FOCUS ON ENVIRONMENTALRISK AND OPPORTUNITYLENORA SUKI
SUSTAINABLE BUSINESS AND FINANCE°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°ESG INTEGRATION:

WHERE INVESTORS SHOULD FOCUS NOW AND IN THE FUTURE• Sustainable and responsible investment today• ESG analysis and integration in the investment process• Industry specific analysis of risk and opportunity• Use of company data and scores• Performance and investment insights• The next frontiers°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°ESG INTEGRATION: FOCUS ON ENVIRONMENTAL RISK ANDOPPORTUNITY AGENDA

SUSTAINABLE AND RESPONSIBLE
INVESTMENT TODAY>>>>>>>>>>>>>>WIDESPREAD MOVEMENT ACROSS ASSET CLASSES TO CONSIDERNON-TRADITIONAL FACTORS AND ANALYSES IN INVESTMENT PROCESS

Source: Sonen Capital°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°SUSTAINABLE INVESTMENT EMBRACES A BROADRANGE OF APPROACHESDU - 11%27%

NY – 73%

Source: Bloomberg Media, Morgan Stanley Institute for Sustainable Investing°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°THE MAJORITY OF ASSET OWNERS EXPECT AN
INCREASE IN SUSTAINABLE INVESTING PRINCIPLESPRINCIPLES FOR RESPONSIBLE INVESTMENT: 10 YEAR GROWTH
DU - 11%27%

NY – 73%

Source: Principles for Responsible Investment°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°ASSETS COMMITTED TO RESPONSIBLE
INVESTMENTS ARE GROWING GLOBALLYSRI Assets
(bn)

SRI /
Total AUM

SRI Assets
(bn)

2012

SRI /Total AUM

Growth of
SRI Assets

2014

Europe$8,75849.0%$13,608

58.8%

55%

Canada

$589

20.2%

$945

31.3%

60%

US

$3,74011.2%$6,57217.9%

76%Australia

$134

12.5%

$180

16.6%

34%

Asia

$40

0.6%

$53

0.8%

32%

Global-21.5%-30.2%-Total$13,261100%$21,358

100%

61%

Source: GSIA 2014 Global
Sustainable Investment Review°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°SUSTAINABLE INVESTING IS A GLOBAL, RAPIDGROWTH SEGMENT OF INVESTMENT INDUSTRYSUSTAINABLE VS. TRADITIONAL RISK VS. RETURN (7 YR TRAILING)

Source: Morgan Stanley: Sustainable Reality°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°INVESTORS FOCUSED ON MARKET COMPARABLE
RETURNS – NO TRADEOFF OF RETURN FOR IMPACT

Source: “Corporate Sustainability: First Evidence on Materiality” by Mozaffar Khan, George Serafeim, and Aaron Yoon°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

FOCUSING ON MATERIAL ESG FACTORS LEADS TOOUTPERFORMANCE

Legislative/Regulatory• Regulatory mandates• Pushing on materiality• Disclosure reform• Exchange listing
requirements

Investors• Shareholder resolutions• Questionnaire overload• Calls for divestment• Rejection of boilerplate

Economics• Resource constraints• Climate change• Intangibles and valuation

Public/stakeholders• Campaigns and protests• NGO oversight• Political spillover°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°PRESSURES FROM LAWMAKERS, INVESTORS,ECONOMICS AND PUBLIC

$3 tn target by COP21$8 tn in assets to disclose footprints$100 bn target by COP21
PDC oversees $230 bn in AUM$24 tn in AUM calling for an agreement
on climate change$22 tn investor group engaging with over
1,300 companies
154 companies with $4 tn in revenues pledge
environmental goals°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°THE MOVEMENT FOR DECARBONIZATION ANDDISCLOSURE ACROSS STAKEHOLDERS IS GROWINGTHE RANGE OF INSTITUTIONS INTEGRATING ESG INTO THEIR
BUSINESS ILLUSTRATES UPTAKE:
Mutual Funds (Equity and Fixed Income)Exchange Traded Product

Stock Exchanges
Sell-Side Research

Index Products

Private Equity°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°PRODUCTS AND INITIATIVES PROLIFERATING ACROSSASSET CLASSES AND ORGANIZATIONSFunds With Sustainable Investment Strategies
DU - 11%27%

NY – 73%°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°PRODUCT IS GROWING BUT MOSTLY FOCUSED ONPUBLIC EQUITIES, STILL NEED CROSS ASSET CLASSESG ANALYSIS AND INTEGRATION
IN THE INVESTMENT PROCESS>>>>>>>>>>>>>>

DU - 11%27%

NY – 73%°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°BLOOMBERG IS ACCELERATING CHANGE,INNOVATION AND TRANSPARENCYINTANGIBLES INCLUDE PHYSICAL, HUMAN AND SOCIAL CAPITAL – REPUTATION,BRAND VALUE, CORPORATE CULTURE, INNOVATION CAPACITY

68%
17%

Source: Ocean Tomo LLC, Jan 2015

32%

80%

84%°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°INTANGIBLES MAKE UP THE HIGHEST
PROPORTION OF CORPORATE VALUEWHAT ROLE DOES ESG ANALYSIS PLAY IN INVESTMENT DECISIONS?
DU - 11%27%

Identify risks and opportunities

23%
20%

Focus dialogue with company management

NY – 73%14%

13%

13%
10%
6%
0%

To identify EngagementESG risks
to focus ouranddialogue with
opportunities company
management
teams

Negativescreening

To complyTo identify
with PRI or companies forother external
furthermandates
scrutiny

Positivescreening

0%

Stock
Product
To run best inselection
development
classwithin broader(e.g.
portfolios
portfolios
specialist
portfolios ofthematic
universes of
SOURCE: INTEGRITY RESEARCH ASSOCIATES, “ESG RESEARCH SURVEY RESULTS, MARCH 2012stocks)

0%
Other°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

WHY? ESG HIGHLIGHTS INTANGIBLES, LESS
TRANSPARENT INFO ABOUT MANAGEMENTFIRST FOCUS ON EMISSIONS, ENERGY, WATER AND WASTE MOVINGINTO GOVERNANCE, ANALYTICS AND OTHER BUSINESS FACTORS

Backward looking basic
data (company, industryand country level)
No benchmarking against
climate goals
No connections withsystems view or goals

Forward-looking data oncapex, embeddedemissions, etc.
Plant and project level
real assets’ information toroll up to owners
Cross asset classenvironmental evaluation(e.g. carbon footprint vs.
goals)

Decarbonization
pathway models aligned
between govts and corps
High frequency info on
progress to targets
Portfolio optimization toidentify most efficient
decarbonization pathway
Advanced analyses –value at risk, scenario andstress testing
Linkages across ESG
factors beyond E°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°ENVIRONMENTAL FACTOR ANALYSIS EVOLVING FROM BASIC,
BACKWARD-LOOKING TO MORE COMPLEX, FORWARD-LOOKINGINDUSTRY SPECIFIC ANALYSIS OFRISK AND OPPORTUNITY>>>>>>>>>>>>>>

ESG <GO> & BLOOMBERG INTELLIGENCE SHOW MOST RELEVANT FIELDSAND MEDIAN PERFORMANCE BY INDUSTRY – UTILITIES FOCUS ONEMISSIONS, FEEDSTOCK FUELS AND WATER INTENSITY AND RECYCLING

Source: Bloomberg°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°DERIVING ESG INSIGHTS FOR THE INVESTMENTPROCESS REQUIRES KNOWING WHERE TO FOCUS

DU - 11%27%

NY – 73%

BI <GO>BI ESG <GO>
INDUSTRY PRIMERS AND RESEARCH» Outline of fundamental factors and risks» Focus on changing fundamentals,regulatory risks» Role of innovation in meeting demand

Source: Bloomberg°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°CONTEXT - NOT JUST DATA - IS NECESSARY TO
UNDERSTAND INDUSTRY TRANSFORMATIONBNEF <GO>

DU - 11%27%

NY – 73%

Source: Bloomberg

INDUSTRY ANDTECHNOLOGYINSIGHTS» Deep global coverageof companies andprojects at the heart ofthe low carboneconomy transition°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°CONTEXT - NOT JUST DATA - IS NECESSARY TO
UNDERSTAND INDUSTRY TRANSFORMATIONPERFORMANCE EVALUATION ANDINVESTMENT INSIGHTS>>>>>>>>>>>>>>

DU - 11%27%

NY – 73%

FA ESG <GO>
ESG DATA ON BLOOMBERG» Fully integrated into financial
analysis
Source: Bloomberg°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°COMPANY PERFORMANCE IS SHIFTING INRESPONSE TO CHALLENGESESG FACTORS IN
INDUSTRY ANALYSIS» Companies assessed
relative to peers
DU - 11%27%

NY – 73%

COMPANY ENGAGEMENTBASED ON STRENGTHS
AND WEAKNESSESXLTP XSCR <GO>
Source: Bloomberg

RV <GO>°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

PEER COMPARISONS CLARIFY STRONG/WEAK
AREAS OF PERFORMANCE

Source: Bloomberg°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°PORTFOLIO CARBON FOOTPRINT TOOL DRAWSON REPORTED CARBON DATADU - 11%27%

NY – 73%

Source: Bloomberg

LEAG NEW<GO>°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

GREEN/SOCIAL BONDS AIM AT IMPACT INVESTMENT
BUT CREDIT MARKET INTEGRATION LAGGING

THE NEXT FRONTIERS>>>>>>>>>>>>>>

» SASB’s mission is to develop and disseminate sustainability accounting standards
that help public corporations disclose material, decision-useful information toinvestors through a rigorous process that includes evidence-based research andbroad, balanced stakeholder participation.

» 80 industries and over 200 sustainability issues» Documentation of materiality by regularly scan of 10,000+ source docs per sector» Financial analyses and valuation models, cost-benefit analysis, technical protocols» Engagement, advisory groups, public comment response and education» Streamlining and alignment of reporting efforts

Participation with theCorporate Reporting Dialogue(IIRC)

Source: SASB°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°SUSTAINABLE ACCOUNTING STANDARDS BOARD
TO UNLOCK MATERIALITY

°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

Source: SASB

°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°

MATERIAL
ENVIRONMENTAL
FACTORS EMERGE IN
MANY TOPICS.
REPORTINGEXPECTATIONS WILLFOLLOW.

Source: SASB

What is the FSB Task Force?
 Established by the Financial Stability Board on 4 December 2015
 The first global, industry-led initiative developing recommendations forvoluntary climate-related financial disclosures for companies
 Chaired by Michael R. Bloomberg

9Key Themes

Survey Response

Components ofDisclosures

The majority of respondents agreed on:
 Forward-looking disclosure (short, medium and long-term)
 Ability to set/achieve targets, with strategies for achievement
 Align with material risks

Sector-specification
vs. Aggregation

Respondents differed on sector-specific disclosures vs disclosuresaggregated across sectors, including: 31% prefer sector-specific disclosures to be the priority
 31% prefer both sector-specific and aggregated disclosures 16% prefer aggregated disclosures 22% provided alternative commentaryTransition Risk

 The majority of respondents agreed with definition of “risks
associated with the transition to low-carbon economy”
 Many respondents offered additional thoughts on transition risk

Scenario Analysis

96% of respondents see scenario analysis as key to disclosure* The majority of respondents to the public consultation represented users of financialdisclosures from across the investment value chain.
Source: TCFD°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°TASK FORCE ON CLIMATE RELATED FINANCIALDISCLOSURES WILL HAVE IMPORTANT IMPLICATIONS

17BMAP<GO>
GEOLOCATION AND
DU - 11%DATA LAYERS

27%

NY – 73%

SPLC<GO>SUPPLY CHAINS IN
GREATER DETAIL
Source: Bloomberg

NEFQ<GO>
LOW CARBON SOLUTIONSACROSS ASSET CLASSES°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°INVESTORS LOOKING FOR MORE GRANULARINFORMATION ABOUT RISKS AND OPPORTUNITIESESG information is becoming mainstream for investors
Investors are finding value in ESG information as the demand for sustainable andresponsible investment products grows.
ESG performance contributes intangible company value
Many ESG factors may have financial implications, but most are difficult to quantify.
The investment industry is working to link valuation to ESG factors.
ESG factors have to be understood at the level of the industry
New initiatives and mainstream investor adoption is driving a focus on what isrelevant depending on business fundamentals.
Environmental insights and impacts are at peer, portfolio, systems level
Whatever the sustainability evaluation, these factors must be understood acrossasset classes at multiple levels, especially relative to global goals.
The future will see unprecedented transparency and analytical sophistication
Investors are becoming more sophisticated and more demanding of the type,
quality and granularity of information on environmental risks and opportunities.

°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°°CLOSING THOUGHTS