revisiÓn de la rs 2011 en el mundo

8/7/2019 REVISIN DE LA RS 2011 EN EL MUNDO

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oekomCorporate ResponsibilityReview 2011

Taking stock of sustainability performance in

corporate management and capital investment


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oekom research AG 1 oekom CR Review 2011

Welcome letter........................................................................................................................................................................................................ 2Dr. Norbert Rttgen, German Federal Environment Minister

Editorial...................................................................................................................................................................................................................... 3Robert Haler, CEO oekom research AG

In a nutshell: a summary o the key fndings ..........................................................................................................................................4

Socially Responsible Investment in Asia ...................................................................................................................................................6Eiichiro Adachi, Japan Research Institute

1. The development o sustainable investment acts and fgures ............................................................................................. 9

1.1 Current market trends in various markets .................................................................................................................................... 9

1.1.1 German-speaking countries ..................................................................................................................................................... 9

1.1.2 Europe ...............................................................................................................................................................................................11

1.1.3 Sustainable investment worldwide .................................................................................................................................... 13

1.1.4 Perormance o sustainable investment.......................................................................................................................... 15

1.2 Sustainability and alternative investments...............................................................................................................................16

1.2.1 Commodities .................................................................................................................................................................................16

1.2.2 Emission permits.........................................................................................................................................................................17

1.2.3 Microfnance .................................................................................................................................................................................18

1.3 Outlook: quantity and quality........................................................................................................................................................... 192. Corporate responsibility status and trends ................................................................................................................................. 20

2.1 Basis or the analyses: the oekom Universe ............................................................................................................................ 20

2.2 Corporate responsibility: overall perormance........................................................................................................................23

2.2.1 Companies with oekom Prime Status ..............................................................................................................................24

2.2.2 The sector champions .............................................................................................................................................................25

2.2.3 Corporate responsibility in selected sectors............................................................................................................... 26

2.3 Corporate responsibility with regard to selected issue.......................................................................................................27

2.3.1 Corruption, raud and other white-collar crimes.........................................................................................................27

2.3.2 Remuneration structures and sustainability perormance....................................................................................30

2.3.3 Labour rights and human rights ......................................................................................................................................... 31

2.3.4 Management o customer data ...........................................................................................................................................36

2.3.5 Protecting the orests...............................................................................................................................................................38

2.3.6 Digging deeper: a ollow-up on the oekom Corporate Responsibility Review 2010 .................................41

2.4 Outlook: Sherpas und Scouts ..........................................................................................................................................................42

oekom inside........................................................................................................................................................................................................ 44

Annex: methodology, glossary, sources and publications ............................................................................................................45

Imprint ......................................................................................................................................................................................................................49

Table o contents


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Companies responsibility toward futuregenerations: strengthening social cohesionand exploiting new markets

The amous neoliberal economic theorist MiltonFriedman coined the phrase, The social responsibi-lity o business is to increase its proits. Who couldargue with that? But is it enough? Following theevents o the past ew years, and particularly in thelight o the global inancial and economic crisis, it isincreasingly evident that it is not enough. The public,

consumers and players on the inancial markets, areno longer merely asking how high proits are andwhat companies do with their proits, but above allhow they make their proits. They want companiesto ulil their social responsibilities. They know thatsocial responsibility is undamental to the social mar-ket economy, as the social market economy lives byvalues which it cannot itsel create. The market alonecannot create solidarity. For the ounders o the socialmarket economy, the conditions or market successlay beyond supply and demand. It was clear to them

that economic success always requires social respon-sibility. It is the glue that holds society together.

Companies are aware o this social responsibilityand are committed to ulilling their share o it espe-cially the numerous small and medium-sized amilyirms which orm the backbone o our economy. In a2006 study, 96 per cent o German companies indica-ted that they were voluntarily actively socially enga-ged, whether through monetary donations or dona-tions in kind, through oundations, through supportor their employees voluntary work or through direct

provision o services. Respondents or our out o ivecompanies surveyed said that social engagementwas an integral part o their companys ethos. Theseare impressive igures, demonstrating that compa-nies are aware o their responsibility.

The crucial actor is that they maintain their com-mitment to this responsibility, even in the ace otougher global competition. And I am certain thatthey will achieve this, as they are increasingly awarethat corporate social responsibility is also a key stra-tegic tool or ensuring their uture viability. It is linkedto new corporate sustainability strategies, which arebecoming more and more important.

This all requires investment in sustainable struc-

tures. However, it also requires, irst and oremost,investment in the new markets or eiciency-enhan-cing and resource-conserving technologies. Mostexperts agree that these markets or environmentaltechnologies will be the greatest growth driver orthe economy o the 21st century. The global marketor environmental technologies has already reacheda value o approximately 1.5 trillion euros. Accordingto estimates, in ten years time this igure will alreadyhave doubled. Germany is best placed to reap parti-cular beneits rom this growth market. Germanys

share o the environmental technologies market isthe largest in the world at 16 per cent, which is equiva-lent to 224 billion euros in terms o volume. And whatis particularly important to me is that this is wherethe jobs o the uture will be. Today, we already have1.8 million jobs in the environmental technologiesield, o which 340,000 are in the area o renewab-le energies alone. It is estimated that by 2020 therewill be around 800,000 new jobs in green servicesand approximately 500,000 in energy eiciency. Wemust take ull advantage o these opportunities or

growth. We must do everything we can to ensure thatGermany continues to build on these opportunities.Politicians will help wherever they can, and not onlyby providing start-up inancial support or environ-mental technologies and enacting laws and regula-tions. The Federal Government has also launched anational CSR strategy and made corporate respon-sibility part o its national and international actionplan. I we all pull together, we can strengthen therole o German companies as a model or the rest othe world, in terms o both social responsibility and

sustainable management or the uture. Im countingon your support!

Yours sincerely,

Welcome letter

Dr. Norbert Rttgen, German Federal Environment Minister


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2010 marked the UN International Year o Biodiversity,a act that unortunately went largely unnoticed by thegeneral public. The United Nations aim was to raiseawareness o the consequences o species extinctionand the destruction o ecosystems. The dramaticnature o the possible consequences or the economyand society is impressively demonstrated by variousstudies which were published in the run-up to theinternational biodiversity summit in Nagoya, Japan,in October 2010. The United Nations EnvironmentProgramme Finance Initiative (UNEP FI) has calcula-

ted that i the worlds 3,000 largest companies werecharged or the damage they cause to the environ-ment and to species, it would cost them more than 50per cent o their proits, or a good seven per cent otheir turnover. This sum is put at around 2.15 trillioneuros a year. In the view o experts, the summit itselhas brought substantial progress in the protection ospecies and ecosystems. Japan is obviously a goodlocation or a global environmental protection treaty,even i the latest resolutions on species protectiondo not have quite the same signiicance as the Kyoto

Protocol.Nonetheless, one species has stubbornly held its

ground - the black swan. The theory that the collapseo the property market and the resulting global inan-cial and economic crisis were not oreseeable still hasits proponents. The risk researcher Nassim NicholasTaleb introduced the term black swan event todescribe this. This reers to an event which is thoughtto be impossible (i.e. like black swans, beore theywere discovered in Australia). The economist NourielRoubini has reuted this beastly theory, pointing

to cyclical crises in the market economy. Accordingto his analysis, anyone with a clear view uninluen-ced by the pursuit o short-term proits and bonusescould have seen the crisis coming.

And just as the inancial crisis was not an uno-reseeable event, likewise climate change and spe-cies extinction are not black swan events. Scientiicstudies by the Intergovernmental Panel on ClimateChange, taken as a whole, provide an impressivedemonstration o the dynamics and the risks o cli-mate change. Even the contradictory views within theIPCCs scientiic network which became public know-ledge last year cannot alter this act. The internationalclimate change summit in Cancun in December 2010was an unexpectedly successul interim step on theway toward a post-Kyoto treaty. In South Arica in2011, the job must be completed properly.

When it comes down to it, there are no black swanevents where perceptions o social responsibility atthe corporate level are concerned. Any IT companyhaving goods produced in China and any mobilephone producer procuring rare earth elements romthe Congo can and must know that in those countriesit will have to deal with problematical working condi-tions and oten with human rights violations. And anycompany extracting crude oil at sea rom a depth oseveral thousand meters has to know the risks and beprepared or all eventualities.

This is the third oekom Corporate ResponsibilityReview we have published, and there is still no shor-tage o subject matter: the majority o companies stillall a long way short o sustainable management. Inthis review, we intend to point out shortcomings andundesirable developments which could entail risksor the companies and thus also or their investors.However, we are equally keen to highlight positiveexamples and propose approaches to solving pro-blems.

One aspect which we will look at in detail in the

Corporate Responsibility Review is the situation asregards labour rights and human rights. We will alsoocus on the spread o corruption and constraints oncompetition, the increasing importance o sustaina-bility criteria in the payment o salaries and bonuses,the way in which customer data is handled and thestate o the orests and measures or their protection.

This year we have again been assisted by a guestauthor. We extend our heartelt thanks to EiichiroAdachi rom the Japan Research Institute.

I hope you will enjoy reading this study.

Best wishes

Editorial

Robert Haler, CEO oekom research AG


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The development of sustainable investment facts and figures

Overall, sustainable capital investments continued to expand their market share and volumeduring the inancial and economic crisis. Worldwide, around eight trillion euros are investedtaking environmental, social and governance-related criteria into account, Europe aloneaccounting or ive trillion euros.

p. 9.

In the German-speaking countries, 354 mutual unds with a total volume o 34 billion euroshad been licensed or distribution by the end o 2010. The number o unds has hit a newhigh, volumes have reached pre-crisis levels.

p. 10

Mutual funds in Europe have recorded new highs in terms o numbers as well as volume. 897unds with a volume o 75.3 billion euros were licensed or distribution, as at 30 June 2010.France is by ar the largest market or mutual unds.

p. 11

As many institutional investors reduced the proportion of equities in their portfolios dueto the inancial and economic crisis in avour o money market investments and bonds, theinterest in actoring ESG criteria into fixed-interest investments has risen markedly overthe past two years. Additionally, more and more private and institutional investors are alsotaking social and environmental criteria into account when purchasing corporate or govern-ment bonds.

p. 11

Overall, according to a study by the European industry association Eurosif, at the end of2009, sustainable investments in Europe had grown by approximately 87 per cent rom the2007 year-end igure, to ive trillion euros. According to Eurosis calculations, this bringstheir share o the market to around 47 per cent. The bulk o this capital, however, is managedaccording to rather sot sustainability criteria.

p. 12

The principal factor behind the strong growth in the market is increased engagement on thepart oinstitutional investors. One sign o the continued growth in interest by pension unds,oundations and other institutional investors is the act that the number o signatories tothe UN Principles or Responsible Investment (UN PRI) has continued to rise. Germany is stillunderrepresented in terms o signatories.

p. 15

An analysis carried out by the Centre for European Economic Research for the German envi-ronmental oundation Deutsche Bundesstitung Umwelt (DBU) shows that during the crisis,sustainable investments showed no disadvantages in terms o perormance compared withconventional investments. One interesting detail to emerge was that the more strictly thesustainability criteria were deined, the better the performance o the sustainable invest-ment products.

p. 15

In the light of global anxiety about the credit crunch and inflation, sustainability-orientedinvestors are increasingly ocussing not only on bonds, but also on alternative investments.While some areas here, such as microinance and orestry, have long been assessed againstsustainability criteria, the debate about whether and how to invest sustainably in other

areas, in particular in commodities, is only just beginning.

p. 16.

Looking at the future development of sustainable investment, oekom researchs view is that,under the motto quality and quantity, any urther expansion o volume and market share mustbe accompanied by an improvement in the quality o the various SRI investment strategies.In particular, what are reerred to as broad SRI approaches, including engagement andintegration, must be systematically developed in order to achieve the core objective o sustai-nable investment: getting companies to change course toward sustainable management.

p. 19

In a nutshell: a summary o the key fndings


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Corporate Responsibility status and trends

oekom research regularly evaluates approximately 3,100 companies rom more than 45 indu-stries and over 50 countries. We cover international indexes such as the MSCI World, MSCIEmerging Markets and Stoxx 600 as well as important national indexes like the Austrian ATX,

the Belgian BEL20, the French CAC40, the German DAX amily and the Swiss SMI.

p. 20

As at 31 December 2010, a total of 550 out of the 3,100 companies, i.e. approximately one-sixth, ulilled the requirements or being awarded oekom Prime Status. A urther quarter oall companies evaluated did at least have the basis or a sustainable management systemin place, but more than hal the 3,100 companies continue to perorm poorly in terms osustainability. There are some companies in the emerging markets which need not earcomparison with companies rom industrialised countries in terms o CSR.

p. 25

On a scale rom 0 (very low sustainability perormance) to 100 (very high sustainabilityperormance), the best performances were rom computer manuacturers, with an average

score o 47.8 per cent, ollowed by producers o household products (45.6 per cent) and carmanuacturers (42.7 per cent).

p. 26

Bribery and corruption are still common at the corporate level in some sectors. As in the pre-vious year, the ignominious top spots here are occupied by the construction industry (15.3per cent o companies in the oekom rating universe), the aviation and armaments industryand manuacturers o consumer electronics and communications technologies as well as theleisure industry (each with 12.5 per cent).

p. 27.

The situation as regards antitrust infringements is even worse. Here, manuacturers o con-sumer electronics have set a sorry record: three-quarters o companies in this sector canbe shown to have been involved in violations o competition regulations. Similarly, among

producers o household products, chemicals and building materials, more than hal thecompanies have been actively involved in such restraints on competition.

p. 29

Increasing numbers of companies are altering their incentive structures to ocus on the longterm and on sustainability. These changes include spreading the payment o variable salarycomponents over several years and linking bonuses to the achievement o ESG targets.Sustainability ratings are oten used here as a yardstick or measuring target achievement.

p. 30.

Violations oflabour rights and human rights are still common in some sectors. One in twomanuacturers o consumer electronics and computers is in breach o recognised employ-ment standards, either directly or through their supply chains. In the textiles sector, despite

years o campaigning, more than one in three companies are still aected. The companiesmost heavily involved in human rights violations are those in the mining industry. oekomresearchs world map of human rights violations gives an overview o the relevant labourrights and human rights inringements.

p. 31.

Despite numerous warnings, customers and members of the public are still often careless inthe way they manage their data. At the same time, i customers want to use a companys ser-vices, they requently have to provide the company with extensive data. Companies thereorehave a particular responsibility to treat customer data sensitively. There are some positiveexamples o this in both the sectors examined retail as well as internet & sotware butgenerally, companies commitment to data protection leaves much to be desired.

p. 36.

The worlds forested area contracts by an average of over 15,000 hectares every day.Sustainable forest management as well as the use o legal timber are thereore o greatimportance. Some companies in both the media and construction industries are now usingmainly or exclusively FSC-certiied timber. However, these positive examples are counteredby numerous companies which demonstrate no or very little commitment to the protectiono orests.

p. 38.


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For many Asian countries, the concept o social-ly responsible investment (SRI), though originallyimported rom Western countries, is now here to stay.In this article, a tour around the region reveals manyo the latest SRI developments in Asia.

Japan

Japan leads the way in Asia with regard to SRI. Theirst environmentally-screened mutual und was laun-

ched here twelve years ago, in 1999. The current volu-me o assets in the SRI market, including both retailproducts and institutional products, stands at morethan 7 billion US-Dollar. The Japanese SRI market hascharacteristically depended mainly on retail productsrather than on institutional products, but in recenttimes, the irst signs o a shit rom retail to institu-tional products have become evident.

On 16th December 2010, RENGO, the JapaneseTrade Union Conederation, which has 6.75 millionmembers and is a major supporter o the incumbent

ruling party, the Democratic Party o Japan, releaseda set o guidelines which ocuses on ESG investment,in particular on employment aspects.

It exerts a strong inluence on a number o publicand corporate pension unds through its unionmembers and in recent years has been advocatinga responsible investment. In 2008, ater the glo-bal inancial crisis, it published a paper entitled ARENGO Perspective on the Corporate Legal Frameworkand Investment Fund Regulation. RENGOs aim wasto strengthen the inluence o the trade unions on

the management o workers capital (reserves con-tributed by workers), such as pension unds, and toprevent investment in unds having adverse eectson employment and society as a whole. To this end,it ormulated a set o guidelines based on the UnitedNations Principles or Responsible Investment. As atrades union body, it previously paid little attentionto the way its capital was managed, but now it is con-cerned that its money could be used or violationso workers rights and might not be used to investin green innovation and technology to regenerategrowth.

Japanese public pension unds, such as theNational Public Service Personnel Pension Fund andthe Local Government Oicials Pension Fund, havebeen paying greater attention to responsible invest-ment in recent times. And it is also understood thatdiscussions are taking place within the GovernmentPension Fund o Japan, the worlds largest pensi-

on plan with assets o 1.3 trillion US dollars, aboutresponsible investment issues.

Korea

Korea ranks second in Asia in terms o SRI. Accordingto the Korea Sustainability Investment Forum (Kosi),the total amount invested in Korean-domiciled SRIunds has risen to 3.3 billion US dollars. The NationalPension Service is a major supporter o SRI, accoun-

ting or 1.1 billion US dollars o these invested assets.On September 14, 2009, the Korea Exchange (KRX)

launched its Socially Responsible Investment Index(SRI Index), composed o outstanding companiesthat demonstrate excellence in corporate sustainabi-lity assessments o their perormance, including theirenvironmental, social and corporate governance romthe extra-inancial perspective. The SRI Index provi-ded by KRX is a market capitalization-weighted (ree-loat adjusted) index comprising 70 constituent com-panies demonstrating outstanding SRI perormance,

as o January 2, 2009.

China

For the Chinese capital market, SRI is a completelynew phenomenon. There are still only a ew mutu-al unds which take ESG criteria into account wheninvesting in companies. However, the term corpo-rate social responsibility has become widespread,promoted by the central government, which has

been keen to build a harmonious society, avoidingthe distortions produced by high levels o economicgrowth.

The Shanghai and Shenzhen stock exchangeshave played an important role with regard to SRI.Firstly, in 2006, the Shenzhen stock exchange issu-ed its CSR Guidelines or Listed Companies, whichcalled upon listed companies to assume responsibili-ty or social development, protect the natural environ-ment and other resources and commit to advancingthe interests o shareholders, creditors, employees,customers, consumers and others involved in theirbusinesses. These guidelines also urged companiesto evaluate their perormance regularly and to issuevoluntary disclosures about the results.

In May 2008, the Shanghai Exchange issu-ed a Notice on Strengthening Listed CompaniesAssumption o Social Responsibility (Shanghai CSRNotice) and the Guidelines on Listed Companies

Socially Responsible Investment in AsiaEiichiro Adachi, Japan Research Institute


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Environmental Inormation Disclosure (ShanghaiEnvironmental Disclosure Guidelines). According tothese documents, Shanghai Exchange-listed compa-nies should ulil their social responsibilities, addressthe interests o their stakeholders and commit them-

selves to promoting sustainable economic and socialdevelopment.

In August 2009, the Shanghai Exchange and ChinaSecurities Index Company Limited oicially launchedthe SSE Social Responsibility Index. The constituentcomponents o the index, the base day o which isJune 30, 2009, are 100 SSE-listed stocks exhibitinggood perormance in the area o social responsibi-lity.

The CSI ECPI China ESG 40 Equity Index, launchedin September 2010 and comprising 40 companies in

mainland China, is a collaboration between ChineseSecurities Index Company, an index provider backedby the Shanghai and Shenzhen stock exchanges, andECPI, a European ESG research and indices compa-ny.

Under these circumstances, a boom in SRI ispredicted in China in the near uture. And this willnot be restricted to retail mutual unds. A statementby an oicial rom the National Council or SocialSecurity Fund indicated that this large-scale pensionund might consider SRI or its uture investments. In

September 2007, he said that the social security undwould promote a style o investment based on long-term value, taking corporate governance and sociallyresponsible investment into account.

Malaysia

Malaysia is another country where many investors arepaying attention to ESG issues. Bursa Malaysia, thestock exchange in Malaysia, began publishing CSRguidance or companies in September 2006. Sincethat time, Bursa Malaysia has been closely moni-toring and evaluating the quality o CSR reporting inMalaysia.

The exchange has also worked closely withMalaysias regulators and policy-makers to initiatea careully-paced transition toward mandatory CSRreporting by listed companies. Malaysian companiesare now required to include in their annual reportsa description o their CSR activities and practi-ces or, i there are none, a statement to this eect.This requirement is also incorporated into Bursa

Malaysias listing rules.

Singapore

As a member o the Commonwealth o Nations,Singapore has a comparatively long history o invol-

vement in SRI. Furthermore, in recent times, theSingapore Exchange (SGX) has recognized that moreand more investors are paying attention to envi-ronmental, social and governance (ESG) issues andon August 28, 2010, it released a Proposed Policy

Statement and Guide to Sustainability Reporting orListed Companies. SGXs policy proposal was underpublic review until October 29, 2010. Though the juryis still out on this, SGX might well become the irstsecurities exchange in Asia to require listed compa-nies to introduce sustainability reporting.

Indonesia

On June 8, 2009, Indonesia Stock Exchange (IDX), in

collaboration with Yayasan Keanekaragaman HayatiIndonesia (the Indonesian Biodiversity Foundation KEHATI), launched a new index, the SRI-KEHATI Index,based on sustainable and responsible investment(SRI) practices. The new index is expected to enhancethe exposure o listed companies that have met theirenvironmental and social responsibilities as well asshowing good corporate governance. The SRI-KEHATIIndex consists o 25 stocks.

Thailand

The Stock Exchange o Thailand (SET) has taken a di-erent approach to raising CSR awareness and stan-dards. In 2007, SET established the Corporate SocialResponsibility Institute (CSRI), which encourageslisted companies to become more involved with ESGissues and to promote CSR concepts and practices.SET organises annual CSR awards to reward listedcompanies or exceptional contributions to society.Substantive measures have also been taken to raisecorporate governance standards.

Hong Kong

On July 7, 2010, Hang Seng Indexes Company Limitedannounced the launch o the Hang Seng CorporateSustainability Index Series, the irst index seriesto ocus exclusively on Hong Kong and the Chinesemainland.

The Hang Seng Corporate Sustainability Indexand the Hang Seng (China A) Corporate Sustainability

Index include 30 Hong-Kong-listed and 15 mainland-listed corporate sustainability leaders, respective-ly. The Hang Seng (Mainland and HK) CorporateSustainability Index is a cross-market index combi-ning the constituent stocks o the other two indexes,in which the number o constituent companies repre-sented will vary but at launch will be 39.


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Taiwan

Finally, in Taiwan, Fubon Financial Holding beganusing corporate social responsibility as an invest-ment standard or unds in March 2009. Similarly,

Taiwans labour retirement pension und has inte-grated corporate social responsibility and ethics intothe operational principles o its und investments.

In February 2010, the Taiwan Stock Exchange(TSE) and GreTai Securities Market (GTSM) announ-ced CSR Guidelines or listed companies as sotlaw to encourage companies to make orward pro-gress in this area. The Guidelines, drated by BCSD-Taiwan and CSR Taiwan, are regarded as a milestonein the linking o CSR to the capital market. They arealso seen as the new driving orce in both CSR per-

ormance disclosure and responsible investment,providing guidance to assist listed companies inimplementing CSR in the environmental, social andcorporate governance (ESG) ield.

Without doubt, Asia remains the most economi-cally dynamic region on earth. However, this does notnecessarily mean that Asia ocuses solely on deve-lopment through economic growth. Asian compa-nies are subject to constant external pressure, bothdomestically and internationally. Choosing the patho sustainable development will automatically lead tothe emergence o SRI in Asia. This will also generateopportunities o great beneit to global investors.

Eiichiro Adachi is the head o the ESG research centre at the Japan Research Institute Limited (JRI) inTokio, which is a wholly-owned subsidiary o Sumitomo Mitsui Financial Group, Inc. He received hisbachelors degree in economics rom Hitotsubashi University in Japan in 1986. He is currently engagedin the CSR screening o listed Japanese companies or Sumitomo Trust and Banking Co. Ltd, STB AssetManagement Co. Ltd, Daiwa Asset Management Co. Ltd and others. He is also the project manager orresearch studies on environmental fnance and CSR commissioned by a number o ministries. He is theauthor o The Introduction to Corporate Environmental Management (2009, Nikkei Publishing Inc.),Social Finance (2006, Kinzai) and the co-author o several books, such as Corporate Social Respon-

sibility Management and Socially Responsible Investment (2004, Kinzai). He has been a working group member o theCommittee or the Promotion o CSR Management at KEIZAI DOYUKAI (Japan Association o Corporate Executives), a membero the CSR study group set up by the Ministry o Health, Labour and Welare, and, until May 2009, was one o the expertsin the Japanese delegation to the ISO / Social Responsibility Standards (ISO26000) Working Group. JRIs research coversapproximately 2,000 companies in 33 sectors o the economy in Japan. JRI currently has 7 ESG analysts, including 3 analystscovering Asia. JRI plans to expand its research coverage o Asian countries.


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According to a study by Eurosi, the Europeanindustry association or sustainable invest-ment, the volume o investments in Europe

that took environmental, social and governance-rela-ted (ESG) criteria into consideration stood at ive trilli-on euros at the 2009 year-end. During the crisis years2008 and 2009, the volume thus rose by 87 per cent.New highs were also reached in terms o numbers andvolumes o sustainable mutual unds in Europe. Here,

the ocus has increasingly been on bonds, which inthe public debate about sustainable investment hadlong been overshadowed by shares. At the same time,there has been a tangible increase in interest amongsustainable investors in alternative investments, suchas orestry and commodities. These and other intere-sting trends in sustainable investment will be descri-bed in the ollowing pages.

1.1 Current market trends invarious markets

1.1.1 German-speaking countries

Interest in sustainable investments has continuedto grow among both private and institutional inve-stors, as is shown by a range o studies publishedin 2010. For example, 32 per cent o the 500 inan-

cial decision-makers in German households whowere surveyed by Union Investment, a German assetmanagement irm, ind sustainable investments anattractive option. According to Union Investment,sustainable investments resonate most with younginvestors aged between 20 and 29. A study byDZ Bank reports that the proportion o private investorswho are already investing their money according toenvironmental sustainability criteria is up rom 22 per

cent in 2009 to 29 per cent in 2010. 1,100 investorsin Germany took part in the survey. In a spring 2010Union Investment study o 242 major German inves-tors, such as insurance companies, pension unds

and church investors, with combined portolios worth920 billion euros, a good two-thirds (68 per cent) saidthey had investments in environmentally, socially orethically oriented investment products. The previousyear, the igure had been 64 per cent. On a ive-yearhorizon, the majority o large investors (55 per cent)anticipate positive trends in the market or sustainab-le investment products.

1. The development o sustainable investment acts and fgures

Sustainable mutual unds in Germany

The growing interest among private investors evi-dent rom the surveys cited above is also relectedin the trends in the number and volume o sustai-nable mutual unds. According to a study by thenews service ECOreporter, the volume o mutualunds licensed or distribution in Germany reacheda record high in 2010. As at 31 December 2010, atotal o 32.42 billion euros were invested in suchunds. One year previously, the volume had stood

at just 30.08 billion euros. Investors can now choo-se between 304 unds licensed in Germany in theareas o sustainability, ethics and renewable ener-gies. At the end o 2009, there had been only 279

such unds. The unds include share unds, bondunds, mixed and umbrella unds, microinance undsand exchange-traded unds (ETFs).

O these, share unds perormed best, registeringannual growth o 38.2 per cent. The ECOreporter sur-vey documents a urther 161 sustainable share undswhich perormed well in 2010. Only six o the shareunds lost value, and there, the loss was at most o2.3 per cent. The top-perorming sustainable mixed

und showed growth o 26.3 per cent, and the top-perorming sustainable bond und grew by 18.5 percent. The poorest perormer was a renewable energyund which lost 29.4 per cent.


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1.1.2 Europe

Sustainable mutual unds

Sustainable mutual unds increased in number as wellas volume in Europe as a whole. According to datafrom Vigeo Italia, 897 such funds were licensed fordistribution as at 30 June 2010, and their total volumestood at 75.3 billion euros. This corresponds to growtho over 40 per cent compared to end o June 2009.

These igures represent new highs in terms oboth the number and the volume o sustainab-le mutual unds. Belgium (227), France (215), theUnited Kingdom (98) and Switzerland (91) togetheraccount or 72 per cent o all unds included in thestudy. Compared to the previous year, France sho-wed the greatest growth in terms o volume, with

capital invested in unds increasing by 92 per centrepresenting 26.5 billion euros. This makes France,ahead o the UK, by ar the largest market or sustai-nable mutual unds in Europe.

The proportion o assets invested in bond andmoney-market unds has continued to grow, despitethe recovery on the stock markets in 2010. The pro-portion o sustainable bond and money-market undsstood at 38 per cent in 2010, whereas in 2009 it hadbeen 33 per cent. A little over hal the capital (51 percent) was invested in share unds, while mixed undscontinued to lose ground. Bond and money-market

unds had the highest average volumes, at 211 millioneuros, while share unds had an average volume o83 million euros and mixed unds 63 million euros.

Volume of sustainable mutual funds in Europe; as of 2010-06-30; in bn.euros; source: Vigeo Italia (2010)

SRI mutual funds licensed in Europe, distribution in asset classes; as of2010-06-30; in %; source: Vigeo Italia (2010)

Quality label? Go-ahead!

In 2010, the debate about whether there should be appropriate labelling systems to assist private investors intheir search or suitable sustainability unds was reignited due to the growing numbers o this type o product.Three initiatives, albeit very dierent ones, already exist - Eurosis transparency logo, the Austrian eco-labeland the French SRI organisation Novethics SRI label. Eurosis logo is awarded to unds which meet certainrequirements with regard to the transparency o the investment process and the criteria applied. However, itis still up to the individual investor to evaluate the content o the concept. The Novethic logo goes one stepurther as it also speciies requirements or the unds in terms o content. Funds must ulil our criteria in orderto gain the award: consideration o ESG actors in the investment process, extra-inancial reporting, trans-parency regarding the SRI investment strategy and ull disclosure o all portolio holdings. The logo is currentlyawarded only to unds licensed in France. Funds which bear the Austrian eco-label must meet transparencyand quality criteria and demonstrate that they apply certain positive and exclusionary criteria.

oekom research supports the development o labels or sustainable investment products. The more variedand heterogeneous the range o products are and the more investors, new in matters related to the issue osustainability, are interested, the greater the need or guidance. In this context, a logo should transcend meretransparency criteria and should also give investors an idea o the quality o the product in terms o content.The main emphasis here should be on giving investors sound inormation on the scope and strictness o thesustainability criteria used, as well as on the quality o the research processes underlying them. The inal deci-sion on whether a product matches their own ideas about sustainability cannot be taken away rom investors.


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By volume, the use o exclusionary crite-ria is the second most popular and acti-ve engagement the third most popularSRI investment strategy, while the best-in-class approach achieves a relativelymodest three per cent market share.

There are, however, interesting natio-nal dierences with regard to the distribu-tion o core and broad SRI strategies. Inthe German-speaking countries, the coreapproaches dominate, with market shareso around 95 per cent (DE) and 100 percent (AT, CH) respectively, while in the UK,Italy, France and Spain, or example, broadapproaches make up over 90 per cent othe market.

The overall market orsustainable investment in Europe

There was great interest in the publication o the datathat Eurosi collects every two years on the market as

a whole. People were eager to see how sustainableinvestment had ared during the crisis years 2008and 2009. When the igures were published, on 13October 2010, it became clear that it had ared extre-mely well.

Eurosi recorded a rise o 87 per cent comparedwith the end o 2007 or the 2009 year-end. At thatpoint in time, a total o ive trillion euroswere invested taking ESG criteria intoaccount.

Taking the data rom the Eurosi study

as a basis, the market share o sustainableinvestments stood at around 47 per cent,up rom approximately 17 per cent at theend o 2007.

The study dierentiates between astringent (Core SRI) and a basic (BroadSRI) approach to sustainability. Detailedanalysis shows that approximately three-quarters o the sustainable investmentscan be viewed as ollowing a broad SRIapproach, with the lions share o these

ollowing an integration strategy. Thisinvolves actoring ESG criteria into a con-ventional inancial analysis.

The study gives no inormation about the type andscope o the relevant criteria used here. However, in

oekom researchs experience, the range extends romtaking individual criteria, e.g. on climate change, intoaccount on an ad hoc basis at one extreme to thesystematic integration o entire lists o ESG criteriaat the other. This investment strategy alone accountsor more than hal (56.6 per cent) o all sustainablecapital investments in Europe.

Volume of capital invested according to sustainability criteria in Europe; as of 31.12.; in bn.euros; source: Eurosif (2010)

SRI investment approaches; as of 2009-12-31; in bn. euros; source: Eurosif (2010)

The quality and quantity outlook (section 1.3) also looks at how the results o the Eurosi study can be interpreted.


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Novethic: different ESG strategies within Europe

69 per cent o European asset owners integrate ESG criteria into the management o their assets. The motivesas well as the methods employed however vary widely between individual countries. This is one o the indings

o the recent study ESG Perceptions and Integration Practices conducted by the French SRI organisationNovethic, which surveyed 251 asset owners (banks, insurance companies, pension unds, trusts and publicinancial institutions) in nine European countries.

For 59 per cent o French and 68 per cent o German asset owners, the prime motivation or taking ESG criteriainto account is to make a contribution bringing about a more sustainable development model. However, onlya minority o Danish and British investors (21 per cent and 17 per cent respectively) share this view. Protectingones own reputation is the most important incentive in Finland and Denmark (over 40 per cent in each case)whereas in France (11 per cent) this motive is less o a concern and in the UK was not even mentioned by inve-stors. The management o long-term risks is cited as a motive by one-third o French and Dutch investors, butewer than 15 per cent o German, Spanish and Finnish investors see it as playing a role.

The practices thtat are applied dier widely rom country to country. The screening o ESG criteria is by arthe most important approach in France (81 per cent), while shareholder engagement is avoured in the UK. InDenmark, the most avoured approaches are engagement and norm-based exclusions (more than 40 per centeach). In Germany, ESG screening is avoured, although it is closely ollowed by other approaches.

1.1.3 Sustainable investment worldwide

Outside Europe, growth in sustainable investments

has also continued, as can be seen rom some o thelatest market studies:

Source: www.socialinvest.org

US

According to the Social Investment Forum (SIF)s Report on Socially Responsible InvestingTrends in the United States, the sustainable investment market in the US has now grown to3.07 trillion US dollars. This represents an increase o 13 per cent on the 2007 level. With 2.3trillion US dollars in assets invested according to SRI strategies, institutional investors domi-nate the SRI market. There are a total o 250 sustainable mutual unds, with an investmentvolume o 316 billion US dollars.

Australia

As the Responsible Investment 2010 report by the Responsible Investment AssociationAustralasia (RIAA) shows, the sustainable investment market in Australia has also grown. TheCore SRI segment o the market, which applies strict SRI criteria, has grown by 13 per cent,rom 15.4 billion US dollars in 2009 to 17.7 billion US dollars. The more wide-ranging Broad

SRI approach (integration o ESG criteria, corporate engagement, shareholder activism) caneven point to a rise o 25 per cent, bringing it up to 72.6 billion US dollars.

Source: www.responsibleinvestment.org


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Emerging Markets

There is currently no up-to-date and comprehensive

market analysis available or emerging markets (ex-Asia). However, it is noticeable that the number osustainability indexes in these countries has risenmarkedly. Among such indexes the ollowing havealready been launched:

Brazil: ndice de Sustentabilidade Empresarial(ISE)

Mexico: Bolsa Mexicana de Valores (BMV)Sustainability Index

Turkey: Istanbul Stock Exchange Sustainability

Index (ISESI)

The growing number o sustainability indexes can

be interpreted as proo o increasing interest in thisasset class on the part o investors. At the same time,the emergence o sustainability indexes and morestringent listing requirements by the stock exchangesmean that companies in these countries must makegreater eorts to address the challenges o sustai-nable company management. Nowadays, pioneeringsustainability-oriented companies rom the emergingmarkets can already hold their own against the lea-ding companies in the industrialised nations (seesection 2.2.1).

Global

Based on the studies mentioned above, the globalvolume o sustainable investments totals approxi-mately eight billion euros. Over 62 per cent o thissum is invested in Europe, while the US is the worldssecond-largest SRI market. Asia measured againstits economic perormance still has a lot o catching

up to do in this area.When interpreting the data, it should be noted thatdeinitions and interpretations o which capitalinvestments are counted as sustainable investmentsvary between the individual studies and surveys. Inlooking at the integration approach, the Eurosistudy cited here has selected a particularly broadapproach. In oekom researchs view, transerring thisapproach to other markets would result in total volu-

mes o sustainable capital investment signiicantlyabove the just under eight billion euros calculatedhere.

Region As of Volume

EU 2009 5,000 bn.

US 2010 2,310 bn.

Canada 2008 386 bn.

Australia 2010 68 bn.

Asia 2007 21 bn.

Global ca. 7,785 bn.

Volume of capital invested according to sustainability criteria in differentregions; in euros; sources: ASrIA, Bank Vontobel, Eurosif, Japan ResearchInstitute, Social Investment Forum, Social Investment Organisation,Responsible Investment Association Australasia

Asia

The guest contribution by Eiichiro Adachi rom the Japan Research Institute (see page 6) pro-vides a comprehensive picture o developments in Asia. In its study Sustainable Investingin Asia Uncovering Opportunities and Risks, Vontobel bank anticipates strong growth insustainable investments in Asia (ex-Japan) and considers it possible that volumes will multi-ply, rom their current level o 20 billion US dollars to as much as 4,000 billion US dollars by2015.

Source: Bankhaus Vontobel


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1.1.4 Performance ofsustainable investment

The competitiveness o sustainable investments interms o yield and risk is still questioned by some and that despite the act that there are now a consi-derable number o studies and statistical analysesdemonstrating the competitiveness o sustainableinvestments. The key message o these studies issummed up by Michael Dittrich o the German envi-ronmental oundation Deutsche BundesstitungUmwelt (DBU), in his summary o an analysis carriedout or the DBU in 2010 by the Centre or EuropeanEconomic Research (Zentrum r EuropischeWirtschatsorschung, ZEW): There is really no lon-ger any reason not to address sustainability issueswhen making capital investments. Not-or-proitorganisations can thus accommodate their charitableaims when making investments without that meaningthat they will achieve lower yields.

The ZEW study shows that even during the inancial

crisis rom 2007 to 2009, sustainable investmentsacross the market achieved results no worse thanthose o conventional investments. One interestingdetail to emerge was that the stricter the sustaina-bility criteria applied when selecting securities, thebetter the perormance o the investment product.

This view is relected, or example, in the develop-ment o the Global Challenges Index, which speciiesparticularly stringent requirements or the companies

listed.

Record number of signatories to the UN Principles for Responsible Investment

The number o signatories to the UN Principles or Responsible Investment (PRI) has grown by over 30 percent in the last year a sign that institutional investors are increasingly aware o the importance o actoring

ESG issues into their investment decision-making. Since July 2009, 268 new signatories have pledged them-selves to support the UN PRI. This brings the total number to over 800, with combined investment volumesstanding at 22 trillion US dollars, which equates to over ten per cent o the estimated volume o the globalcapital market.

The signatories include institutional investors rom 45 countries. They commit, among other things, to takeESG criteria into account in their investment decisions and to work together to disseminate awareness o thePrinciples.

Example: Global Challenges Index

On its third birthday, at the beginning oSeptember 2010, the Global ChallengesIndex (GCX) was able to announce positi-ve results overall. Although or preciselybecause the securities are included in theindex purely on the basis o very strict socialand environmental criteria, since its launchthe GCX has perormed better than compa-

rable conventional share indexes. In 2010, itagain outperormed other indexes includingthe MSCI World. (www.gc-index.com)

Indeed, the greater the proportion o sustain-able securities selected, the better the compara-tive results.

Dr. Michael Schrder, Centre or European Economic Research

Performance of the GCX (dark blue) vs. MSCI World (light blue), 2010-01-01 to 2010-12-31;source: www.comdirect.de


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1.2 Sustainability andalternative investments

In the light o global anxiety about the credit crunchand inlation, sustainability-oriented investors areocussing increasingly on bonds and also payinggreater attention to alternative investments. Whilesome areas, such as microinance and orestry, have

long been assessed against sustainability criteria,the debate about whether and how to invest sustai-nably in other areas, in particular in commodities, isonly beginning.

1.2.1 Commodities

Over the past year, investors interest in investmentsin commodities has increased signiicantly, not leastdue to the gold boom the gold price attained an

historic high in autumn 2010, at over 1,420 US dollarsa troy ounce. Sustainability-oriented investors are alsolooking more closely at the question o whether it ispossible to invest in commodities while taking socialand environmental criteria into account. Whereasit is possible to reer to sustainability ratings whenmaking decisions about buying shares in commodi-ty companies, the situation as regards investmentswhich relate directly to commodities is more complex.

In oekom researchs view, a undamental distinc-tion must be made here between two aspects: irstly,

the social and environmental quality o the commo-dities to be invested in, and secondly the impact ospeculation on trends in commodity prices, in parti-cular on the level and volatility o prices.

The social and environmental quality of the com-modities is determined here by the conditions underwhich the commodities are cultivated or extractedand processed. These depend irstly on the environ-mental and social standards prevailing in the countrywhere the commodity is obtained and secondly onthe quality o the sustainability management systemo the company obtaining the commodity. Standardsor the cultivation and/or extraction o commoditiesare o particular signiicance here.

I the origin and producers o commodities areknown, such aspects can be actored into investmentdecisions. It is then possible to invest selectively, onthe basis o specialised country/company ratings, incommodities which are extracted or produced underadequate social and environmental conditions. Inthe case o so-called standardised products suchas cocoa or oil, where tracing o production directlyto individual producers is not yet possible, it will be

necessary to develop urther the kind o traceabilityconcepts that are ound in the timber sector or in theKimberley Process or diamonds. In oekom researchsview, sustainability-oriented investors should alsoconsider very careully whether or not to invest incommodities whose cultivation and/or extractionis known to be linked to severe social and environ-mental problems. As an alternative to abstaining

completing rom this type o investment, it is possib-le to adopt a policy o engagement where commo-dity investments are concerned, in order to exert a

positive inluence on the conditions under which thecommodity is obtained. Such engagement can be tar-geted at both companies and countries.

The signiicance o this second aspect, specula-tion in commodities, lies in its effect on commodityprices (level and volatility). Prices which are not inline with the market and misleading market signalsassociated with these can lead to negative social andenvironmental impacts or producers and consumersalike. These include, or example, the switching oagricultural production based on a perceived rise

in demand or certain products (or example energycrops), the opening o new mines, with all the asso-ciated social and environmental impacts, and thethreat to the ood supply o poorer sections o thepopulation due to rising ood prices. In the view ooekom research, speculative commodity investmentswhich give rise to or exacerbate negative social andenvironmental impacts do not constitute sustainableinvestments.

For investments in commodities, here are the

essential options:

purchasing shares in companies active inthe commodities sector, e.g. in the areas ometals and mining, oil & gas and agriculture.

purchasing commodity funds and other com-modity derivatives, e.g. certiicates, uturesand options as well as ETFs on commodityindexes.

purchasing physical commodities which arethen stored by the investor. This practice,

common in the case o precious metals, isalso increasingly being applied by commodi-ty investors to other commodities. The mostamous example here was the purchase andstorage in 2010 o a large part o the globalcocoa harvest by the hedge-und investorAnthony Choc Finger Ward.


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Food-based derivatives which do not relect theunderlying real economy i.e. used or the hedgingo buying and selling prices by armers or ood pro-ducers should be viewed in a particularly criticallight, as the direct and indirect impacts on producers

and consumers, especially in emerging and develo-ping economies, can scarcely be ully anticipated orevaluated.

The outlook or inancial investments in commo-dities is a Fair Trade2 situation, with clear socialand environmental rules governing the extraction o,trade in, and speculation o relevant commodities.Much research still needs to be done here with regardto analysing the social and environmental impacts o

commodity investments and developing methods orrating the ESG quality o such investments.

1.2.2 Emission permits

Carbon credit unds or CO2 unds were originallyintended to cover the demand or emission permitsrom countries and companies with reduction obliga-tions. The und operates by purchasing emission per-mits, principally rom Clean Development Mechanism(CDM) and Joint Implementation (JI) projects, withthe capital it has amassed and passing these on toinvestors as required. This type o und is attractiveboth to countries and to companies with emissions

trading obligations, which use the certiicates to uliltheir obligations under the Kyoto Protocol or the EUEmissions Trading System (EU ETS).

In parallel with this, carbon credit unds have alsoestablished themselves as inancial assets in recentyears. Here, against the background o a shortage oemission permits, investors speculate on rising CO2prices and price dierentials in international emissi-ons trading.

For example, they purchase emission permitsrom the project developers o CDM projects and

sell them to companies and countries with reduc-tion obligations, which can then use them under theEU ETS or similar cap & trade systems. The generalrule here is that the earlier a purchase agreementis reached regarding the development o CDM or JI

projects, the lower the purchase price or certiicatesrom such projects are. Such agreements are there-ore sometimes reached even beore the projectshave been oicially approved by the relevant bodiesat the United Nations Framework on Climate Change(UNFCCC). There are, however, risks inherent in thisprocedure, or example that the project may be rejec-ted by the UNFCCC.

While there are, as yet, very ew relevant invest-

ment products available to private investors, say inthe orm o Delta 1 certiicates (investment certiicatesthat are directly linked to an underlying asset) on EUAutures or limited-partnership shares in primary mar-ket unds, a number o vehicles have already been setup or institutional investors. These are dominated byunds, the object o whose business is the procure-ment and distribution o emission permits or com-panies subject to emissions trading obligations. Fora long time, the comparatively low correlation bet-ween CO2 investments and traditional investments

was seen as an advantage. However, recent experi-ence has shown that there is a clear correlation withthe general macro-economic conditions which alsoinluence movements in the share and bond markets.

Particularly problematic are investments in phy-sical commodities, where the investor intereres

directly with the price mechanism, hoarding scarceresources and thus removing them rom the econo-my. Sustainability-oriented investors should cam-paign or a breakthrough in global standards andtraceability initiatives or the production o com-modities, with the aim o ensuring that these willin uture be applied to commodity investments.

Ivo Knoepfel, Managing Director onValues Ltd.; author of thestudy Responsible investment in commodities (2011)

oe-quoteThe large numbers o emissions permits issued within the EU ETS have led to extremely lowCO2 prices and thus also given out misleading signals to the market. It is thereore essentialthat the EU takes positive action to remedy existing shortcomings as quickly as possible in

order or signiicant emissions reductions to be achieved in the third trading period, rom2013 onward.

Kristina Rter, Research Director at oekom research

The oekom Position Paper Emissions Trading provides inormation about the background to the European and inter-national trade in emissions certiicates and the way this unctions.


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1.2.3 Microfinance

In autumn 2010, there was a whole series o horriyingreports about suicides in India which were linked tothe overindebtedness o microborrowers and aggres-

sive debt collection methods by the microinanceinstitutions (MFIs). Overall, it is clear that microi-nancing can no longer be rated positively per se, andthat questions about the business models o MFIsand the speciic social and environmental eects omicroinancing in the target countries are becomingincreasingly important. Nonetheless, there is still ahuge demand or capital in the microinance sector.The Grameen Foundation puts this at 400 billion USdollars worldwide.

As in the past, development work and microi-

nance institutions continue to be inanced princi-pally through unds rom public donors and (supra-)national organisations like the World Bank and theGerman bank KW. In addition, or a number o years,eorts have been made to divert unds rom privateand institutional investors toward microinancing.One o the pioneers in this area is the cooperativeOikocredit.

In the recent past, the range o relevant unds orinstitutional and private investors has risen marked-ly. With the money they raise rom institutional and

private investors, these unds can extend loans tomicroinance institutions. The increasing involvemento institutional investors, in particular, is supportedby public institutions, which oten ulil a acilitatingunction, or example by providing guarantees orinvesting public unds in a irst-loss tranche. Suchtranches are the irst to be called upon in an emer-gency, in order to cushion possible losses. The credit-worthiness o MFIs, as recipients o capital rom theunds, is checked by specialised rating agencies suchas Microrate, Microinanzas or M-CRIL. This processinvolves evaluating the MFIs strategies, their owner-

ship and corporate governance structures, the qualityo their credit portolios and their market positions.

Experts state that there are currently more than

90 microinance investment vehicles, i.e. investmentunds or structured products, with an overall volumeo just under six billion euros. By 2015, the World Bankis anticipating revenue rom private sources amoun-ting to 15 billion euros. One advantage o microi-nance products is seen as being their low correlationwith other asset classes, i.e. their independence romthe market luctuations o other investments.

In Europe, Luxembourg and Switzerland are home

to numerous microinance unds aimed at private

investors. In Germany, the law on investment waschanged at the end o 2007 to acilitate the esta-blishment and marketing o this type o und. Inautumn 2010, KW, the worlds largest inancier omicroinance, issued its irst microinance bond. Theresources raised, 250 million euros in total, will beused to support the global expansion o the microi-nance sector. KW is thus adding a new variant to sup-plement the existing themed bonds rom the WorldBank (Green Bond) and the Asian DevelopmentBank (Water Bond).

It is in the interest o investors and providers omicroinance investment products that there bevoluntary and statutory regulations to protectcustomers and ensure transparency in the micro-inance market.

Steen Ulrich, German Catholic Bishops Organisation orDevelopment Cooperation Misereor e. V.

Further inormation on this topic can be ound in the oekom Position Paper Microinance


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1.3 Outlook: quantity and quality

Sustainable investments have a 47 per cent marketshare o the European capital market: this igurecomes as a pleasant surprise, but also gives rise to

a certain degree o scepticism. With volumes at thislevel, should the issue not be ar more prominent inthe publics perception? Should the bank advisorsnot be promoting relevant products more actively?And above all, should the eects on companies notbe more obvious, i one in every two euros investedin Europe is being invested taking ESG criteria intoaccount?

As important as the growth in the SRI marketis, in order to prove that sustainable investmentsrepresent an independent, viable and attractive orm

o investment, it is also important to have a die-rentiated analysis o the volumes invested and thevarious strategies employed. The starting point hereis the question o the extent to which a strategy - be itthe best-in-class approach, active engagement or theintegration o ESG criteria into conventional inancialanalyses - makes a contribution to getting companies(or countries) to change course toward greater consi-deration o sustainability issues. In principle, eacho the strategies mentioned can make a contributionhere, it is just a question o the way in which it does

so and o the extent to which the relevant criteria aretaken into account. This is especially true in the caseo the integration o social and environmental crite-ria into inancial analysis. For many years, this was asort o Holy Grail or sustainable investment. Themantra went that, when conventional analysts irststarted applying this type o criteria, then the goalwould have been reached in terms o sustainability.According to data rom the Eurosi study, the inte-gration strategy is used in more than 50 per cent osustainability-oriented investments in Europe, total-

ling more than 2.8 trillion euros. Unortunately, thestudy does not comment on the quality o the inte-gration. However, it can be assumed that this rangesrom the consideration o individual criteria, suchas climate strategy, to the consideration o compre-hensive lists o criteria, as is called or in the UN PRIPrinciples. However, only the systematic considera-tion o relevant criteria over the entire spectrum osustainability will bring about the desired eect oncompanies and countries. The same is true o enga-

gement: here, only a comprehensive and systematicapproach, a continuous dialogue with companies,will bring about change. Moreover, engagement is

ineective without the option o disinvestment, i.e.selling shares or bonds, so it is essential that this bean integral part o the strategy.

The best-in-class approach, too, must be evalu-ated against this background. Following the eventssurrounding the Deepwater Horizon oil rig andgiven the listing o BP in numerous sustainabilityindexes and unds, in 2010 there was much debate,some o it very critical, about this strategy, whichis intensively pursued in Europe, particularly in theGerman-speaking countries. However, it seems a litt-

le extreme to base the appropriateness (or lack o it)o the approach on one individual case. At the sametime, the debate shows the ongoing uncertainty overthe eectiveness o a strategy which is restricted tolabelling the best companies in an industry withoutirst deining speciic minimum standards. oekomresearch sees the consideration o absolute minimumrequirements in terms o sustainability perormance what is known as the absolute best-in-classapproach in combination with the application othe criteria in practice and the traceable evaluation

o these criteria as a way o urther increasing theacceptability o this strategy.From the point o view o oekom research, it is now

time, under the slogan quantity and quality, to heralda second phase o sustainable investment. The antici-pated urther quantitative growth o the SRI market here, drivers identiied by the Eurosi study includethe increasing demand rom institutional and privateinvestors and external pressure rom NGOs and themedia must be accompanied by qualitative impro-vement in the implementation o the strategies. This

will entail, depending on the strategy, a more syste-matic approach, more criteria and more direct inlu-ence on companies. However, it will also require moreevidence o the actual impact on the companies. Onlyin this way can one o the key concerns o sustainab-le investment be achieved getting companies tochange course toward sustainable management, or asEurosis slogan so succinctly puts it: SustainabilityThrough (European) Financial Markets.


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2. Corporate Responsibility status and trends

2.1 Basis for the analyses:the oekom Universe

As a sustainability rating agency, oekom researchspecialises in evaluating companies and countriesaccording to social and environmental criteria. Wecurrently have 28 analysts who collect relevant datarom companies and rom independent sources andevaluate this using industry-speciicrating methods. Our ratings are used bymore than 70 clients rom eight coun-

tries in the management o their capitalinvestments and or designing appropri-ate investment products, e.g. sustainab-le mutual or special unds.

oekom research regularly evaluatesapproximately 3,100 companies rommore than 45 industries and over 50countries. We cover international inde-xes such as the MSCI World, MSCIEmerging Markets and Stoxx 600 aswell as important national indexes likethe Austrian ATX, the Belgian BEL20, theFrench CAC40, the German DAX amilyand the Swiss SMI.

In a two-stage process, the securitiesrom a parent population which meet the

requirements o sustainability-oriented investorsare identiied, i.e. those which perorm well in termso sustainability and/or do not exhibit controversialbusiness practices or activities deined as exclusiona-ry criteria by the investors.

These and other issues concerning corporate social

and environmental engagement lie at the heart o theoekom Corporate Responsibility Review 2011. oekomresearch now has an even broader basis or its ana-lyses, with the oekom universe currently comprisingover 3,100 companies. The reviews analyses ocusirstly on general developments in companies andindustries. Secondly, we take a closer look at a ewissues which have been the subject o intense public

debate or which have particularly caught our attenti-

on. This year, these include the way companies hand-le sensitive customer data, the increasing linking omanagement remuneration to sustainability criteriaand the global situation with regard to labour rightsand human rights. The outlook this time ocuses onthe relationship between sustainability rating agen-cies and companies.

In 2010, corporate social responsibility wasbrought to the publics attention due tonumerous scandals, irst and oremost the

Deepwater Horizon disaster in the Gul o Mexico.However, the debates about data protection in con-nection with the publication o images on GoogleStreet View or the suicides at the Taiwanese elec-

tronics supplier Foxconn, which produces goods orApple and Hewlett-Packard, among others, are alsostill resh in the memory. Are these isolated cases,or is the economic upturn which is taking place in atleast some national economies accompanied by a dis-regard or social and environmental standards?

oekom two-step model; as of 2010-12-31; source: oekom research AG (2011)


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As a irst step, the oekom Corporate Scoutingpro-cess identiies those companies which can demon-strate that they meet minimum requirements interms o social and environmental measures and otransparency about these. Companies which do not

meet these requirements are pooled together in theoekom Scouting Universe. These currently make upapproximately 2,000 o the 3,100 companies evalu-ated in total. oekom researchs analysts carry out anindicative rating o these companies. The Scouting isupdated annually.

Companies which clear this irst hurdle are accep-ted into the oekom Rating Universe. These issuerso shares and bonds, currently numbering around

1,100, are comprehensively evaluated in a secondstep, the oekom Corporate Rating (see next section).

The oekom Rating Universe can be divided intothree sub-universes:

1. Large listed companies rom conventional indu-stries, currently around 800 securities;

2. Small and medium-sized listed companies with aocus on sustainability, currently over 200 com-panies;

3. Non-listed bond issuers, currently over 100 issu-ers.

Please note:

The ollowing analyses relate to dierent parent populations. Please reer to the relevant notes in the respective analyses.

The terms corporate responsibility (CR) and sustainability, as well as CR management and sustainability manage-ment, are used synonymously in the study.

oekom Corporate Rating

oekoms Corporate Rating provides a comprehensiveevaluation o a companys social and environmentalperormance. To accomplish this, depending on thesector analysed, oekom research uses approximately100 individual indicators rom six categories whichare drawn up on a sector-speciic basis in order tocater or the particular social and environmental chal-lenges aced by each sector.

oekom research employs an absolute best-in-classapproach. Under this approach, the only companieswhich qualiy or investment are those which have

achieved a minimum rating stipulated by oekom, onits rating scale which ranges rom A+ (highest score)to D-. In this context, oekom research uses the termPrime Threshold, which is determined separatelyor each industry. The greater the industrys negativeimpact on the environment, employees and society,the higher the threshold. Companies whose peror-mance exceeds the threshold are awarded oekomPrime Status by oekom research.

The lists o criteria are regularly updated in orderto take into account new technical, social, legal andother developments.

Areas of assessment in the oekom Corporate Rating; source: oekomresearch AG (2011)


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Exclusionary criteria

The Eurosi study clearly stressed the importance othe use o exclusionary criteria in sustainable deve-lopment (c. section 1.1.2). These are employed in

more than one-third (37.1 per cent) o all sustainablecapital investments in Europe. This process excludesrom investment those companies which either

are active in controversial areas of business,i.e. or example producing alcohol, nuclearpower, armaments, genetically-modiied seedor tobacco products, or

display controversial business behaviourthat violates recognised standards, e.g. thelabour standards o the International LabourOrganization (ILO) or the human rights deinedin the UN Declaration o Human Rights.

For all the companies in the oekom RatingUniverse, oekom research carries out a comprehensi-ve analysis in respect o potential breaches o a totalo 18 exclusionary criteria. The diagram shows the tenexclusionary criteria most requently used by oekomresearchs clients. It is clear that the sin stocks tra-ditionally spurned by church investors i.e. alcohol,gambling, pornography, armaments and tobacco are still considered signiicant today. Another aspect

that is particularly important to customers, however,is the exclusionary o issuers which are involved inviolations o labour rights and human rights (c. also

section 2.3.3).

Top 10 of the exclusionary criteria used by oekom researchs clients; as of2010-12-31; in %; source: oekom research AG (2011)

Case study: BP how credible is the best-in-class approach?

The oil disaster in the Gul o Mexico was caused by serious management ailings, according to the oicialNational Commission inquiry. A summary o the inquiry report published in January 2011 states that saetywas not a priority or the managers o the companies involved in the accident, BP, Halliburton and Transocean.

Following the report on the accident, a number o critical comments have been made about the listing o BPin various sustainability indexes and unds and, linked with this, about the pros and cons o the best-in-class

approach. oekom researchs stance on this matter is as ollows:1. The aim o the best-in-class approach is to initiate competition among companies in individual sectors o

industry to produce the best sustainability perormance. The more capital is invested taking social andenvironmental criteria into account, and thus the greater the incentive is or companies to make themsel-ves an attractive proposition or such investors, the better this lever unctions.

2. Here, oekom research avours an absolute best-in-class approach, where best-in-class status is awardedonly to those companies which not only are relatively among the best companies in a sector, but alsomeet absolute requirements in terms o sustainability perormance. For all sectors, oekom research hasthereore deined strict minimum requirements or companies social and environmental perormance.Only companies which meet these requirements are awarded oekom Prime Status.

3. Comprehensive best-in-class ratings such as the oekom Corporate Rating provide investors with inorma-tion on numerous individual issues and thus enable a detailed analysis o the opportunities and risks. Bycontrast, concentrating on individual key perormance indicators (KPIs) can only deliver an incompletepicture o a company. Thus in the oil & gas industry, greenhouse gas emissions are oten used as a keyindicator. Here, BP perorms well compared with its competitors, e.g. Shell and Exxon. Investors whohad made their investment decision on the basis o this criterion were not aware o the companys poorenvironmental and saety standards.


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2.2 Corporate responsibility:overall performance

84 per cent o Germans want companies to increasetheir commitment to CSR. At the same time, according

to a study by the consultancy firm Icon Added Value,52 per cent think that large corporations, irrespec-tive o sector or origin, do not act responsibly. So,high expectations combined with a high degree oscepticism are deinitely not an easy point o depar-ture or companies seeking to position themselves as

socially responsible players. This can only be doneby the systematic implementation o appropriate

measures. As we live in an inormation society, PRspin or even greenwashing will easily be detectedand penalised. How serious are companies eorts?We hope that the evaluations and interpretationsbelow, which are based on oekom researchs ratingresults, will help to answer this question.

4. oekom research also regards a combination o a best-in-class approach with the use o exclusionary crite-ria as a sensible option. This ensures that companies with relevant breaches in relation to the environmentand also labour rights, human rights and corporate governance can be excluded rom the investmentuniverse, irrespective o their perormance rating.

In oekom researchs ratings, BP has regularly ailed to achieve Prime Status in recent years. The reasons orthis included shortcomings in the areas o environmental protection and plant saety. For example, on thegrounds o cost, necessary investments have been put o, the modernisation e.g. o reineries has beenneglected and pipelines have not been maintained, despite numerous clear warning signs, such as criticalcondition/damage reports, leaks and accidents, as well as fines. Very serious accidents have occurred as aconsequence o this, or example an explosion in 2005 at a reinery in Texas which caused a large number odeaths.

In the environmental sphere, too, the company hasa long history o violations. For example, or years,large quantities o carcinogenic benzene were beingreleased untreated into the atmosphere rom BPsreinery in Whiting (US). In Alaska, inadequatemaintenance on the pipeline system led to repea-ted major leaks, or which BP was ined 20 millionUS dollars in 2007. In January 2011, the pipeline hadto be closed temporarily because o a renewed leak.

Customers who base their investments on oekomPrime Status will thereore not have invested in BPsecurities. As a result, they have been able to avoidboth the economic losses associated with the all

in the share price as well as any loss o reputationollowing the public debate.

Market trend of BP shares, 2010-01-01 to 2010-12-31; source: www. comdirect.de


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2.2.1 Companies with oekom Prime Status

The ollowing tables each show ive companies romselected indexes which in 2010 demonstrated a par-ticularly high degree o engagement in the integra-

tion o social and environmental criteria into theirmanagement structures, processes and products.Possible exclusionary criteria have not been takeninto account here.

In the DAX 30, SAP achieved the highest rating,with a score o 67.01 on a scale rom 0 to 100. Thecompany, which has jumped rom ninth into irstplace, stands out in particular or comprehensivemeasures on increasing the energy eiciency o itsdata centres and numerous measures or promotingdigital integration o e.g. poorer segments o the

population and minorities. As in the previous year,Henkel, BMW and Deutsche Telekom were among thetop 5 companies.

Siemens has surged rom 16th to 5th place. Thecompany, which in the past has hit the headlinesollowing corruption scandals and its establishmento a company-riendly trade union, has made greatprogress, in particular in the expansion o its greenproduct portolio as well as in the provision o com-pany-wide social and environmental data. It has alsomanaged to improve its governance structures orpreventing corruption and bribery.

The top securities rom the DAX 30 also occupy thetop spots in the DJ Euro Stoxx 50. Here, SAP has jum-ped rom 14th to irst place, ollowed by BMW, which

has only recently joined the index, and DeutscheTelekom.

Munich-based car manuacturer BMW scoredpoints or the company-wide implementation o aclimate protection strategy which takes into accountsector-speciic climate risks and or comprehensivemeasures to ensure that its major suppliers complywith standards relating to workers rights and healthand saety at work. Deutsche Telekom is also able to

point to a comprehensive climate strategy and hasimplemented ar-reaching measures or improvingthe take-back o used communication equipment.The French cosmetics manuacturer LOreal and theGerman company Siemens complete the top 5.

This year, or the irst time, oekom research hasrated all the companies in the MSCI World and theMSCI Emerging Markets. In the MSCI World, rene-

Rank Company Score Rank 2009

1 SAP AG 67,01 9

2 Henkel AG & Co KGaA 65,37 1

3 Bayerische Motorenwerke AG 64,92 4

4 Deutsche Telekom AG 61,82 2

5 Siemens AG 61,30 16

Top 5 DAX 30 companies with the best oekom Corporate Rating; as of 2010-12-31; in %; source: oekom research AG (2011)

Rank Company Score Rank 2009

1 SAP AG (DE) 67,01 14

2 Bayerische Motorenwerke AG (DE) 64,92 --

3 Deutsche Telekom AG (DE) 61,82 3

4 LOral SA (FR) 61,66 5

5 Siemens AG (DE) 61,30 28

Top 5 DJ Euro Stoxx 50 companies with the best oekom Corporate Rating; asof 2010-12-31; in %; source: oekom research AG (2011)

Rank Company Score

1 Vestas Wind Systems A/S (DK) 86,32

2 EDP Renovaveis SA (PT) 85,28

3 Gamesa Tecnologica SA (ES) 83,19

4 Iberdrola Renovables SA (ES) 78,96

5 First Solar Inc (US) 77,87

Top 5 MSCI World companies with the best oekom Corporate Rating; as of2010-12-31; in %; source: oekom research AG (2011)


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wable energy companies dominate the top rankings.Like companies from other sustainability sectors such as emissions reduction, recycling and watertreatment, for example they are more likely toreceive a positive rating by oekom research, as their

products and services make a major contributionto sustainable development. The top four spots areoccupied by European companies.

The Indian IT services provider Wipro took firstplace in the top 5 companies in the MSCI EmergingMarkets index. The company has comprehensive gui-

delines on responsible marketing and offers a largerange of environmentally-friendly products and ser-

vices. The Brazilian cosmetics manufacturer NaturaCosmeticos has implemented wide-ranging measuresfor procuring and using sustainably produced rene-wable raw materials. The frontrunners from the emer-ging markets have nothing to fear from comparisonwith European, US or Japanese companies. However,the idea of CSR has yet to find broad acceptance inthe economies of the emerging markets.

Overall, by the end of 2010 approx. one in sixcompanies in the oekom universe had been awardedoekom Prime Status, including:

just under 300 conventional large-scale com-panies,

approximately 200 SMEs with a focus onsustainability and

over 50 non-listed bond issuers.

One-quarter of all the 3,100 companies havealready laid down a basis

revisiÓn de la rs 2011 en el mundo

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