Imogen_Athens_CSR_OCt_07.ppt

Responsible Investment Trends and Opportunities

Imogen Dillon HatcherManaging Director – FTSE, EMEAAthens - October 2007

FTSE Group

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14 April 2023Page 2

What are we talking about?

Responsible Investment is:

“The incorporation into the investment management process (from analysis and research followed through to an investment related outcome) and on-going asset stewardship of social, environmental and corporate governance related matters. This may or may not include specific screening of investee companies based on socially responsible investment styles.”

Source: Responsible Investment Metrics Ltd

FTSE Group

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14 April 2023Page 3

SRI or Ethical Investment has a number of styles

Positive Screening

Negative Screening

Engagement

“Dark Green”

“Light Green”

“Values/Ethics”

“Shareholder Value”

FTSE Group

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14 April 2023Page 4

UN PRI

Launched April 2006 – 6 Key PrinciplesConvened by UN Global Compact and UNEP FI20 signatories representing USD 2 trillion at launch

Today;183 signatories representingUSD 8 trillion

84 Asset Managers83 Asset Owners1 LAPF.

FTSE Group

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14 April 2023Page 5

An “Activist” Pension Funds Rationale for undertaking RI

• Active long-term responsible shareholder – “if we can’t sell we have to care” – Bob Monks

• Fiduciary obligations to ultimate beneficiaries

• Protects & enhances value of fund’s investments

• Encourage responsible corporate behaviour

• Members’ attitudes towards RI and engagement

FTSE Group

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14 April 2023Page 6

The impact of engagement activities are still not well understood

FTSE Group

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For AM’s Effective RI practice involves

• Strategy, organisation & resources

• Engagement • Integration• Voting• Transparency

FTSE Group

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14 April 2023Page 8

Companies - What are the challenges

• The roles of agents and hedge funds make it difficult to identify who owns a business at any one timee.g.- during Phillip Green bid for M&S, hedge funds went from 0 – 20% of company register;

- long only investors uniting with hedge funds e.g. Deutsche Borse bid for London Stock Exchange

• PR risk of being publicly targeted by an activist investor

FTSE Group

© FTSE LIMITED 2004. ALL RIGHTS RESERVED. ANY INFORMATION PRODUCED MUST BE DONE WITH PRIOR AGREEMENT WITH FTSE.

14 April 2023Page 9

Companies - What are the challenges cont

• Academic research is emerging that links activism with abnormal returns

• Distinctions between activist, private equity and hedge funds are blurring – similar techniques used

• Development of long term stable shareholders to support management in the implementation of corporate strategy

• Responsible investment/ownership is emerging as a mainstream investment process

FTSE Group

© FTSE LIMITED 2004. ALL RIGHTS RESERVED. ANY INFORMATION PRODUCED MUST BE DONE WITH PRIOR AGREEMENT WITH FTSE.

14 April 2023Page 10

Increasing Interest in Environmental Markets

• Environmental Markets estimated to exceed US$150bn per year

• Environmental Markets growing at up to 30% p.a. based on proven technology, sound economics and supportive regulation

• Company performance driven by growth, rising multiples and corporate activity

1

FTSE Group

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14 April 2023Page 11

Changing structure of basic services

Energy Water Waste

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• Market liberalisation

- competition & innovation

- value for money

• Environmental policy

- limited resources

- health issues

• Competitiveness of cleaner solutions

- falling technology costs

- high fossil fuel prices

FTSE Group

© FTSE LIMITED 2004. ALL RIGHTS RESERVED. ANY INFORMATION PRODUCED MUST BE DONE WITH PRIOR AGREEMENT WITH FTSE.

14 April 2023Page 12

Looking ahead

Pressure on pension funds to be responsible long-term investors will grow

The definition of fiduciary duty will evolve There will be more peer benchmarking (managers and asset owners) Corporate pension funds will get engaged Pension funds will become strategic co-partners The definitions of responsible investment will broaden by theme and

asset class and become the “norm” There will be a shift to “Best in Class” using comparative performance

ratings from broad ethical approaches

FTSE Group

© FTSE LIMITED 2004. ALL RIGHTS RESERVED. ANY INFORMATION PRODUCED MUST BE DONE WITH PRIOR AGREEMENT WITH FTSE.

14 April 2023Page 13

And finally….

"It is not the strongest species that survive, nor the most intelligent; it is the ones most adaptable to change."

Charles Darwin1809 - 1892