Gold - Blue and Green Tomorrow

Report
Accentuate the Positive(s)
Presented by Neville White – Head of SRI Policy & Research
Ecclesiastical Investment Management Ltd.
24 April 2014
Ecclesiastical Investment Management Ltd
 Part of the Ecclesiastical Insurance Group founded 1887
 Owned by All churches Trust – all distributable profits to good causes
 Top 10 UK donor – strategic plan to donate £50m over three years
 Ecclesiastical launched its first SRI UK retail fund in 1988
 Suite of six ethical retail and charity funds – across geographies and asset classes
 Total Assets Under Management £2.25bn*
 Award winning, experienced team with a strong retail proposition
*Source: Ecclesiastical as at 31/12/13
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Investing Positively
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The Many Models of SRI
•
SRI is an umbrella term which encompasses many approaches including ethical,
responsible, sustainable, and environmental, social and governance (ESG)
Negative criteria
‘ethical’ adopted by
faith investors
applying a moral
dimension to
investing
ENVIRONMENTAL
FUNDS
TRADITIONAL ETHICAL
(FAITH BASED) FUNDS
SRI
FUNDS
Positive criteria
emerge after 2000
following changes
to UK pensions
legislation
ESG FUNDS
BEST IN CLASS
THEME FUNDS
(CLIMATE CHANGE)
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Applying Positive Criteria to a Portfolio
•
Applying negative criteria is (relatively) straightforward
•
Identifies moral imperatives, but adds little value to process
•
Does not allow investor to work for change
•
Does not allow engagement to raise business standards
•
What would a sustainable tobacco company look like?
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Advantages of Applying Positive Criteria to a Portfolio
•
Holistic, integrated investment methodology
•
Represents a ‘complete’ active strategy
•
Material ESG risks should be seen as core management issues
•
Adds value
•
Reduces long-term risk
•
Supports long-term investment horizons
•
Provides engagement platform for change
•
Dovetails with wider UK Stewardship Code responsibilities
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Our SRI Process – an Integrated Approach
Negative Screen
10% Threshold:
 Alcohol Production
 Gambling Operations
 Pornographic or Violent Material
 Strategic Armaments
 Tobacco Production
Negative
Screen
Positive
Screen
Other Factors:
 Animal Testing (cosmetics)
 Intensive Farming
Positive Screen
 Business Practices
 Community Relations
 Corporate Governance
 Human Rights
 Labour Relations
 Environmental Management
 Healthcare
 Education
 Urban Regeneration
Engagement
Decision
Monitor &
Review
Positive criteria may serve
as a brake on investment;
e.g. no oil or mining
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Our Nine Positive Investment Pillars
•
Each stock is monitored
and assessed against the
nine positive criteria
•
Essentially we are looking
for each stock to earn its
place in the portfolios
•
The investment case and
the sustainability case
are given equal weight
•
Six areas of business
behaviour (risk)
•
Three sustainable sectors
•
Identifies engagement
need
•
BUT how do you assess
the environmental, social
and governance
positives?
Positive Screen
 Business Practices
 Community Relations
 Corporate Governance
 Human Rights
 Labour Relations
 Environmental Management
 Healthcare
 Education
 Urban Regeneration
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Evaluating Environmental, Social and Governance (ESG) Positives
• Unlike negative criteria, positives can be subjective and challenging
• Materiality, and risk weighted factors of primary importance
Environmental
Social/Governance
Air & Water Pollution
Access to Medicine
Biodiversity
Affordable Healthcare
Ozone-Depleting Chemicals
Equal Opportunities
Pesticides
Bribery & Corruption
Climate Change
Health & Safety
Resource Productivity
Human Rights
Environmental Management
Child Labour
Energy
Labour Standards
Transport
Supply Chain Management
Tropical Hardwood
Community Giving
Nuclear Power
Community Initiatives
Mining & Quarrying
Corporate Governance
Waste & Toxic Chemical Management
Diversity
Water Management
Executive Remuneration
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Research, Research, Research
• EIM employs Sustainalytics as its principal ESG data research provider
• One of several distinctive ESG providers that analyse ESG risk (EIRIS; MSCI etc.)
• Quantitative and qualitative data; controversies monitor; peer group ranking; ESG ratings
• Provides first stage ‘data dump; and materiality analysis
• Secondary research conducted in house including engagement
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Investing in Bullion – is it Ethical?
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Investing in Bullion – is it ethical?
•
Mining and extractives avoided as part of failing positive criteria tests
•
Fund managers had appetite to invest in an ETF bullion fund for diversification reasons
•
Ethically, bullion could be viewed as ‘benign’ i.e. a store of value
•
But we asked – where does the gold come from and is it ethical?
c40% of supply is recycled
c15% is artisanal or illegal
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The rise and rise of Gold ETFs
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Gold - Utility
•
Whilst gold does have multiple applications its principle utility is investment
•
Gold is effectively a ‘parallel’ currency and highly portable
•
Gold is unique in that it is extracted principally as a “store of value”
•
Held as bullion in State and national reserves and as private wealth
•
Half of all gold entering the supply chain is directed at the jewellery industry
•
Only 10% is used for industrial and electronic purposes
•
Ethical utility given health, safety, conflict and environmental impact is low
•
Precious metal mining (gold and coltan principally) is fuelling conflict
•
Traceability challenges fuel phenomenon of “dirty gold”
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Gold - Traceability
•
Gold supply chain is not linear
•
“Scrap gold” may be recycled, pre-owned, laundered
•
Gold can be owned by many participants within the supply chain
•
“Dirty gold” has become an industry issue owing to traceability concerns
•
Mine supply is broadly traceable apart from unregulated artisanal mines (15%)
•
Integration of mining and refining provides some assurance
•
Industry is beginning to coalesce around reputation and “conflict free” gold
•
Chain of custody is vital – i.e. integrity of inventory, bar serial numbers
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Gold – Ethical Issues
•
Gold is a primary conflict mineral particularly in Democratic Republic of Congo
•
2007 Uganda produced $500 worth of gold, but exported $75m mostly from DRC
•
Specific ethical challenges associated with gold are –
- human rights issues in high impact emerging markets – Congo, Burkina Faso, Mali etc (up to 15m enslaved)
- toxicity: gold is benign but requires cyanide in refining; tailings require intense management
- corruption – the industry is open to bribery, theft and forcible sequestration risk in theatres of conflict
- gold produces more waste per ounce mined than any other metal e.g.
• at state of the art Newmont Mine in Indonesia one ounce of gold is recovered from 250 tonnes of rock
• one ring generates 20 tonnes of mineral waste
• smelters add 142 million tonnes of sulphur dioxide to the atmosphere every year – 13% of global emissions
- the disparity between environmental impact and the amount recovered is at its starkest with gold
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Gold – Accentuating the Positive
•
We engaged intensively with the World Gold Council
•
The only investor to engage with the WGC on conflict free gold
•
Industry increasing its efforts around eliminating the worst practices
•
Kimberley rejected as a model as gold is not easily identifiable
•
Industry started from scratch on a new verification and accreditation standard
•
Conflict Assessment
•
Company Assessment
•
Commodity Assessment
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Gold – Accentuating the Positive
•
EIM led investor engagement with WGC on global conflict-gold standard
•
Held two seminars for investors in London to outline the Standard
•
Offered advise on draft Standard
•
Remained an informed and engaged investor throughout process
•
Concluded Gold ETF could be held given the contribution of engaging
•
Engagement and informed contribution significantly added value to our investment
•
And all because we asked….
Is holding gold in an ETF bullion fund ethical?
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Questions and Answers
Thank
You!
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