ESG Workshop hosted by Graham Sinclair at Sustain Our Africa 26 October 2012 Cape Town South Africa

SinCo – sustainable investment consultants © 2006-2012 FOR PROFESSIONAL INVESTORS USE ONLY – NOT FOR DISTRIBUTION TO THE GENERAL PUBLIC 1

REGULATORY INFORMATION No part of this report or proposal suggests or should understood to suggest endorsement or advice on any investment approach, strategy or offering. The rights and obligations of the investor are set out in the relevant policy contract. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.

sustainable investment consulting

…designing and developing world-class ESG architecture for institutional investment in frontier and emerging markets since 2006

sincosinco.com | @SinCoESG | [email protected]

sustainable investment consulting | sincosinco.com | @SinCoESG 2


Sustainable Investment in Africa 2012 Call To Action. Inspiration.

Tools for Change

Designing and developing world-class ESG architecture for institutional investment in frontier and emerging markets since 2006

Graham Sinclair @esgarchitect

Principal SinCo sincosinco.com | @SinCoESG | [email protected]

President AfricaSIF.org

africasif.org | @africasif | [email protected]

@SOAAfrica | Change Room Workshop | 26 October 2012 8.30AM – 10.30AM

sustainable investment consulting | sincosinco.com | @SinCoESG

SinCo

sincosinco.com

sustainable investment consulting


youtube.com/africasif

AfricaSIF.org is an independent, pan-African, not-for-profit network, knowledgebase and advocate promoting investment in sustainable development across the continent. The AfricaSIF.org Project is an all-volunteer team building a network of institutions and individuals promoting sustainable investment in Africa by investors in public, private and philanthropy sectors across asset classes, countries and stakeholders from our platform www.africasif.org. AfricaSIF.org Trends 2012 Report •  Africa and Global versions •  Live project delivers Dec 2012 •  Any asset class anywhere investing

in Africa •  Using ESG factors

| twi3er.com/africasif

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African Stock Exchanges: three stages in development

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Top 5 African Africa stock exchanges by market capitalization (above USD 10bn) Other operating Africa stock exchanges

Source: SinCo analysis 2011; : SinCo+RisCura data; 2011 © International Finance Corporation (IFC)



*excludes companies with trading status: Inactive, Acquired, Suspended

Average ESG Disclosure Score by Country44403632282420161284

ESG Disclosure ScoresESG Disclosure Scores

United States19.8

Canada19.1

Japan27.5

UK28.4

Australia20.1

Brazil22.1

China14.4

Mexico23.9

Russia24.4

South Africa23.9

Chile16.3

Italy29.2Spain

40.2

France34.7

Germany27.0

India12.3

Sweden26.8

Malaysia17.2

New Zealand23.0

Norway23.7

S. Korea30.1

...based on 4,078* companieswith an average score of 23.0

11/16/2010Data as of


Sustainable Investment in 2030?

Photo courtesy of The Guardian. View from the Shanghai World Financia

“We will vigorously develop renewable energy and nuclear energy. We will endeavor to increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020.”

- Chinese President Hu Jintao, address at UN Climate Change Summit, September 22, 2009.


GEPF / WWF carbon intensity and water scarcity case study

Research series testing 5 Hypotheses on if / how to de-carbonize and reduce climate risks in institutional investment in South Africa:

  H1. GETTING THE PRICE RIGHT? “Investors are not pricing climate change and freshwater risks as a result of policy, environmental, social and technology (PEST) impacts when making investment decisions, resulting in mis-priced assets and potential systemic risk.”

  H3. OVERWEIGHT BETS ON CLIMATE RISKS? “The exposure of major investors to sectors that are particularly vulnerable to climate change risks is large relative to overall assets, particularly when investments in the state-owned entities of Eskom and Transnet are taken into account.”

  H4. TAIL RISKS OF CLIMATE COSTS SHOCK? “Given SA’s high-carbon infrastructure, its institutional lock-in and the lack of significant low carbon market incentives, market correction for climate change risks would take place over an insufficiently long period of time for an orderly adjustment of the portfolios of financial institution. Viable, low carbon investment market opportunities are required for market correction for climate change risks to take place in an orderly manner.”

  H5. CAN NEW INVESTMENT RULES OPEN DOORS? “Additional regulatory mechanisms need to be put in place in order for lower carbon financial markets such as covered bonds to develop.”

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A Brief History: Africa’s extractive experience

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Drivers and barriers: …carrots, sticks and inertia

5 primary drivers

1.  Good investment returns (a record of premium from ESG integration)

2.  Explicit and tangible ESG benefits/impact

3.  More information

4.  Government/regulator incentives

5.  Demands from clients/investor mandate/shareholder pressure.

5 primary barriers

1.  Lack of adequate information to evaluate investment target ESG-related performance

2.  Lack of evidence that ESG factors increase financial returns

3.  High costs of implementing ESG investment

4.  Lack of appropriately skilled advisors and necessary expertise

5.  Short-term reporting against prospect of long-term returns.

Barriers also include the “investment-as-usual” approach, the perception that SI consists of “ethical” investment and/or negative screening, and the specialized “language of sustainability”.

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“More capital available to pursue ESG mandates…Increased returns, higher exit values, due to ESG…There has to be a business by business basis to try and get help to improve attractiveness. Standards don't really help, but increased awareness on governance and more board training would help. Also being realistic about what can be achieved.” – composite verbatim comments

www.sincosinco.com/siinssa



Graphic of investment performance by SMEs with ESG leader/laggard status



Get started now

  Save money every month. Set aside savings for retirement. Invest in your long term.

  Ask your financial advisor / portfolio manager how they can integrate ESG factors into your investments.

  Upskill yourself with the facts about ESG in investment.

  Ask your financial advisor / portfolio manager what opportunities for investing in sustainability is available.

  Buy a few shares and show up to company annual meetings. Ask awkward questions.

  Become a trustee. Be voted onto your retirement fund’s Board of Trustees.

  Read and ask questions about your retirement fund’s investment policy and impacts.

  Network with similar investment people. Join AfricaSIF.org.

  Volunteer for AfricaSIF.org Trends 2012 Report today.

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Sustainable Investment in Africa 2012 Call To Action. Inspiration.

Tools for Change

Designing and developing world-class ESG architecture for institutional investment in frontier and emerging markets since 2006

Graham Sinclair @esgarchitect

Principal SinCo sincosinco.com | @SinCoESG | [email protected]

President AfricaSIF.org

africasif.org | @africasif | [email protected]

@SOAAfrica | Change Room Workshop | 26 October 2012 8.30AM – 10.30AM


About SinCo team: Graham Sinclair

Graham Sinclair is Principal at SinCo, where his roles cover sustainable investment strategy, ESG architecture and global project management.

  Graham has eight years specialist experience in sustainable investment globally after eight years in pensions consulting and investment banking in Africa. Recent consulting engagements in sustainable investment include leading IFC-funded research into private equity and liquid equity ESG strategies in sub-Saharan Africa in South Africa, Kenya and Nigeria to be published in 2011, developing innovative financing mechanisms strategy and ESG index architecture for developed, emerging and frontier markets for a Swiss-based international organization, and for a global institutional investment firm in New York with a US$ one trillion AUM portfolio, designing ESG architecture across private equity, liquid and global real estate portfolios covering philosophy and process innovations and investment strategies. Currently he provides index architecture and stakeholder engagement for the Istanbul Stock Exchange Sustainability Index.

  As consultant to the UN, Graham developed strategy for 25 emerging markets and launched PRI in Emerging Markets project in Q2 2007 for UNEP FI, creating a network infrastructure, building relationships with 108 investor stakeholders including in Africa through 2008. Before launching the sustainable investment advisory boutique SinCo in 2006 in Boston, he was Product Manager at KLD Research & Analytics, Inc adding to his background in pension funds and asset management.

  Graham is a former contributor to the CSR Initiative at Harvard Kennedy School, Distinguished Member of Net Impact, alum of WWF One Planet Leaders programme and the Tallberg Forum New Leaders Program. He currently leads the AfricaSIF Project building an independent, pan-African not-for-profit Africa Sustainable Investment Forum network at africasif.org, member of ASISA’s Responsible Investment sub-committee, and a member of Investment Analysts Association of South Africa, and the Network for Sustainable Financial Markets. He has lectured at more than 25 graduate schools globally, and the most recently published work is chapters on Private Equity, Indexes and Africa to Evolutions in Sustainable Investing [Wiley Business, 2011].

  Graham earned his MBA on scholarship at Villanova University in the USA where he co-managed the Arnone-Lerer SRI Fund equity portfolio in 2004. He holds a B.Com from the University of Natal and LL.B from the Howard College School of Law as well as numerous industry specialist certifications. He holds diplomas in retirement funds and insurance law, and in 1998 he was one of the youngest ever dual-FILPAs. He resides in Cape, South Africa and Vermont, USA.

Graham Sinclair @esgarchitect Principal SinCo @SinCoESG sincosinco.com [email protected] South African B.Com 1991, LL.B 1994, MBA 2004 Dip.RFM 1997, IISA 1998, ILPA 1999 IASSA, ELP, WWF OPL, USSIF.org AfricaSIF.org Experience in over 25 countries English, Afrikaans

Documents

ESG Workshop hosted by Graham Sinclair at Sustain Our Africa 26 October 2012 Cape Town South Africa