Responsible Investment: Celebrating our Successes
in an Increasingly Challenging Environment
RIA Conference
Banff, AB
June 1, 2015
Our time together
 The foundation of success
 What does success look like?
 Drivers of success
 Storm clouds
 Ensuring our “silver lining”
“If there is something to be changed in this world, then it can only happen through music.”
Jimi Hendrix
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Predictions
I’ve got a poor track record
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Responsible Investment
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Turn the clock back…
“Hey farmer farmer
Put away that DDT now
Give me spots on my apples
But leave me the birds and the bees
Please!
Don't it always seem to go
That you don't know what you've got
Till it's gone
They paved paradise
And put up a parking lot”
Joni Mitchell, Big Yellow Taxi, 1970
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Foundations of success: 1970s
 Investment in Oppression, YWCA, May 1973 – a study of
Canadian economic links with South Africa
 Taskforce on the Churches and Corporate Responsibility
(TCCR) formed in January 1975
"I have not the slightest doubt that, were your
recommendations to be followed by the international
community and the white population of South Africa
left without any modern means of self-defence, they,
who almost alone have populated and developed
that remarkable country, would be eliminated as an
ethnic entity by the gruesome combination of
subjection, massacre and expulsion.”
Conrad Black, Chair of Massey-Ferguson
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Foundations of success: 1980s
 Public policy
– Mulroney government’s active involvement in both environmental and
social issues
– Environmental Protection Act (1988)
– Acid Rain Accord (1991)
– Strong stand against apartheid, recommending economic and diplomatic
sanctions against South Africa
 Capital markets
–
–
–
–
Ethical Growth Fund (Vancouver City Savings Credit Union)
SUMMA Fund (Investors Group)
Environmental Investment Funds (Energy Probe)
Social Investment Organization
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Change is in the air
“There's something happening here,
But what it is ain't exactly clear”
Buffalo Springfield
For What It’s Worth, January 1967
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What does success look like?
Sustainability is a top 3 priority for CEOs globally
 According to a survey across
3,344 executives, 86%
viewed sustainability as a
“top 3”, if not top, priority
topic
 The survey further revealed
that the top drivers for
executives to considering
ESG issues are: alignment
with the firm’s business
goals, reputation
management and improving
operational efficiency
Source: McKinsey & Company, Sustainability’s strategic worth: McKinsey Global Survey results, 2014
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What does success look like?
30.2% of total global assets under management are managed under an RI strategy
Source: GSIA, Global Sustainable Investment Review, 2014
Source: UNPRI
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What does success look like?
www.fclt.org
 Collaboration among market actors
 Focusing Capital on the Long Term
 Launched in May 2013 by Canada Pension Plan
Investment Board and McKinsey focusing on how to
promote long-term behaviour at institutional investors
and companies
 Since the launch 17 companies and investors have
joined, including Blackrock, Singapore state investor GIC,
New Zealand Superannuation Fund, Tata and Unilever
 4 areas for action: Re-orient portfolio strategy;
engagement & active ownership; improve dialogue
between investors and corporations; shift board focus to
support long-term strategy and sustainable growth.
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What does success look like?

Climate change – shifts in public opinion

Media

–
A sharp rise in media reporting put global coverage of climate
change in 2014 back near its 2009 peak
–
The Guardian led the pack, with at least 1,338 climate stories
published in 2014 – almost four per day
Capital markets
–

Recent AGMs at Royal Dutch Shell (98.9%) and Statoil (99.9%)
received nearly unanimous shareholder support for resolutions,
filed by the “Aiming for A” coalition, demanding improved
disclosure of climate strategies
Canadian Council of Canadian Academies
–
Asked by the Environment Canada and Natural Resources Canada
to assess how technology could reduce environmental Impact of
oil sands production
–
No “silver bullets”
–
Sense of urgency
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What does success look like?
Canadian RI Industry Growth (billions)
$1,200.00
$1,000.00
$1,010.79
$800.00
$600.00
53 Canadian PRI signatories
$400.00
$459.53
$566.68
$517.93
$600.88
$200.00
$0.00
2006
2008
2010
2011
2013
Source: 2015 Canadian Responsible Investment Trends Report, Responsible Investment Association
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What does success look like?
Source: 2015 Canadian Responsible Investment Trends Report, Responsible Investment Association
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Engagement
“You can choose a ready guide in some celestial voice
If you choose not to decide, you still have made a choice
You can choose from phantom fears and kindness that can kill
I will choose a path that's clear
I will choose freewill”
Rush, Freewill, 1980
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Drivers of Success
 Information age - demand for information (insights) will not disappear
 “Obvious investment risks are few; hidden ones are plentiful” – Blackrock
“Hey hey, my my
Rock and roll can never die
There's more to the picture
Than meets the eye.
Hey hey, my my.”
Neil Young, Out Of The Blue, 1979
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Drivers of Success: Value
The good news is that the performance myth is dying.
Bring out yer
dead!
I’m not dead
yet!
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Drivers of Success: Value
 The mainstreaming of responsible
investment is founded on the
recognition that ESG issues can be
material.
 Academic and sell-side research
strongly supports this view
 It is a view also supported by the
CFA, the SEC, McKinsey and Co.,
the Harvard Business Review, and
many of the world’s largest
institutional investors
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Drivers of Success:
Regulatory Framework

Korean National Assembly passed two RI-related pieces of legislation in
late December – one focused on the mandatory disclosure of ESG
information by listed companies – the other, on the National Pension
Service, which now has legislative clarity with respect to taking ESG issues into consideration

After 14 years of discussion, Ontario is making changes to the Pensions Benefit Act that will require
funds to reveal whether, and if so how, ESG considerations are taken into account in investment
policy.
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Drivers of Success: Retail
 To be successful longer-term, RI has to connect to “main
street,” not just “Bay Street”
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Drivers of Success: Values
 Values will increasingly be an important part of the ESG
discussion and mix
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Drivers of Success: Values
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Drivers of Success: Values
 Values will increasingly be an important part of the ESG
discussion and mix
 It is not just about financial security for members, or
safeguarding the pension promise – it’s about securing a
world in which your plan members wish to retire into
 "A good pension is worth nothing in a polluted and
unsafe world. We intend to use the power of this money
to bring a better world closer.” - Peter Borgdorff,
Managing Director of PFZ (the second largest pension
fund in the Netherlands with 2.6 million members and
€156 billion AUM)
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Storm Clouds
 Public Policy
– United States
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Storm Clouds
 Recent election results will most likely lead to a less friendly
platform for sustainability issues, if not for ESG itself
 Mitch McConnell - Senate Majority Leader
– received more campaign money from coal companies than any other senator in
this last election cycle - fourth-largest recipient of oil and gas industry money
– “I’m not a scientist. I am interested in protecting Kentucky’s economy, I’m
interested in having low-cost electricity.”
 James Inhofe – Chair of the Environment and Public Works
Committee
– Author of The Greatest Hoax: How the Global Warming Conspiracy Threatens
Your Future
– “God’s still up there…“The arrogance of people to think that we, human beings,
would be able to change what He is doing in the climate is to me outrageous.”
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Storm Clouds
 Public Policy
– United States
– Canada
 Canadian companies – sustainability pullback?
 Capital markets
– ESG integration is difficult
– Value creation “proof of concept” hasn’t reached the tipping point
– RI/ESG infrastructure (industry associations/organizations) facing more
challenging environments (funding, governance, mission drift)
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Storm Clouds: We Matter
 RI/ESG has roots that go back more than 40 years in Canada and our
success is underpinned by a strong foundation – we are a force to be
reckoned with
BUT
 Our success has now put RI/ESG on the radar screens of companies/
organizations/people that don’t like what we’re doing
QUESTION
 Is RI/ESG’s foundation strong enough to withstand the backlash?
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Storm Clouds: We Matter
“First they ignore you, then they ridicule you, then they fight you, and then you win.”
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Storm Clouds: We Matter
 Our industry will face well-funded, better organized and more ferocious
adversaries than in the past
– Proxy advisory firms – regulatory scrutiny in Europe and North America
– Civil society
• In October 2014 it was reported that HEG Technology (Chinese-based supplier to Lenovo Group,
Samsung, etc.) launched legal action against U.S.-based China Labour Watch subsequent the August 2014
investigative report on HEG’s labour violations
• In 2013 Canada’s Resolute Forest Products Inc. sought $5-million in damages and $2-million in punitive
damages from Greenpeace and two of it’s activists for an allegedly false and misleading report.
 Australia
– Reaction to Australian National University’s decision to divest 7 fossil fuel companies was
unprecedented in its vitriol
– Australian Prime Minister Tony Abbott commented that it was a “stupid decision”
– ASX-listed Sandfire Resources, one of the companies affected by ANU’s decision, filed
proceedings in the Federal Court of Australia against CAER, an Australian-based ESG research
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house
Silver Linings
Our industry’s ability to muster a collaborative and credible
response will become increasingly important in allowing us to
capture the opportunities available to us.
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Silver Linings
 Collaboration
– Among stakeholder groups (capital markets, civil society, corporate,
government)
– Within stakeholder groups
 “Co-opetition” occurs when companies interact with partial
congruence of interests
– Confronting risks (proxy advisory)
– Leveraging Opportunities (engagement)
– Leadership
 Public policy
– GreenPAC (http://www.greenpac.ca/)
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Silver Linings: Capital Markets
 Industry Groups (sustainability, ESG, RI, CSR, etc.)
– Funding, governance, “mission” challenges
– There is no RI/ESG organization in the “too big too fail” category
 Consolidation is necessary
– Creative risk-taking and “political will” is required
– Compromise required to forge “win-win” scenarios
– Better outcomes when starting from a position of strength (without
the baggage of ego)
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One last request…
 Whatever it is you chose to do, wherever you chose to do it, and whomever
you choose to do it with, please keep in mind the immortal words of Raymond
McGuire and Brian Smith
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Raise a little hell
If you don't like what you got, why don't you change it?
If your world is all screwed up, then rearrange it?
Raise a little hell, raise a little hell, raise a little hell!
Raise a little hell, raise a little hell, raise a little hell!
If you don't like what you see, why don't you fight it?
If you know there's something wrong why don't you right it?
Raise a little hell, raise a little hell, raise a little hell!
Raise a little hell, raise a little hell, raise a little hell!
Trooper, 1978
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Disclaimer
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written permission of Sustainalytics.
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