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Responsible Investment Strategies A case study of the cocoa industry

Responsible Investment Strategies A case study of the cocoa industry. Esther Hougee Director, Research Products, Europe 15 th May 2012. Sustainalytics. Offices in Amsterdam (HQ), Boston, Frankfurt, Madrid, Paris, Timisoara, and Toronto

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Responsible Investment Strategies A case study of the cocoa industry

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  1. ResponsibleInvestmentStrategiesA case study of the cocoaindustry Esther HougeeDirector, Research Products, Europe 15th May 2012

  2. Sustainalytics • 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

  3. Sustainalytics: What We Do Environment Social Governance Data Insights E S G • We help clients turn vast quantities of environmental, social and governance information into analysis to enable more informed investment decisions

  4. Global Trends 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

  5. Responsible investment Growth 2007 2010 2015 ($22 Trillion AUM) ($64 Trillion AUM) ($ 9 Trillion AUM) 23.2% CAGR Global RI AUM $5.0 Trillion Global RI AUM $9.3 Trillion Global RI AUM $26.5 Trillion Source: Robeco and Booz & Company. Responsible Investing: A Paradigm Shift – From Niche to Mainstream. 2009.

  6. Our clients * Selected clients

  7. Actors Financial managers Research Providers Asset owners Pension Funds Asset Managers (ESG) Data providers Fund Managers (ESG) Rating agencies Foundations SRI Indices Private Banks Retail Investors Sell side research and independent research General Public

  8. Strategies Five dominant RI strategies: • Absolute criteria (exclusions based on the product \process) • Relative criteria (relative performance) • Impact investments • Integration of ESG information • Active ownership (engagement, proxy voting, resolutions, legal proceedings) (or combination of strategies)

  9. Measuring ESG performances of companies • A rating indicates whether a company can potentially benefit of ESG issues or whether it faces significant risks • Sustainalytics has determined most important ESG issues, selected relevant indicators, and set the weights of indicators for aggregating all individual scores

  10. Company research framework • We assess company performance based on over 70-90 indicators: • Review of company reporting • Review of external sources • (Newspapers, NGOs, Publications, etc.) • Analysis by experienced analyst • Quality Management System • Company feedback is always included

  11. A case study in the cocoaindustry www.sustainalytics.com

  12. Industry characteristics 5-6 million farmers Annual demand increase by 3% 3 million tons of cocoa Global sales $74 billion Fair trade 0.1% Organic 0.5% of the world market Consumption: US 4.6, EU 7-10 (kg/y) www.sustainalytics.com

  13. The market 49% global consumption 22% global consumption Europe 1,635 Asia 280 US & Canada 845 Japan 150 Africa 25 West Africa 2,600 Asia Pacific 470 Ecuador 80 Latin America 275 75% global production 13% global production Brazil 170 Cocoa Production and Consumption (in thousands of tonnes) Main Cocoa Producers Cocoa Consumption 7% global production www.sustainalytics.com

  14. Cocoa Supply Chain www.sustainalytics.com

  15. Challenges for the farmer • Uncertainty (weather, pests) • Low cocoa price • Low productivity per acre • Child/forced labour • Weak governments www.sustainalytics.com

  16. Exposure www.sustainalytics.com

  17. Solutions for Industry • Traceability • Local capacity building programs • Cocoa trees • Socially certified cocoa www.sustainalytics.com

  18. Leaders and Laggards www.sustainalytics.com

  19. Mars Mars has pledged to certify 100% of its cocoa as sustainably produced by 2020. www.sustainalytics.com

  20. 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) www.sustainalytics.com

  21. 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 www.sustainalytics.com

  22. ESG Implications Responsible Investors www.sustainalytics.com

  23. Esther Hougee Director, Research Products, Europe Phone: +31 20 205 00 09 Email: ehougee@sustainalytics.com Website: www.sustainalytics.com Amsterdam – Toronto – Timisoara – Frankfurt – Madrid – Boston – Paris

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