3iG International Interfaith Investment Group TBLI Faith Consistent Investment Seminar New investments for the Faiths: opportunities or sources of conflict? Mark Campanale, 3iG, Member of Advisory Board Thursday 9 November 2006
Jan 17, 2015
3iGInternational Interfaith Investment Group
TBLI Faith Consistent Investment Seminar
New investments for the Faiths: opportunities or sources of conflict?
Mark Campanale, 3iG, Member of Advisory BoardThursday 9 November 2006
3iGInternational Interfaith Investment Group
• Approaches to SRI
• Growth across Europe
• Mission/faith consistent investment
• Investing in social value creation
Wide range of SRI providers and approaches
Sustainable and responsible investment (SRI)
• Europe characterised by four concurrent SRI agendas:– Negative screening
– Thematic investing, characterised by investments in businesses with direct social or environmental benefit
– Shareholder accountability strategies,
– CSR/sustainability/enhanced analytics analysis – the business case
• Institutional investors typically focus on ‘the business case’ or engagement strategies
Grappling with different agendas
3iGInternational Interfaith Investment Group
European SRI retail market: number of SRI funds
4
54
159
313
354375
280
20
0
50
100
150
200
250
300
350
400
450
1980-1984 1985-1989 1990-1994 1995-1999 2000-2001 2002-2003 2003-2004 2004-2005
Source: Avanzi SRI Research / SiRi Company (2005)
From the period of 1980-2005 (as of 30 June 2005)
3iGInternational Interfaith Investment Group
Total European SRI funds under management
11.074
14.485
12.15
24.127
19.034
0
5
10
15
20
25
30
Dec 1999 Dec 2001 Jun 2003 Jun 2004 Jun 2005
Source: Avanzi SRI Research / SiRi Company (2005)Note: The total amount of SRI assets grow by about 27%, from €19bn at mid 2004 to €24.1bn at the end of Q2 2005
SRI assets grow by 27% from 2004 - 2005
€ Billion
3iGInternational Interfaith Investment Group
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“Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes? ”
Luther Ragin
Mission related investment continuumThe F.B Heron Foundation – lessons
Source: FB Heron Foundation,Skoll.EVPA/ACF Seminar 8th September 2005
3iGInternational Interfaith Investment Group
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Market-Rate Investments
Below-Market Investments
Long history of “socially-screened” stock investments and proxy activity: - Avoiding the bad
- Investing in the good- Turning the bad into the good
Mission related investment continuumHow tight is the fit with values or mission?
3iGInternational Interfaith Investment Group
Which investments can align with values?MSCI World Index: mega corporations dominate index
Source: FactSet Pirce/Henderson Global Investor, data as at 8 March 06
Top 10 US traded companies from the MSCI World Index
Exxon Mobil Corp. 2.7
General Electric Co. 2.6
Microsoft Corp. 2.1
Citigroup Inc. 1.7
Bank of America Corp. 1.5
Procter & Gamble Co. 1.4
Pfizer Inc. 1.4
Wal-Mart Stores Inc. 1.4
Johnson & Johnson 1.3
American International Group Inc. 1.3
3iGInternational Interfaith Investment Group
Which investments can align with values?MSCI World Index: mega corporations dominate index
Source: FactSet Pirce/Henderson Global Investor, data as at 8 March 06
Top 10 European traded companies from MSCI World Index
BP PLC 2.6
Royal Dutch Shell PLC (A & B Shares) 2.4
HSBC Holdings PLC 2.2
Total S.A. 1.8
GlaxoSmithKline PLC 1.7
Novartis AG 1.7
Vodafone Group PLC 1.5
Sanofi-Aventis S.A. 1.3
Nestle S.A. 1.3
ENI S.p.A. 1.3
3iGInternational Interfaith Investment Group
Which investments can align with values?
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FTSE 10082.4% Mining – 5.6%
Pharma – 7.6%
Oil & Gas – 15.9%
Banks – 16.6%
FTSE All Share: top ten stocks dominate UK index
Source: FactSet Pirce/Henderson Global Investor, data as at 11 Jan 06
Top 10 UK Companies equal 41.7% of total
BP £133.4bn
Royal Dutch Shell £126.7bn
HSBC £107.7bn
GlaxoSmithKline £86.4bn
Vodafone £81.9bn
Royal Bank of Scotland £57.8bn
AstraZeneca £46.1bn
Barclays £40.7bn
HBOS £37.0bn
Anglo American £30.5bnRest of – 17.6%Index
3iGInternational Interfaith Investment Group
Equities-based faith consistent investment
• An equities portfolio can be an extension of mission • Its what companies <do> that counts• Foundations have different areas of focus
– Alignment can be around a social benefit agenda e.g health & education
– Can also focus on poverty alleviation e.g access to finance or suitable housing
– Or a broad sustainability agenda
• Some Foundations have focused on one sector, e.g healthcare technology or cleantech
• Foundation’s traditional investments are diversified, so an MRI strategy ought to be diversified
Knowing where to look on stock markets
3iGInternational Interfaith Investment Group
Mainstream classification methodology
Researchers focused on total universe of 50,000+ and sought companies in specific mission aligned sectors
4,765 stocks in our mission aligned universe have a total market cap of US $4.7 trillion
Researching companies aligned with values
Source: Henderson Global InvestorsNote: As at 31 December 2005
3iGInternational Interfaith Investment Group
Industriesof theFuture
Health
Knowledge
Quality of LifeSafety
Social Property & Finance
SustainableTransport
Environmental Services
EfficiencyCleanerEnergy
Water Management
Mission or values as an investment theme4,765 stocks in 10 mission aligned themes
3iGInternational Interfaith Investment Group
• Cleaner Energy Sources of energy that combat the effects of global warming, increase the use of renewable energy and help pave the way to a hydrogen economy
• Efficiency Products and processes that reduce energy consumption, make more efficient use of resources and increase efficiency in business
• Environmental Goods and services that improve the quality of the environment and reduce pollution Services and waste
• Health Goods and services that help people live longer, healthier lives• Knowledge Supplying educational goods and services that enhance quality of life and improve
opportunities for full-time students and those in employment• Quality of Life Goods and services that promote sustainable lifestyles among all age groups,
including children and the elderly• Safety Minimising the risk of safety incidents at work, at home and in the community • Social Property Providing property for social benefit, access to housing, regeneration, and better &
and Finance wider access to financial services • Sustainable Transport Shifting to less polluting forms of transport, and cleaner transport technologies. • Water Management Managing and conserving water, and minimising pollution
Ten Investment ThemesInvestment opportunity in a sustainable world
3iGInternational Interfaith Investment Group
Cleaner energy – stock example
• Unique process for manufacturing solar cells
• Process requires up to 50% less silicon in manufacture than existing methods
• Undertook joint venture with QCells in Germany to prove manufacturing process
Evergreen Solar Inc.31 December 2002 to 31 December 2005
Evergreen Solar (US)
3.0
103.0
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Price Close ($)
MSCI World
Source: FactSet Pirce/Henderson Global Investor data as at 31 Dec 05
3iGInternational Interfaith Investment Group
Healthcare - stock example
• Supplier of hearing aid products and services, selling over 500,000 in 2004
• Amplifon is well-positioned to benefit from ageing populations, growing noise pollution and the application of digital technologies
Amplifon31 December 2002 to 31 December 2005
Amplifon (Italy)
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Amplifon (Italy)
MSCI World
Source: FactSet Pirce/Henderson Global Investor data as at 31 Dec 05
3iGInternational Interfaith Investment Group
Social finance - stock example
• Provides free impartial advice and appropriate debt management solutions to individuals with debt problems
• IVA’s are an alternative to bankruptcy, enabling debtors to repay a proportion of their debts whilst avoiding potential financial exclusion
Debt Free Direct plc
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Debt Free DirectFTSE All Share
Debt Free Direct31 December 2002 to 31 December 2005
Source: FactSet Pirce/Henderson Global Investor data as at 31 Dec 05
3iGInternational Interfaith Investment Group
Quality of Life - stock example
• Child care is a growth market in Australia and ABC Learning provides 644 centres
• ABC Learning provides day care for children between six weeks and five years old
• From 1999 and 2002, children using child care increased by 27% to 732,100. By 2004 this figure had risen to 752,800.
ABC Learning Centres (Australia)
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ABC Learning
MSCI World
ABC Learning31 December 2002 to 31 December 2005
Source: FactSet Pirce/Henderson Global Investor data as at 31 Dec 05
3iGInternational Interfaith Investment Group
Performance and risk
• Investment portfolio in the educational, healthcare, social housing or environmental sectors can be aligned with social value creation
• Investment risk has to be carefully managed – Business profitability-test – do these businesses make money?
– Valuations relative to the stock market (typically p/e) – buy or leave alone?
– Sector relative valuation – is it expensive compared to other businesses?
• Social investing is still investing…. it is not philanthropic works, even though it is more closely aligned.
Aligning with values generates new investment ideas
3iGInternational Interfaith Investment Group
Appendices
Note: FactSet Pirce in USD /Henderson Global Investor Data as at 31 December 2005
Back tested performance of the 10 themesMarket Cap Weighted Median vs MSCI World Index
1 year 2 year 3 year 4 year 5 year 6 year
MSCI World Index 10.0 26.8 69.6 36.5 13.9 -0.8
Cleaner Energy 8.0 32.7 59.8 69.3 59 59.7
Efficiency 19.4 41.6 126.5 79.9 42.8 30.2
Environmental Services 16.1 34.7 88.2 139.6 187.2 201.9
Health 15.9 37.6 92.8 52.2 45.0 115.4
Knowledge -2.2 12.0 46.9 15.7 -11.2 -13.6
Quality of Life 18.0 60.0 115.6 69.7 66.1 29.9
Safety 14.1 27.5 52.4 4.1 0.72 -24.2
Social Property & Finance 7.7 37.4 115.5 106.9 127.6 139.3
Sustainable Transport 19.7 35.1 90.0 61.2 55.5 52.9
Water Management 18.1 56.8 81.8 45.4 31.1 76.6
Total Number of Stocks 4765 4558 4344 4087 3791 3326
Total Weighted Median 12.2 33.5 90.0 59.6 43.4 56.6
3iGInternational Interfaith Investment Group
When SRI funds performTop eco-funds posted average one year return of 39 percent
Fund Name Management Company Country 1 year return*
Performance Environnement Financiere de Champlain France 50.9%
Nikko Eco Fund Nikko Asset Mgmt Japan 44.1
New Energy Fund Sarasin Investmentfonds Luxembourg 41.2
Impax Environmental Markets Fund Impax Asset Mgmt Ireland 40.1
Winslow Green Growth Winslow Mgmt USA 38.6
Altshuler Shaham Green Altshuler Shaham Mutual Funds Israel 36.1
Sompo Japan Green Open Sompon Japan Asset Mgmt Japan 35.9
Global Trend New PowerTech Vontobel Fund Advisory Luxembourg 33.9
Activest EcoTech Activest Investmentgesellschaft Luxembourg 32.7
Jupiter Ecology Fund Jupiter Asset Management UK 32.2
* For the 12 months ended on May 31. Includes assets of at least $50 million. Returns calcuclated in US dollars. Source: Bloomberg
3iGInternational Interfaith Investment Group
FTSE All Share Market
Top 5 FTSE All Share sectors over 1 year
Mining 82.1%
Industrial Metals 75.6%
General Industrials 58.0%
General Financial 55.9%
Chemicals 48.9%
FTSE All Share 21.3%
Source: Datastream (total returns) to end May 2006
Bottom 5 FTSE All Share sectors over 1 year
Healthcare equipment & services -11.4%
Leisure Goods -6.8%
Food Producers 1.7%
Telecoms 3.1%
Software & Computer Services 4.4%
FTSE All Share 21.3%
Top 5 FTSE All Share sectors over 3 years
Industrial Metals 400.8%
Mining 200.4%
Aerospace & Defence 149.2%
Real Estate 145.0%
Construction & Materials 127.3%
FTSE All Share 63.3%
Bottom 5 FTSE All Share sectors over 3 years
Leisure Goods 10.8%
Telecoms 23.8%
Non-life Insurance 26.3%
Food Producers 30.3%
Software & Computer Services 32.3%
FTSE All Share 63.3%
When SRI doesn’t perform
3iGInternational Interfaith Investment Group
Source: Capital Bridge, as at 29 June 2006
Worlds largest SRI ManagersAsset managers % of total business
Firm Total Equity Owned Sm SRI Funds $m % SRI
Ariel Capital Management, LLC 17,4115 7,672.6 44.1
TIAA-CREF Investment Management, Inc. 1668,812.4 5,030.8 3.0
F&C Asset Management PLC 46,915.1 2,031.3 4.3
State Street Global Advisors 465,994.9 1,870.8 0.4
Henderson Global Investors 34,174.1 1,580.6 4.6
Daiwa Asset Management Company Ltd 19,269.9 1,487.6 7.7
Pax World Management 1,445.5 1,346.0 93.1
Atlanta Capital Management Ltd 5,693.8 1,252.2 22.0
Dexia Asset Management Belgium 13,260.0 1,200.6 9.1
Delaware Investment Advisors 40,707.3 1,144.0 2.8
Parnassus Investment. 1,076 1,076.5 97.5
Capital Guardian Trust Limited 152,039.8 903.7 0.6
Bridgeway Capital Management Ltd 3,814.7 862.4 22.6
Hunter Hall Investment Management 1,042.5 841.4 80.7
The Drefus Corporation 40,774.2 779.8 1.9
3iGInternational Interfaith Investment Group
0 10 20 30 40 50 60 70 80 90 100
Religious concerns
Exclusively invest in sustainable solutions
Maximise returns
Social Concerns
Opportunity to invest in Cos with greater corporate responsible
Environmental concerns
To persuade greater social responsibility
1 or 2
3
4 or 5
Ethical Investor Analysis - motivation
Base: Variable base for each factor (average across all = 1,414)
• Respondents concerned about returns, but not overly• Shareholder advocacy is of greatest importance
Importance of factors influencing investment in Henderson Ethical Fund
Reasons for Investing
Top 20 Respondent Concerns for the Future
Area of Concern Number of Mentions % Total Mentions
Genetic Engineering/cloning/GM 216 9
Water 171 7
Wealth Distribution 126 5
Global Warming/Climate Change 118 5
Human Rights 116 5
Fairtrade 103 4
Non-Renewable Energy Sources 92 4
Terrorism/Security 89 4
America 88 4
Total number of mentions 2,479 100
Ethical Investors – their views on the future
• Many of the issues revolved around the developing world
Respondents were asked to state which issues are likely to give rise to social dilemmas in the 21st century
Advisory Council Member, 3iG
Education: York UniversityBA (Hons) Politics and Economic History
Wye Agricultural College, London UniversityMSc Agricultural Economics
Career:
1985 Environmental ConsultantEC, ERM, World Vision, Band Aid/Live Aid
1989 Jupiter Asset ManagementSRI Investment Analyst
1994 NPI Asset Management LtdSRI Investment Analyst
1996 NPI Asset Management LtdSRI Investment Marketing Manager
Mark Campanale
1999 Henderson Global InvestorsSRI Investment Marketing Manager
2001-2006 Henderson Global InvestorsAssociate Director of SRI Business
Development
Contact: [email protected]