ 3 trillion AUM committed to allocating 5% of their research budget to investment research adjudged to present the best coverage of environmental, social, and corporate governance [ESG] factors.
  6. Why are the Equator Principles important?  The Equator Principles are important both because they were created by banks facilitated by the IFC but also because they were revised in 2006, and are used as internal and external benchmarks for banks financing activities in developed and developing countries.
  7. How does investing in sustainability matter?  When societies fail, business fails. Adopting a systems thinking approach to capital markets and the future of business, we consider the astute business or investment professional must consider all the dynamics that affect the competitive context of the firm and its allocation of resources today and in the future. With just one earth, and increasing demands on limited resources in an information-connected world, conducting business in the 21stcentury demands a balancing of stakeholders. Any investment decision, backing such businesses, needs to be confident in the strategy that explicitly considers and thrives in this reality.
  8. Why is government not making sustainability important to all investment decisions?   We are still seeking answers to this question. We figure each voter may help.
  9. How do institutional investors allocate their investments?   In 2008, a typical institutional investor in a developed market like The Netherlands may choose to include sustainability by covering investments in, for example, Carbon funds with projected CO2 reduction of 75-80 m tons 2008-2013, Clean technology private equity - €250 million, Renewable energy infrastructure – €100 million, Sustainable forestry in Mozambique - €60 million, and Microcredit - $20 million.
  10. What did the EIRIS September, 2006 study of EM discover?   EIRIS conducted a study of 50 major emerging market companies to assess what opportunities exist for responsible investors. It found that the overwhelming majority of companies in the study have shown evidence of addressing at least some environmental, social and governance issues in their public disclosures, with some significantly so [Broadening horizons for responsible investment: an analysis of 50 major emerging market companies by David Tozer/EIRIS].
  11. What was the 2007 State of Responsible Investment Survey in South Africa?   The aim of this study conducted by UNISA Centre for Corporate Citizenship with funding from NOAH Financial Innovations was to assess the state of responsible investment [RI] in South Africa in 2007. The definition of responsible investment was “investment that incorporates an active consideration of environmental, social and governance [ESG] issues into investment decision-making and ownership”.
  12. What was the most important ESG factor identified by the greatest number of the pension fund respondents of the 2007 State of Responsible Investment Survey in South Africa?   Corporate governance. The survey group consisted of three categories with AUM as follows: Pension Funds [Principal Officers] R 975 billion 32 | Asset Managers [CIOs] R2,320 billion 19 | Consultants/Advisors/Analysts [COOs/Heads of Research] NA 11
  13. What is Black Economic Empowerment?   Black Economic Empowerment is the South African government sponsored programme aimed at addressing the economic inequalities that resulted from the systematic exclusion of the majority of South Africans from meaningful participation in the economy by apartheid. View
  14. What is Net Impact?  The leading network of young professionals and MBA students acting to make business integrate social responsibility and not-for-profit organizations more business-like. Currently, over 21 chapters are in Europe, the balance of 100 in the US. Members total more than 12,000.
  15. What is the JSE SRI index?   The Johannesburg Securities Exchange (JSE) launched the first version of their Socially Responsible Investment [“SRI”] Index in May 2004. The aim of this index is to focus attention on the growing recognition that companies should embrace the triple bottom line as a method of doing business. View
  16. What is European Social Investment Forum [Eurosif]?   Eurosif [the European Social Investment Forum] is a pan-European group whose mission is to address sustainability through the financial markets. Current member affiliates of Eurosif include pension funds, financial service providers, academic institutes, research associations and NGO's.
  17. What is International Corporate Governance Network [ICGN]?   The International Corporate Governance Network [ICGN] is a not-for-profit organisation that provides an investor-led network for the exchange of views and information about corporate governance issues internationally, examines corporate governance principles and practices, develops and encourages adherence to corporate governance standards and guidelines, and generally promotes good corporate governance.
  18. What is Institutional Investors Group on Climate Change [IIGCC]?   The Institutional Investors Group on Climate Change [IIGCC] since 2003 and sits on its Steering Committee. IIGCC is a forum for collaboration between pension funds and other institutional investors on issues related to climate change. IIGCC seeks to promote better understanding of the implications of climate change among its members and other institutional investors, to encourage investors to manage the investment implications of climate change, and to advocate public policy and market solutions that are both effective responses to climate change and consistent with long-term investment objectives.
  19. What is United Nations Environment Programme: Finance Initiative [UNEP FI]? UNEP FI is a global partnership between UNEP and the financial sector. Over one hundred and sixty institutions including banks, insurers and fund managers, work with UNEP to understand the impacts of environmental and social considerations on financial performance.
  20. What is United Nations-backed Principles for Responsible Investment [PRI]?  The PRI is a set of six principles to which investment managers and asset owners can sign up to demonstrate their commitment to responsible investment. They provide a range of possible actions for incorporating environmental, social and governance issues into mainstream /investment decision-making and ownership practices. In executing signatory commitments to the six Principles, institutional investors may take 35 possible actions to integrate ESG considerations into their investment activities.
  21. What is UK Social Investment Forum [UKSIF]?   UKSIF is the UK’s membership network for Socially Responsible Investment [SRI]. UKSIF’s primary purpose is to promote and encourage the development and positive impact of SRI among UK-based investors. UKSIF has more than two hundred members and affiliates including retail and institutional fund managers, investment consultants, pension funds, investment banks, financial advisers, SRI research providers, trade unions, banks and non-governmental organisations.
  22. What is Carbon Disclosure Project [CDP]?   The Carbon Disclosure Project [CDP] provides a secretariat for the world's largest institutional investor collaborative initiative on the business implications of climate change. CDP coordinates institutional investors who collectively sign a single annual global request for disclosure of information on greenhouse gas emissions. In 2006, the letter was sent to over 2100 companies.
  23. What is Global Reporting Initiative [GRI]?   Insight has been involved in the GRI process since 2002. GRI's vision is for reporting on economic, environmental, and social performance by all organisations is as routine and comparable as financial reporting. The GRI network accomplishes this vision by developing, continuously improving and building capacity around its Sustainability Reporting Guidelines. Rory Sullivan is a member of the Working Group that is developing a Sector Supplement for Energy Utilities, to support the main Sustainability Reporting Guidelines.
  24. What is the MSCI Emerging Markets Index?   The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006 the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
  25. What is the Emerging Markets Disclosure [EMD] Initiative?   EMD Project is an international initiative to improve sustainability disclosure in emerging markets. Shortly after the idea was proposed by Calvert Asset Management Company, Inc. [Calvert] at the ‘PRI in Person’ Conference in July 2007, the project quickly became a collaborative effort by the Sustainable Investment Research Analyst Network [SIRAN] of the US Social Investment Forum [SIF], Calvert, KLD Research & Analytics, Inc. [KLD], ASrIA, the Global Reporting Initiative [GRI], PRI, and the General Board of Pension and Health Benefits of the United Methodist Church. The study, which was conducted by KLD on behalf of SIRAN, assessed 75 companies across three sectors: Energy [Oil and Natural Gas], Material [Metals and Mining], and Telecommunications. Corporate sustainability disclosure was assessed across five areas in September of 2007: i. Public disclosure of sustainability issues; ii. Dedicated sustainability area within the website or annual report, iii.Existence of stand-alone sustainability report; iv.Use of the GRI framework for the sustainability report; v.Existence of sustainability goals and benchmarks. Phase 3 of the EMD Initiative officially began in May and will run through August 2009. This phase is focused on outreach and engagement in order to promote disclosure by corporations operating in Brazil, China, India, Russia, South Africa, South Korea, and Taiwan.
  26. What change in tone has The Economist exhibited?   Transition mirrored in the changed coverage by the influential business journal The Economist from 2005 to 2008, from “The Good Company” from The Economist, January 20, 2005 to “Corporate Social Responsibility: Just Good Business” The Economist, January 17, 2008.
  27. Who is MISTRA?   Mistra, The Foundation for Strategic Environmental Research, as part of its Sustainable Investments Platform. The Platform exists to foster innovation and collaboration between academic researchers and financial industry practitioners. Mistra also has a direct interest in this topic through the management of its SEK 3.7 billion endowment, a significant portion of which is currently invested in emerging markets equity and fixed income. Mistra, the Foundation for Strategic Environmental Research, aims to make a difference in the field of sustainable development. The Foundation achieves this by funding groups in the academic community that contribute to solving major environmental problems through applied research. Each year Mistra invests approximately SEK 200 million in the research programmes it supports. The entirety of Mistra's endowment, which is currently valued at SEK 3.7 billion, is invested using external asset mangers that explicitly take account of environmental, social and governance issues.
  28. What academic resource centers that support the development of RI and CSR?   Among those in the United States are the Center for Corporate Citizenship and the Institute for Responsible Investment at Boston College; the Center for the Study of Fiduciary Capitalism at St. Mary’s College in California, the Center for Responsible Business at the Haas School at the University of California in Berkeley, and the Corporate Social Responsibility Initiative at the Kennedy School of Government at Harvard University. The University of South Africa’s Corporate Citizenship Programme has established a Chair for Responsible Investment.
  29. What change have you seen in business leaders to sustainability theme?   Apart from the hubris of greenwashing, it is common in surveys today to have business leaders expressing more sensitivity to sustainability issues. By 2008, while only approximately 4,000 of the world's 75,000 multinational corporations have signed the United Nations Global Compact, 90% of company CEOs participating in the United Nations Global Compact reported doing more than they did five years previous to incorporate ESG factors into their management strategies [“CEOs Surveyed Representing 230 Organizations in Private/Public, State-Owned & NGOs.” McKinsey Quarterly 2007: 391].
  30. What is LEED?   LEED is a certification for sustainability-themed architecture and building standards. The interest in real estate with a “green” and sustainability theme is increasing around the world. In the US the 14,000-member U.S. Green Building Council has certified some 1,325 buildings under its LEED green building guidelines as of 2008, and has an additional 10,309 building undergoing that certification process. The 2008 conference attracted over 10,000 delegates.
  31. What is the SinCo 7P Model?  SinCo developed the 7P model in 2006 that provides a synopsis of the current investment architecture and a gap analysis, mapping the effort and timeframe to rolling out an ESG component to investment analysis and portfolio management. We have experience in developing architecture across regions, developed & emerging markets, and across equity, fixed income, property, and alternative investments.
  32. What is Fauna & Flora International’s goal in working with investors?   The FFI workstream was set up in January 2007 to engage the financial services sector in identifying and addressing the risks arising from biodiversity loss and the degradation of ecosystems services, including those linked to regulatory frameworks, business operations and stakeholder concerns.
  33. What is “stakeholder engagement”?   Stakeholder engagement is any activity or activities undertaken to create opportunities for dialogue between the organization and one or more of its stakeholders, with the aim of providing an informed basis for the organization’s decisions.
  34. What is a supply chain?   A supply chain is a system of individuals, organizations and resources involved in developing the different elements of a product or service before an organization takes major responsibility for it, the processes associated with developing a product or service before an organization takes major responsibility for it are commonly referred to as "upstream processes".
  35. What does the acronym “ESG” mean?   Environmental, social and [corporate] governance factors.
  36. Who is a Broker?   A person who is in the business of buying and selling securities—stocks, bonds, mutual funds, and certain other investment products. Although they often use such titles as financial consultant, financial adviser, or investment consultant, brokers are primarily securities salespeople. In aggregate they are described as “the sell-side” meaning their role is to pitch stock rating ideas to investors, directly to the “buy-side”. In the US, brokers must register with the Securities and Exchange Commission and FINRA. In addition, individual brokers or registered representatives must register with FINRA, pass a qualifying examination, and be licensed by your state securities regulator before they can do business with you. You can obtain background information on firms and individuals—including registration, licensing, and disciplinary history—by using FINRA BrokerCheck or by calling your state securities regulator.
  37. What is an Investment Adviser?   An individual or company who receives compensation for giving advice about securities to a client. Some investment advisers also manage investment portfolios, while others offer financial planning services or, if they are properly licensed, brokerage services. Ultimately, your goal in trying to find an investment professional is to identify someone you trust who has the experience and skills to help you set realistic financial goals, make sound decisions, and monitor your portfolio. Be sure to thoroughly check out any investment professionals your hire—as well as their firms—before you entrust your hard-earned money to them. You can learn more about an investment adviser operating in the US and check whether they are properly registered by reviewing their registration forms, known as "Form ADV." You can access Form ADV by visiting the SEC's Investment Adviser Public Disclosure Web site or by contacting your state securities regulator.
  38. How are Investment Professionals regulated?   In the US, The financial service industry is at a crossroads regarding its regulatory and legal status. As the industry has become more complex, it has become increasingly difficult for regulators to design regulations that govern the different financial services available in this market. In theory, financial professionals are relatively distinct: A broker is defined as someone who conducts transactions in securities on behalf of others; a dealer is defined as someone who buys and sells securities for his or her own accounts; and an investment adviser is defined as someone who provides advice to others regarding securities. Broker-dealers and investment advisers are subject to different federal regulations: The Securities Exchange Act of 1934 (48 Stat. 881) regulates brokers and dealers, and the Investment Advisers Act of 1940 (54 Stat. 847) regulates investment advisers.
  39. What was Generation Lost survey?   In 2003 The World Business Council for Sustainable Development (WBCSD) Young Managers Team (YMT) and the United Nations Environment Programme Finance Initiative (UNEP FI) joined forces to assess whether young analysts might be more amenable to integrating environmental, social, and governance issues than their older colleagues. Work suggests that this anticipated ‘generational change’ is not happening. Young analysts appear unconvinced over the materiality of most environmental, social, and governance issues to business; unable to consider them because of inadequate information, training, or tools; and unwilling to depart from business as usual because of conflicts with remuneration, career advancement, or culture.
  40. What is sell-side/buy-side?   Sell-side analysts work for themselves or a small or large brokerage or firm that makes recommendations to the clients of the firm to help them make decisions to buy, sell, or hold stocks. Sell-side analysts may be paid directly or indirectly where the firm manages individual accounts and commissions are earned when security execution decisions pass through the firm’s brokerage unit. The potential conflict of interests here has led to demands for increased separation of research as an independent unit [including where the investment banking arm of a firm has the firm creating a market in a firm’s securities]. Buy-side analysts make recommendations on what to buy/sell/hold for one institution that employs them, usually a pension fund, hedge fund or mutual fund company. Their recommendations are made exclusively for the company that employs them, and factors in all sources of information and the investment policy of their institution. 

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