Promoting Sustainable Investment: Links between Sustainability Performance … · 2016-02-16 · -...
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Promoting Sustainable Investment:
Links between Sustainability Performance and
Investment
Mr. Vincent Kwan
Director and General Manager
Hang Seng Indexes Company Limited
28 November 2014
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Momentum of Sustainable Future
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Environmental
Corporate
Governance
Social
Corporations
Earth
Society “…[Sustainable Development] as forms
of progress that meet the needs of the
present without compromising the
ability of future generations to meet
their needs.”
Our Common Future, 1987
(also known as the Brundtland Report)
World Commission on Environment and Development (WCED)
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Key Players to Support Sustainable Investment
• Participate in
Sustainability Index
annual review exercise
• Integrate sustainability
factors in business
decision-making process
• Develop and promote
financial products linked to
Sustainability Index
• Provide a platform
between investors and
listed companies
• Provide Analytical
Services/ ESG Data
• Invest in sustainable
investments
• Influence your asset
managers Investors &
Asset Owners
Fund Managers
Listed Companies
Index Compilers
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What is Sustainable and Responsible Investment (SRI)?
• (SRI) is the integration of social and environmental criteria into investment
decisions with the goal of aligning financial activities with social and
environmental objectives, values, or beliefs. This is often achieved through
negative or positive screening, as well as shareholder activism. Source: Business for Social Responsibility’s (BSR) report on “ESG in the Mainstream - The Role of Companies and Investors in
Environmental, Social and Governance Integration
• An investment discipline that considers environmental, social and corporate
governance (ESG) criteria to generate long-term competitive financial returns
and positive societal impact. Source: The Forum of Sustainable and Responsible Investing (USSIF)
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SRI Screening
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Positive Screening
Positive screening means that when investors that are interested in corporate social
responsibility issues select their funds, they focus on funds that invest in companies that
make positive contributions to society. Such contributions may include:
• Respect for labour relations
• Environmental care
• Emphasis on quality control & safety
• Attention to human rights’ issues Negative Screening
Negative screening means that socially responsible investors avoid funds that invest in
companies that are involved activities that may have a negative impact on society, for
example:
• Tobacco / Alcohol production
• Lack of respect for labour relations
• Lack of environmental consideration
• Gambling industry
• Weapons manufacturing
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Source: GSIA Global Sustainable Investment Review 2012
An Overview of Global SRI
Total Global SRI Assets around US$13.6 trillion
(21.8% of total assets)
(20.2%)
(49.0%)
(11.2%)
(35.2%)
(18.0%)
(2.9%)
(0.2%)
() Relative proportion of ESG assets in total assets under management by region
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Recent SRI Trends in the US
According to The Forum for Sustainable and Responsible Investment, SRI in the US
rose from US$639Bn in 1995 to US$3.7Tn in 2012 – a 486% increase.
639
1,185
2,159
2,323 2,164
2,290
2,711
3,069
3,740
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1995 1997 1999 2001 2003 2005 2007 2010 2012
US
$B
n
Source: The Forum of Sustainable and Responsible Investing (USSIF)
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Corporations Showing Interest
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48 Companies use our index mark
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Upward Trend in Global GRI Reporting
Source: 2012 Global Conference on Sustainability and Reporting : NGO Round Table –GRI Reporting Statistics
The number of corporate sustainability reports produced
in accordance with the GRI G4 framework is increasing
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Corporate Motivation
Source: Business for Social Responsibility’s(BSR) report on “ESG in the Mainstream- The Role of Companies and Investors in Environmental, Social and governance
Integration
Perception of ESG Drivers in the next 3 to 5 years
Percentage of Respondents
43%
51%
64%
66%
66%
68%
76%
0% 20% 40% 60% 80%
Legislation
Financial Return
Internal Pressure
External Pressure
Concerns Regarding Impact of Climate Change
Regulation
Supranational Initiatives
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Improving Corporate Sustainability Performance
Percentage of Companies Rated as Satisfactory/Stable over Total Number of Companies Assessed
Description Unstable Vulnerable
Corporate Sustainability Ratings AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB B C
Reliable Stable Satisfactory
Hong Kong China A-Share
5.7%6.3%
7.2%
9.7%
11.9%
1.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2010 2011 2012 2013 2014
Stable Satisfactory
(285) (291) (299) (295)(300)
Source: Results of 2010 – 2013 Reputex’s Assessment and 2014 HKQAA’s Assessments
18.6%
13.5% 14.2%15.9% 16.4%
1.1%
1.5%
3.5%
4.6%
6.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2010 2011 2012 2013 2014
Stable Satisfactory
(341) (346) (345) (384)(274)
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Bridging the Gap between Companies and Investors
Sustainability Index acts as a simple tool for investors to select the best companies in
terms of corporate sustainability
Company
Investor
Corporate Sustainability
Index
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Relationships between Corporate Sustainability and
Financial Performance
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Studied by: Findings:
Harvard Business
School
• Sustainability leaders tend to have better
stock performance, lower volatility, and
greater returns on assets (ROA) and equity
(ROE).
• Suggests this outperformance is based on
superior governance structures and better
constructive engagement with stakeholders.
Mercer • Examines the link between ESG issues and
financial performance through existing
academic and broker research.
• Of 36 studies Mercer reviewed through 2009,
86% show either a neutral or positive impact
of ESG factors on risk and return.
Source:
- Eccles, Robert G.; Ioannou, Ioannis; Serafeim, George “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance”. Harvard Business School
Working Paper 12-035, November 04, 2011.
- Mercer, “Responsible Investment’s second decade: Summary report of the state of ESG integration, policy and reporting”, August 2011.
Corporate
Sustainability
Performance
Financial
Performance
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Initiatives of The Index Series
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Launched Hang Seng
Corporate Sustainability
Index Series Launched Hang Seng
Corporate Sustainability
Index Series Fund
Yearly Corporate Sustainability Rating Assessment
Expanded with two
benchmark indexes
Support by stakeholders
Milestones since launch and future development
Appoints HKQAA to
undertake Corporate
Sustainability Assessments
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OrganisationGovernance
Human Rights
LabourPractices
Fair OperatingPractices
The Environment
Consumer Issues
CommunityInvolvement & Development
HKQAA'sAssessment Model
• Formulated by HKQAA with reference to several international standards – such as the
GRI G4 Sustainability Reporting Guidelines, and ISO 26000 Social Responsibility
Guidelines
HKQAA’s Assessment Model under Seven Core Subjects
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Index Design
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Hang Seng (Mainland and HK) Corporate
Sustainability Index
(41* Companies)
*11 of them are AH companies
Hang Seng Corporate
Sustainability Index
(Top 30 Corporate Sustainability Rating)
Hang Seng (China A) Corporate
Sustainability Index
(Top 15 Corporate Sustainability Rating)
Hang Seng Corporate Sustainability
Benchmark Index
(Top 20% Corporate Sustainability
Rating of HSCI)
Total Number: 76
Hang Seng (China A) Corporate
Sustainability Benchmark Index
(Top 10% Corporate Sustainability
Rating of A300)
Total Number: 29
Benchmark Series
Tradable SeriesTradability Screening
HK CHINA
MV within Top 150
VR* > 0.1%MV within Top 150
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Market Value: Constituents vs Non-constituents
Data as of the latest fiscal year
Market Value Distribution
(in terms of no. of companies)
1%
8%
37%
16%
32%
1%5%
9%
29%
48%
9%
4%
HSSUSB Constituents
Non-HSSUSB Constituents
(76)
(258)
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Profitability: Constituents vs Non-constituents
Data as of the latest fiscal year
Profit Distribution
(in terms of no. of companies)
8%5%
32%
14%
26%
5% 9%
22%
16%
44%
9%7%
1%
HSSUSB Constituents
Non-HSSUSB Constituents
(76)
(258)
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3%7%
13%
34%
12%18%
11%
3%1% 1%
17%
22%
37%
14%
7%
0.4% 0.4%
HSSUSB Constituents
Non-HSSUSB Constituents
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Revenue: Constituents vs Non-constituents
Data as of the latest fiscal year
Revenue Distribution
(in terms of no. of companies)
(76)
(258)
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Index Design
20
Hang Seng (Mainland and HK) Corporate
Sustainability Index
(41* Companies)
*11 of them are AH companies
Hang Seng Corporate
Sustainability Index
(Top 30 Corporate Sustainability Rating)
Hang Seng (China A) Corporate
Sustainability Index
(Top 15 Corporate Sustainability Rating)
Hang Seng Corporate Sustainability
Benchmark Index
(Top 20% Corporate Sustainability
Rating of HSCI)
Total Number: 76
Hang Seng (China A) Corporate
Sustainability Benchmark Index
(Top 10% Corporate Sustainability
Rating of A300)
Total Number: 29
Benchmark Series
Tradable SeriesTradability Screening
HK CHINA
MV within Top 150
VR* > 0.1%MV within Top 150
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Index Performance
Period 2010* 2011 2012 2013 2014^
HSI 10.5 -20.0 22.9 2.9 3.0
HSSUS 11.1 -20.5 20.2 3.8 10.6
Past 1 mth^ 3 mths^ 6 mths^ 1 year^ 3 year^
HSI 0.3 -3.1 8.4 3.4 20.8
HSSUS -0.6 -0.3 12.2 11.5 29.4
Return (%)
Return (%)
600
700
800
900
1,000
1,100
1,200
1,300
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
HSI (Rebased) HSSUS (Rebased)
* Since 26 Jul 2010 ^ Data as at the end of Oct 2014
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Lower Risk
15.2
25.4
16.415.3
13.614.8
23.7
15.614.5
13.2
0
5
10
15
20
25
30
2010 2011 2012 2013 2014^
恒生指數 恒生可持續發展企業指數
An
nu
ali
ze
d V
ol
(%)
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2.5
3.4
3 3
3.39
2.7
3.8
3.23.3
3.86
0
1
1
2
2
3
3
4
4
5
2010 2011 2012 2013 2014^
HSI HSSUS
%
Higher Dividend Yield
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Support from Corporations
Embrace ESG
Aspire to be the best
Sustainable
investment
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