Responsible Investment Strategies A case study of the cocoa industry

Responsible Investment StrategiesA case study of the cocoa industry

Esther HougeeDirector, Research Products, Europe

15th May 2012

Sustainalytics

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Offices in Amsterdam (HQ), Boston, Frankfurt, Madrid, Paris, Timisoara, and Toronto

Representation in Brussels and Copenhagen. Strategic Partnership with Sustinvest in Seoul. Intention to acquire Responsible Research in Singapore

Over 100 staff (50+ analysts)

Over 150 institutional clients globally

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Sustainalytics: What We Do

Data E S G Insights

Environment Social Governance

We help clients turn vast quantities of environmental, social and governance

information into analysis to enable more informed investment decisions

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Government and public concern about the impact of human activities on the environment – and the roles that businesses play in that impact – has reached a “tipping point”.

Increasingly investors seek to integrate environmental and social information into investment decision-making

Global Trends

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Responsible investment Growth

RI AUM15-20%

Total Global AUM83%

RI AUM9%

Total Global AUM91%

RI AUM7%

Total Global AUM93%

2007 2010 2015

($22 Trillion AUM)

($64 Trillion AUM)

($ 9 Trillion AUM)23.2% CAGR

Global RI AUM$5.0 Trillion



Source: Robeco and Booz & Company. Responsible Investing: A Paradigm Shift – From Niche to Mainstream. 2009.

Plan sponsor / Asset owner

23%

Asset manager53%

Corporate & NGO5%

Other19%

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Our clients

Asset Owner* Asset Manager* Corporate & NGO* Other*

* Selected clients

http://www.meritas.ca/

http://www.investment-jobs.com/

Actors

Asset Managers

Asset owners Financial managers

Fund Managers

Private Banks

Research Providers

(ESG) Data providers

SRI Indices

Retail Investors

Foundations

PensionFunds

(ESG) Rating agencies

Sell side research and independent research

General Public

Strategies

Five dominant RI strategies:1. Absolute criteria (exclusions based on the product \process)2. Relative criteria (relative performance)3. Impact investments4. Integration of ESG information5. Active ownership (engagement, proxy voting, resolutions, legal

proceedings)

(or combination of strategies)

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Operations

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Supply Chain

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Analysis by experienced analyst

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Company feedback is always included

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A case study in the cocoa industry

Industry characteristics


5-6 million farmers

3 million tons of cocoa

Annual demand increase by 3%

Global sales $74 billion

Fair trade 0.1% Organic 0.5%of the world market

Consumption:US 4.6, EU 7-10 (kg/y)

The market


Europe1,635

Main Cocoa Producers

Cocoa Consumption

Asia 280

Brazil170

Ecuador80 Latin America

275

Africa25

West Africa2,600 Asia Pacific

470

Japan150

US & Canada845

Cocoa Production and Consumption (in thousands of tonnes)

49% global consumption22% global

consumption

75% global production 13% global

production7% global production

Cocoa Supply Chain


Challenges for the farmer


• Uncertainty (weather, pests)

• Low cocoa price

• Low productivity per acre

• Child/forced labour

• Weak governments


Exposure


Solutions for Industry

• Traceability

• Local capacity building programs

• Cocoa trees

• Socially certified cocoa


Leaders and Laggards


Mars

Mars has pledged to certify

100% of its cocoa as

sustainably produced by 2020.


Mars

• Start at the root problem – Put the farmer first

• Primary funder of a public/private partnership to understand the cocoa

genome so that breeders can develop better plants

• Technology transfer hubs in cocoa producing regions (demonstration,

applied research, capacity building), Village Cocoa Centers

• Apply certification schemes (Fairtrade, Rainforest Alliance and UTZ Good

Inside)


Nestlé

• Inititiated the Cocoa Plan and committed to invest CHF 110 million

• Research and Development Centre in Côte d’Ivoire to propagate

high potential plantlets, distribute 12 million high yielding, disease

resisting cocoa trees

• Contribute to farmer schools (industry wide initiative)

• Commitment to pay cocoa from trained farmers, and paying a

premium for their higher quality cocoa

ESG Implications Responsible Investors


•Stimulate companies to disclose action plans to monitor and combat child /forced labour

•Request frequent reporting on the progressReputational

RiskChild / Forced

Labour

•Stimulate companies to safeguard stable supply of high quality cocoa beansFinancial Risk

Operational Discontinuity

Esther Hougee

Director, Research Products, Europe

Phone: +31 20 205 00 09Email: [email protected]: www.sustainalytics.com

Amsterdam – Toronto – Timisoara – Frankfurt – Madrid – Boston – Paris

Responsible Investment Strategies A case study of the cocoa industry

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