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14:30 - 16:15

Suzanne Bodevin (France)
Assistant Professor of International Business Administration - American University of Paris, Department of International Business Administration

Philipp Aeby (Switzerland )
Chief Executive Officer - RepRisk AG

Strategies for Managing Reputational Risk in Portfolios

Reputational risk management is an increasingly important focus area for portfolio managers and can greatly influence company values. The presentation will focus on a number of case studies and give an overview of how clients can integrate ESG data in order to manage reputational risk.

Balazs Magyar (Switzerland )
Sustainability Analyst - Bank Sarasin & Co. Ltd

Sustainable Fulfilment of Sovereign Obligations – Sustainability and Performance of Sovereign Bonds

Natural resources, along with capital goods and human resources, are the foundation for every type of commercial activity. They are put to effective use in producing the goods and services which emerge at the end of the business chain. On the one hand this brings an improvement in quality of life, while on the other it also encourages the proliferation of capital goods and human resources. At the same time civilisation’s drive towards greater affluence is steadily depleting the planet's natural resources. Improved efficiency and effective economic, political and social processes are therefore needed to ensure that individual countries are able to maintain their productive capacity in the long run. For these reasons, the main focus of our sustainability analysis of sovereign bonds is the availability of resources and their efficient usage. Our analysis seeks to identify countries capable of maintaining long-term or actually sustainable economic development, which is in turn a basic prerequisite for being able to service sovereign debt. Research conducted in recent years already shows the positive impact that sustainability can have on the performance of sovereign bonds. This relationship is likely to continue in the future.

Christopher Greenwald (Switzerland )
Head of Sustainability Application and Operations - SAM Sustainability Asset Management

ESG Integration and Sustainability Indexes

While sustainability Indexes have served an important role over the past decade in raising the awareness of sustainability issues for both companies and investors, more work should be done to link more concretely extra-financial factors with financial value creation. These connections are needed not only for mainstream investors but also by the companies seeking to incorporate extra-financial factors into their strategic business planning. SAM has been increasingly focusing on these links in recent years given the close relationship between its investment process and the methodology underlying the Dow Jones Sustainability Index. This presentation will outline some of the challenges that sustainability indexes must overcome to integrate ESG issues into financial analysis frameworks, and it will discuss the current developments in SAM’s methodology to make more explicit the link between ESG factors and financial impacts and analysis.

Remy Briand (Switzerland )
Managing Director, Global Head of Index and ESG Research - MSCI

MSCI ESG Research - Integrating ESG into the Investment Process

ESG investing refers to investment approaches that incorporate Environment, Social and Governance considerations into the investment process.

While Socially Responsible Investing (SRI) is sometimes viewed as the traditional approach to ESG investing, there are meaningful distinctions in the investment philosophy of the two. The key tenet of SRI is linked to values, which can be based on religious views, international norms, codes of conducts or social, environmental or ethical perceptions of specific business activities. However, the subjective and highly personal nature of values also means that there is a less clear common ground in defining the values investment process.

More recently, ESG investing has put more emphasis on understanding the financial dimension of ESG fostering its more systematic use in the mainstream investment process. It is argued that ESG is financially relevant as ESG factors can have material impact to the long-term risk and return profile of investment portfolios. Managing investment risk including ESG risk is therefore an integrated part of portfolio construction and management process and intrinsic to the fiduciary responsibility of investors.
In practice, motivations of ESG investing generally encompass both the financial and values dimensions.

Central to the philosophy of ESG investing is a concept called universal ownership. A universal owner is defined as a long-term owner of a diversified investments portfolio that is spread across the entire market or markets. As a result, universal owners collectively own a share of the economy and are effectively tied into this share in the longer term. They subscribe to the hypothesis that the long-term financial interest of their investments depends on the ability of global markets to produce economic growth on a sustainable basis. As a result, they infer that their actions should involve managing their longer term risk through asset allocations and active ownership practices that are sensitive to longer term ESG factors.

Another common motivation for integrating ESG in the investment process is to manage more actively factors that are believed to be important drivers of risk and return. In this context, ESG factors are seen as both a risk and an opportunity to select better-managed companies.

Overall, the definition of best practice in ESG integration is evolving very quickly. A few years ago, being a UNPRI signatory was considered as advanced; it is now seen as a requirement for large institutional asset managers. The current focus is shifting to measuring better the effectiveness of ESG integration and managing risk effectively.

To ensure effective risk management, it is also important that investors understand the sources of ESG risk and have an overall appreciation of the ESG risk at portfolio level. For this, investors may require a portfolio analytic framework that could provide an overall attribution of portfolio's ESG exposures and risk management performance on key ESG issues.

The ESG analytic framework should facilitate understanding of ESG risk at security, sector, key issues and portfolio level. Changes in ESG exposures at the portfolio level should be regularly analyzed, monitored and adjusted to reflect changes in investment views. In addition, companies with deteriorating ESG performance or those involved in various high profile areas ('controversies') should be actively monitored to ensure the portfolio ESG risk is well understood.

For further information, please visit our dedicated ESG Integration website: http://www.msci.com/products/esg/integrating_esg_into_the_investment_process.html