Integrating ESG into the Investment Process

1
Integrating ESG into the Investment Process

• Opportunities Challenges for Managed Account
  Sponsors and Sub-Advisors

2
Traditional and Next Generation SRI
Traditional Approach
Next Generation
Research
Research or Compliance
Data Delivery
Compliance
Data
Portfolio Management
Marketing Client Services

• Exclusionary restrictive
• Recommendation oriented research
• Limited flexibility and usage within firm

• Comparative positive
• Values neutral research
• Expanded flexibility and usage within firm

3
The Changing ESG Landscape

• Growing market demand and acceptance
• Incorporating multiple perspectives
• Customizable investment solutions
• Growing corporate transparency requirements
• Fiduciary responsibility redefined
• Identification of non-traditional risks

4
SRI and Returns

• A key question for money managers is whether
  a socially responsible strategy can deliver
  acceptable returns over time and be an ongoing
  investment option for institutional investors
  with fiduciary responsibilities. Recent academic
  work indicates that the answer may be yes .
• Goldman Sachs, Global Strategy Research Report

5
SRI and Risks

• If the market has not recognized a potential
  corporate social liability it should be
  understood that when the market does recognize
  the liability the value of the other claims, in
  particular, equitys claim, on enterprise value
  (EV) will decline.
• Valuation and Accounting Group, UBS

6
ESG Opportunities

• Business Development Relationship Management
• Differentiate services
• Penetrate existing markets
• Target new institutional HNW markets
• Demonstrate value in support of fees
• Strengthen enhance relationships
• Provide high sophistication/cost effective
  service
• Apply to multi-value/multi-generational
  situations

7
ESG Opportunities

• Product Development Portfolio Construction

• Investment Managers
• Increase portfolio manager flexibility
• Maintain investment discipline best-in-class
• Broaden initial equity universe
• Explore alpha-generating potential

• Sponsors/Platforms
• Expand manager universe
• Cutting-edge product opportunities
• Deliver on MMA/UMA benefits
• Enhance due diligence process

8
Approaches to Incorporating ESG
Investor guidelines
Compliance
Buy lists or third party manager universe
Buckets or standards
ESG Research Analytics
Custom
Client reporting
9
Operational Challenges for Platforms

• Consistency Deviation from model affects
  consistency
• Cost Changes increase costs
• Compliance ESG compliance adds complexity
• Reporting ESG reporting requires more
  information and sophistication

10
Solutions

• SMAs
• MMA/UMA
• Mutual funds, ETFs, Defined Portfolios
• Overlay management
• Rep as Portfolio Manager
• Consulting/manager evaluation
• Customized portfolios

11
Making Informed Decisions
Know your capabilities, strengths, and weaknesses
Know your clients or target markets
Understand your options
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Contact Information

• IW Financial
• Craig Muska
• 503.636.4131
• craigmuska_at_iwfinancial.com
• ABN Amro Asset Management
• Daniel Wanzenberg
• 312.884.2515
• daniel.wanzenberg_at_abnamro.com
• Smartleaf
• Jerry Michael
• 617.491.5445
• g.michael_at_smartleaf.com