Post on 23-Oct-2020
DEALING WITH ESG (Socially Responsible Investing)
GIOA Conference 3/21/2019
David CarrAssistant City TreasurerCity of Santa Monica
Santa Monica Perspective
ESG/SRI Definition/Principles
Fiduciary and Political Considerations
Implementing ESG/SRI into Investment Decision Making
Measuring/Benchmarking ESG-Related Performance
Slide 23/21/19
Areas of Focus
What is ESG/SRI?
E for Environment
S for Society
G for Governance
Slide 33/21/19
What is ESG/SRI?
Responsible investment is an approach to investing that aims to incorporate environmental, social, and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.
Source: UN Principles of Responsible Investment www.unpri.com
Slide 43/21/19
http://www.unpri.com/
SRI/ESG Considerations
Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals; Usman Hayat, CFA & Matt Orsagh, CFA, CIPM; Codes, Standards, and Position Papers; October, 2015. https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2015.n11.1
“A critical factor in the financial performance of investments is the investor’s ability to
identify drivers of the expected risk and return of investments. Financial analysts and
portfolio managers are expected to be familiar with the financial factors that drive the
value of an investment. However, issues that are difficult to measure in monetary terms
and that do not form part of traditional financial metrics also affect the risk and return of
investments—at times, decisively. In general, they are referred to as environmental,
social, and governance (ESG) issues.”
Slide 53/21/19
https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2015.n11.1
3/21/19 Slide 6
Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals; Usman Hayat, CFA & Matt Orsagh, CFA, CIPM; Codes, Standards, and Position Papers; October, 2015. https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2015.n11.1
https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2015.n11.1
Weight of ESG Factors
Source: Barclays Study on Sustainable Investing and Bond Returns 2018 Slide 73/21/19
3/21/19 Slide 8
Political/Fiduciary
Political Considerations for Public Agencies
ESG vs Traditional SRI
Impact of ESG on credit ratings/investment returns
Slide 93/21/19
Santa Monica Investment Policy
Slide 103/21/19
ESG Impact on Returns
Companies with higher ESG scores tend to have slightly higher returns
Governance scores the most highly correlated
Increase of 0.3% to 0.4% annually
Slide 113/21/19
ESG in Credit Analysis
CREDIT RATING AGENCY SIGNATORIES
Axesor Rating Liberum Ratings
Beyond Ratings Microfinanza Rating
China Chengxin International Credit Rating Co., Ltd Moody’s Corporation
Dagong Global Credit Ratings Group RAM Ratings.
Fedafin AG Rating-Agentur Expert RA GmbH
Fitch Group, Inc Rating and Investment Information, Inc
Golden Credit Rating International Co., Ltd.. Scope Ratings
Japan Credit Rating Agency Spread Ratings
JCR Eurasia Rating S&P Global Ratings
Slide 123/21/19
Source: UN Principles of Responsible Investment www.unpri.com
http://www.unpri.com/
ESG in Credit Analysis
Country: US
Sector: Banking
Date: 7 February 2018
ESG factor: Social and governance
Action: Credit rating downgraded from A to A-; outlook stable
Key rationale: Asset growth capped until the company further enhances its governance
and compliance and risk management to the standards required by the regulator; the
downgrade also reflects ongoing ramifications of its retail sales practices issues.
Source: S&P Global Ratings
Slide 133/21/19
https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=38226758&From=SNP_RES
ESG Implementation
One component of investment analysis/decision making
Typically relates to corporates but can be applied to other asset classes
Variety of tools
Slide 143/21/19
3/21/19 Slide 15
Fed Agency (GSE)62%LAIF
8%
Corporate19%
Commercial Paper0%
Supranationals8%
Munis3%
SANTA MONICA PORTFOLIOAS OF 2/28/2019
3/21/19 Slide 16
ESG Metrics
3/21/19 Slide 17
3/21/19 Slide 18
3/21/19 Slide 19
Conclusions
Use of ESG/SRI increasing
Many sources/tools for information (Bloomberg, Sustainalytics, ISS, MSCI, brokers, etc.)
No Evidence of Negative Impact on Returns
Different strokes for different folks
Slide 203/21/19
SOCIALLY RESPONSIBLE INVESTING
Presented by
David JonesTreasury Administrator
March 21, 2019
AGENDA
• OVERVIEW
• SOCIALY RESPONSIBLE INVESTING
• INVESTMENT POLICY
• PORTFOLIO COMPOSITION AND CHARACTERISTICS
• RESOLUTIONS AND ORDINANCES
• QUESTIONS AND ANSWERS
OVERVIEW
Oakland is the 8th largest city in California (population
426,074)
Unemployment rate for December 2018 was 3.2%
(below State 4.2% and U.S. 3.9%)
Port of Oakland fifth busiest container Port in the U.S., handling 99% of all
containerized goods in Northern California.
2017 was the busiest year in 97-year history ($2.42M containers)
Oakland International Airportranked 11th for cargo traffic in North America
over $13 million enplaned passengers for 2017
Bay Area Transportation Hub (Heart of BART system sit
in downtown Oakland, 5 freeways converge in Oakland
Amtrak trains, BNSF & Union Pacific)
Many new accolades2nd Most Ethnically Diverse Large City (WalletHub, Feb 2019)
Oakland Makes Best Trips List for 2019 (National Geographic
Travel, Nov 2018)
Socially Responsible Investing
Definition:
Socially Responsible Investing (SRI), also known as
sustainable, socially conscious, “green” or ethical
investing, is any investment strategy which seeks to
consider both financial return and social good.
• Oakland’s Approach to SRI
Investment Policy
• Updated yearly
• Resolution approval by Council
• Incorporates Socially Responsible Investing
Portfolio Composition and Characteristics
• Size of portfolio has been steadily growing
• Comprised of Federal Agencies, Medium Term Notes, Money Market Funds and
Local Agency Investment Fund (LAIF)
• Days to maturity – 307 days
• Effective rate of return for December 2018 – 2.24%
RESOLUTIONS/ORDINANCES
Nuclear Free Ordinance
Under the provisions of a voter-approved Measure, the Oakland City Council
approved Ordinance No. 11062 C.M.S. effective December 16, 1988, which
restricts the City’s investments in U.S. Government Treasuries. The Treasurer
shall make every attempt to invest in any available short-term option that
provides approximately the same level of security and return as Treasuries. In
the event that no reasonable alternatives exist, or to the extent that the City
may experience financial hardship as a result of investment in these
alternatives, the City Council may adopt a waiver for a period not to exceed 60
days, as authorized by the Ordinance, allowing the City to invest in U.S.
securities.
.
Linked Banking Ordinance
Pursuant to Ordinance No. 12066 C.M.S. adopted by
Council on July 14, 1998, the City has established a Linked
Banking Service Program. This reference applies to
depositories for both the City of Oakland and the Port of
Oakland banking needs. Depositories are defined within
the Ordinance as “all banking services utilized by the city
including the Port of Oakland operating fund, with the
exception of investments made through investment banks
and brokers/dealers.”
Tobacco Divesture Resolution
On February 17, 1998, Council adopted Resolution
No. 74074 C.M.S., which prohibits investment in
businesses deriving greater than fifteen percent of
their revenues from tobacco products.
Fossil Fuel Divestiture Resolution
On June 17, 2014, Council adopted Resolution No. 85053
C.M.S. which prohibits the investment or ownership stake in
any companies that extract, produce, refine, burn or distribute
fossil fuels.
Firearm or Gun Manufacturer Divestiture Resolution
On March 5, 2013, Council adopted Resolution No. 84242
C.M.S. which prohibits investment or ownership stake in any
manufacturer of firearms or ammunition. Treasury Bureau
does not have any direct investment exposure to firearms or
ammunition manufacturer.
QUESTIONS AND ANSWERS