CUMBA CSR Conference 2011 Global Partnership for a Sustainable Future Vincent Kwan Director and General Manager 11 May 2011 Changing the Society through Responsible Investment
CUMBA CSR Conference 2011
Global Partnershipfor a Sustainable Future
Vincent KwanDirector and General Manager
11 May 2011
Changing the Society through Responsible Investment
2
Contents
The Nature of a Corporation and Corporate Sustainability
Responsible Investment: A Driving Force for Corporate Sustainability
Corporate Sustainability Index (CSI): a Benchmark, a Standard, and a Platform
3
Global Partnership for a Sustainable Future
Corporations Last
Governance
Social Responsibilities
Environmental Protection - Save the Earth
Corporations
Individuals
4
Corporations Are Powerful
In Hong Kong
335,000 corporations in 2010*
2,560,000 employees in 2010*
74% of electricity consumption in 2010#
55% of disposal of solid waste at landfills in 2009^
Sources: *Quarterly Report of Employment and Vacancies Statistics – December 2010, Census and Statistics Department#Hong Kong Monthly Digest of Statistics, Census and Statistics Department^Monitoring of Solid Waste in Hong Kong - Waste Statistics for 2009, Environmental Protection Department
Corporation is a key stakeholder for developinga sustainable future for a society
The Nature of a Corporation and Corporate Sustainability
6
Harmony or Conflict
Corporate Sustainability
(CSR, Governance, Environment)
Corporations
Poster: Sleeping with the enemy (1991) by 20th Century Fox
7
The Rise of Capitalism
Money and FinanceSociety
貨幣金融社會
Financial Engineering
CapitalistSociety
資本主義社會
Trade and Capital
Agricultural/ Industrial Society
農/工業社會
Skills
2000 years of Economic and Social Development
8
Theatrical release poster: Wall Street (1987) by 20th Century Fox
WALL STREET (1987)
“GREED IS GOOD.”- Gordon Gekko
9
The Crisis of Capitalism
Crisis of Capitalism
Money and FinanceSociety
貨幣金融社會
Financial Engineering
CapitalistSociety
資本主義社會
Trade and Capital
Agricultural/ Industrial Society
農/工業社會
Skills
“Greed is Good”
Wall Street
10
“Predatory lenders and unscrupulous brokers pushed
increasingly complex mortgages on unsuspecting buyers ……[it] placed these firms, the entire system, and ultimately all of us in grave
danger.” (pp. 65, 67)
- Henry Paulson
11
Social Responsibility and Governance
?Rethinking of Capitalism’s
value and systemCrisis of Capitalism
Money and FinanceSociety
貨幣金融社會
Financial Engineering
CapitalistSociety
資本主義社會
Trade and Capital
Agricultural/ Industrial Society
農/工業社會
Skills
“Greed is Good”
Wall StreetOn the Brink
Henry Paulson
12
Can we expect a corporation to embrace Corporate Sustainability voluntarily?
(The Body Shop website, 2011)
Examples:
Sanlu
The Body Shop
Starbucks
BP Tepco 東京電力
13
5Cs of Sustainability
Corporation
Profitability / Survival Social Costs / Benefits
Corporate Sustainability Corporate Social Responsibility
Competition Community
Sustainable development goes nowhere without support from corporation
Responsible Investment:A Driving Force for Corporate Sustainability
15
Three routes to achieve Corporate Sustainability
Corporate Sustainability
Through Regulation and Legislation
•CSR best practice•Environmental law•Employment law•Carbon trading
Through Corporation’s Initiative
•Company value and belief
Through Incentives
•Award recognition•Responsible Investment
16
The power of investors in shaping corporation change
What does a corporation want to achieve? - Profit Growth- Higher Share Price- Widening Investors Base
Investor’s Power - Through voting right (less effective)- Through buy or sell decision
Responsible Investment is a driving force through providing incentive to a corporation for achieving
sustainable development
17
Trend of Sustainable and Responsible Investment (SRI)
SRI in Europe, 2002-2009
Source: Eurosif European SRI Survey, 2010* Re-calculated according to the 2010 Core SRI definition.Note: Market data coverage is evolving. 8 countries were covered in 2002, 9 in 2005, 13 in 2007 and 14 in 2009.
Year
€5 trillion
18
Trend of Sustainable and Responsible Investment (SRI) (Cont’)
Global professionally managed assets: USD52.6 trillion1
AUM benchmarked to Responsible or Sustainability Indexes / Mandates globally2: Over USD 10 trillion
SRI assets represent 17.6% of the total AUM in Europe3
SRI assets represent 12.2% of the total AUM in the US4
Sustainable investment in emerging markets has grown considerably in the past 5 years, to over USD 300 billion5
Sources:1. BCG Global Asset Management Report 20102. EUROSIF European SRI Survey 2010, covering the broader concept of sustainability, faith based, climate change, new energy investment,
data as of Sep 20103. EUROSIF European SRI Survey 2008, covering the broader concept of sustainability, faith based, climate change, new energy investment,
data as of Sep 20084. 2010 Report on Socially Responsible Investing Trends in the United States, Social Investment Forum5. Gaining ground. Integrating ESG factors into investment processes in emerging markets by IFC & Mercer, March 2009
19
Can SRI Improves Returns?
Mercer Studies
Shedding light on responsible investment: Approaches, returns and impact November 2009
Demystifying Responsible Investment Performance with the Asset Management Working Group of the United Notions Environment Programme Finance Initiative, October 2007
20
What are the Studies?
Source: Shedding light on responsible investment: Approaches, returns and impact by Mercer in November 2009
Objectives: Any impact on financial returns when corporations put emphasis on ESG factors
Method: Review of published academic reports
Number of Studies Reviewed:
16 studies in 200920 studies in 2007
21
The Result
Year 2009 2007 & 2009
Total Studies 16 36
Positive 10 20
Neutral – Positive -- 2
Neutral 4 8
Neutral – Negative 2 3
Negative -- 3
ESG / Financial Return
Source: Shedding light on responsible investment: Approaches, returns and impact by Mercer in November 2009
Corporate Sustainability Index (CSI):a Benchmark, a Standard, and a Platform
23
What a CSI can Do?
Benchmark for sustainable listed corporations with global standards
Base for investable financial products
Promoting sustainable development among companies, financial market and investors
Our effort will not help unless we have support from the community
24
CSI: A Platform for ALL to achieve win-win situation
INCENTIVE is the key to encourage participation at all levels
Investors
Fund Managers
IndexCompilers
ListedCorporations
• Invest in sustainable companies• Incentive: - Stable and long term financial performance
• Provide a platform between investors and listed companies• Incentives: - Good PR
- Meeting market demand
• Participate into sustainability index annual review exercise• Integrate sustainability factors in business decision process• Incentives: - Joining the index
- Expanding Investors base
• Develop and promote financial products linked to Sustainability Index
• Incentives: - Attract fund AUM by meeting market demand- Good PR
25
The Four Pillars of Corporate Sustainability
Sustainability Ratingse.g. RepuTex, GRI, ISO26000
Global Standards ☆Corporate Sustainability Indexe.g. Hang Seng Corporate Sustainability Index Series
Financial Industry
Responsible Investments
Investors & Asset Owners $
Real product
Incentives
Corporate Sustainability
Sustainable Corporations
26
Sustainability Rating of our CSI
Source: RepuTex
RepuTex Methodology - Global ESG Assessment Factors
Hang Seng Indexes has commissioned an independent analytics and advisory firm RepuTex to carry out sustainability rating.
RepuTex’s principal assessment code is referred to as the International Framework.
27
Positive Market Response on our CSI
Media and Opinion Leaders
“This is a very good concept and have been popular in US & Europe over 10 years ago… The index can provide a good benchmark for fund managers…” by Ricky Tam, Founder and Chairman of Hong Kong Institute of Investors on 16 Jul 2010 Hong Kong Daily News
“As more cases illustrate how charity and investment are intertwined, investors will warm to the idea but it will probably take time…” by Sally Wong, Executive Director of Hong Kong Investment Funds Association on 22 Jul 2010 SCMP
Fund Managers
Hang Seng Indexes is currently in contact with various fund managers to discuss the product development
28
Positive Market Response on our CSI (cont’)
Constituent
Constituents have mentioned their inclusion in their reports and promotional channels
Hysan 2010 Corporate Responsibility Report
SHKP Quarterly3rd Quarter 2010
Representatives of the constituents and the officiating guests at the launchceremony for the Hang Seng Corporate Sustainability Index Series
29
Sustainability Analysis of HK listed corporations
274 Hong Kong companies and 264 Chinese companies in total were analysed (note: dual- listed companies were classified as Hong Kong-stock companies).
Overall, 182 out of 274 (66%) Hong Kong companies passed RepuTex’s BBB- Rating (Moderate/Satisfactory), while 118 out of 264 (44%) mainland China companies passed BBB-.
Source: RepuTex ESG Analytics : Research Note
30
Constituents of our CSI (HK-listed)
Hang Seng Corporate Sustainability Index
Number of constituents: 30
31
Future Development of our CSI: How?
Hang Seng Corporate Sustainability Index
Hang Seng (China A) Corporate Sustainability Index
Hang Seng (Mainland and HK) Corporate Sustainability Index
Hang Seng Corporate Sustainability
Benchmark Index*
Hang Seng (China A) Corporate Sustainability
Benchmark Index*
Tradable Index
Sustainability Index for product
development
(Existing indexes)
Benchmark Index
Pool of companies with good
sustainability performance
(New indexes)
Tradability and Sustainability Screening
Select largest companies in terms of MV with top sustainability scores
*Tentative Index Name
32
Future Development of our CSI: Why?
Enrich the index series and enlarge the constituent base
Include more MidCap and SmallCap companies
Maintain the existing tradable indexes for investable product development
33
Know more about our CSI
http://www.hsi.com.hk/CorporateSustainability
34
The Way Ahead
Promote the concept of Corporate Sustainability
Support the Corporate Sustainability Indexes
Embrace the Responsible Investment
35
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Hang Seng Indexes Company Limited accepts no liability whatsoever with respect to the use of this document or its content.
Changing the Society through Responsible InvestmentContents Global Partnership for a Sustainable Future Corporations Are PowerfulSlide Number 5Harmony or ConflictThe Rise of Capitalism Slide Number 8The Crisis of CapitalismSlide Number 10Social Responsibility and Governance Can we expect a corporation to embrace �Corporate Sustainability voluntarily?5Cs of Sustainability Slide Number 14Three routes to achieve Corporate SustainabilityThe power of investors in shaping corporation changeTrend of Sustainable and Responsible Investment (SRI)Trend of Sustainable and Responsible Investment (SRI) (Cont’)Can SRI Improves Returns?What are the Studies?The ResultSlide Number 22What a CSI can Do?CSI: A Platform for ALL to achieve win-win situationThe Four Pillars of Corporate Sustainability Sustainability Rating of our CSI Positive Market Response on our CSIPositive Market Response on our CSI (cont’) Sustainability Analysis of HK listed corporationsConstituents of our CSI (HK-listed)Future Development of our CSI: How?Future Development of our CSI: Why?Know more about our CSIThe Way AheadSlide Number 35