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ESG
matters
Environmental, Social and Governance
thought piece
Issue 10
A better
perspective:
Beyond the short term
04
12
18
22
Combating drought: Drawing more
from less by Jeremy Kent
Fracking: Boom and burst
by Marie-Sybille Connan
The sharing economy: A problem
shared is a problem halved by Robbie Miles
The global gender gap: Changing
course and discourse by Marissa Blankenship
Understand. Act.
The Global ESG Team
LONDON
Bozena Jankowska, Global Co-Head of ESG
Marissa Blankenship, ESG Analyst
Jeremy Kent, Portfolio Manager, ESG Analyst
Robbie Miles, ESG Analyst
Bozena Jankowska
Global Co-Head of ESG
PARIS
David Diamond, Global Co-Head of ESG
Marie-Sybille Connan, ESG Analyst
Mathilde Moulin, ESG Analyst
Dear reader
FRANKFURT
Henrike Kulmann, ESG Analyst
Rainer Sauer, Proxy Voting Specialist
Welcome to the 10th edition of ESG matters. We are pleased to have reached this milestone
and hope to continue providing you with thought provoking articles for many editions to
come.
We have argued and demonstrated that (putting aside personal values) E, S and G issues can
and do make an impact on investments, either as a result of addressing poor risk management
or in presenting new opportunities. We are at a turning point, where ESG is gaining
momentum among companies, investors and asset owners like never before. Where
questions are being asked more broadly about the role of climate change, long-termism and
stewardship.
CONTACT DETAILS
For any further information please contact:
Bozena Jankowska
Global Co-Head of ESG
 [email protected]
 +44 20 7065 1468
 www.esgmatters.co.uk
Editorial
Emma-Louise Allen, Allianz Global Investors
In this edition, we investigate a number of different issues from fracking in the USA to how to
meet growing consumer demand in a world of finite resources. Our lead article was written
by our Global CEO, Elizabeth Corley. She examines the importance of adopting a long-term
lens in a world where businesses are becoming increasingly short sighted. Additionally, she
highlights the role that asset managers play in providing stewardship and guidance to these
investee companies.
As always, we are happy to address any comments or questions that you may have about our
ESG magazine.
Design and Art Direction
Susan Lane, Allianz Global Investors
Imagery
iStock
Allianz Global Investors GmbH,
UK Branch
199 Bishopsgate
London EC2M 3TY
 www. allianzglobalinvestors.co.uk
+44 20 7859 9000
Bozena Jankowska
Global Co-Head of ESG
2
© 2015 Allianz Global Investors
All rights reserved
ESG Matters | Issue 10
EXECUTIVE
PAY
04
08
12
Contents
18
22
04 Combating drought: Drawing more from less
08A better perspective: Beyond the short term
12 Fracking: Boom and burst
18The sharing economy: A problem shared is a
problem halved
22The global gender gap: Changing course and
discourse
3
Combating
Drought/
Section 1
Combating
drought: Drawing
more from less
The availability of fresh water is something that many of us
take for granted. JEREMY KENT investigates the impact of
drought in California and the measures being implemented
to ensure the long term viability of the state.
Jeremy Kent
Portfolio Manager, ESG Analyst
London
4
I venture back to California about once a year from
my current home in London to visit friends and
family, as well as trade a cold and wet spring day for
a few warm and sunny ones. During the last visit, on
the drive up the 101 freeway to Santa Barbara, I
noted several signs overhead pleading motorists to
help conserve water due to the severe drought. The
sight of these signs, however, was not a tremendous
surprise as they have become commonplace during
the drought in the state now going on four years. It
wasn’t until I reached the foothills of the Santa Ynez
Valley, en route to the Fess Parker Winery, that the
severity of the lack of water was brought to life. Hills
and valleys that had previously appeared lush, green
and alive now appeared arid, brown and dreary.
Nearby Cachuma Lake, a primary source of water
for Santa Barbara residents, held only 28% of its
potential capacity, which has sent city officials and
planners searching for solutions to adapt to the
dilemma. Santa Barbara is not unique on this issue,
reservoirs and dams across the state are running far
below historical averages, as shown in the chart
from the California Department of Water Resources,
with the summer months still ahead. Residents 
ESG Matters | Issue 10
5
COMBATING
DROUGHT/
SECTION 1
Current Reservoir Conditions
Ending at midnight on 5 July 2015
4552
3538
3583
Trinity Lake
2838
2448
Lake Shasta
2400
2064
1355
977
913
Lake Oroville
2030
2163
791
416
Trinity
Lake
Lake
Shasta
37% | 44%
48% | 60%
Lake
Oroville
38% | 48%
1607
1522
745
392
Folsom
Lake
43% | 53%
New
Melones
16% | 26%
Don Pedro
Reservoir
37% | 46%
Folsom Lake
New Melones
Don Pedro Reservoir
2041
Excheque
Reservoir
San Luis
Reservoir
Legend:
Capacity (TAF)
Total reservoir capacity
Millerton
Lake
715
742
Exchequer
Reservoir
12% | 17%
San Luis
Reservoir
36% | 60%
1000
402
181
521
Millerton
Lake
35% | 45%
662
252
Pine Flat
Reservoir
25% | 38%
Castaic Lake
Storage level
for date
Perris Lake
% of Capacity | % Historical Average
Source: California Data Exchange Center,
Department of Water Resources.
and businesses in the state will need to adapt in order to survive as
well as protect themselves from inevitable future water shortages.
Drastic measures are being made to address this dire situation. For
the first time ever in the history of California, the governor has
ordered restrictions on urban users of water throughout the state.
The mandatory restrictions came in to effect from June 1st requiring
more than 400 cities to slash water use by 8% to 36% for an overall
reduction of 25%. Governor Jerry Brown has threatened fines of USD
10,000 a day for water agencies that violate the order to cut water
use. Individuals are also subject to fines from local authorities of up
to USD 500 for certain violations.
6
1236
123
California
Historic average
level for date
% of
Capacity
1025
Pine Flat Reservoir
280
116
325
Castaic
Lake
36% | 41%
106 131
47
Perris
Lake
36% | 44%
Social pressure is also being applied to corporate and individual
users of water. ‘#Droughtshaming’ has become a popular topic on
Twitter for naming and shaming (rightly or wrongly) of those that
are perceived to be using excessive amounts of water. Pictures of
sidewalks being sprayed with sprinklers, healthy green lawns of
celebrities, and companies bottling water in the state have all been
tagged.
The risk of reputational damage and the employment of fines are
indirect methods of putting a price on a resource that is not priced
like other commodities available to users. The current mechanisms
ESG Matters | Issue 10
for pricing water in parts of the US can be perverse, and actually
encourage the use of water. Perhaps the most extreme example is
the agriculture users of water who consume around 80% of the
nation’s water. Farmers generally only pay for water when man
made technology such as aqueducts provide for them, as water
rights are granted where water is present on the property. The
agriculture industry was originally exempted from the 25% water
reduction target, but recently the State Water Resources Control
Board has for the first time since the 1970’s forced senior water
rights holders to limit use of their water resources.
According to the Global Water Intelligence organization, individuals
in US cities pay much less than other developed countries, and, as a
result, tend to use much more water per person than countries such
as Denmark where the price of water is much higher. The price of
water for residential users is largely based on the cost to deliver the
product to the end user, rather than actually pricing the resource
itself. Water should be priced appropriately in order to ensure
sustainable availability in the future. Some California cities are
recognizing the need. Santa Barbara for example is increasing rates
for single family residents by nearly 30% this summer to combat the
water shortage issues.
The risk of rising water prices compelling a reduction in demand has
also been recognized by corporate users of water. Starbucks
announced earlier this year that it would be moving the bottling of
water for their Ethos brand out of the state due to the drought
conditions. Rather than removing operations completely from the
state, other companies are making investments in innovative
solutions to support reduced water usage. Nestle recently
committed to transforming a milk factory in California into a ‘zero
water’ facility, meaning that no local freshwater resources will be
used in the factory. The enhanced process will utilise water from the
making of evaporated milk that can be treated and then reused
throughout operations. The expected annual water savings is
approximately 63 million gallons. Solution providers have also
recognized the demand from corporates to increasingly incorporate
water risks in future planning. Ecolab, a leader in water technology
“ For the first time ever in the
history of California, the
governor has ordered restrictions
on the use of water throughout
the state on urban users of
water.
”
and services, recently partnered with Trucost, an organization that
measures environmental impact, to develop a tool called the Water
Risk Monetizer which helps businesses understand water related
risks and quantify risks in financial terms.
Adequate pricing of water should incentivise both demand cuts and
investments in solutions to increase the supply of water available.
One method of increasing the supply of water would be through
desalination of seawater. This solution is often viewed as an
expensive option for providing water supplies, but an adequate
water price can make these projects viable. Santa Barbara is
reactivating their desalination plant after more than 20 years as the
economics now make sense. Another approach to increasing the
supply of water would be to prevent freshwater lost through leakage.
The Department of Water Resources estimates that on average 10%
of water is lost through leakage with some cities losing more than
30%. The aging infrastructure will only deteriorate if repairs and
expansions are not carried out. The American Water Works
Association estimates that the costs of making the necessary
investments in the US drinking water infrastructure will top USD
1 trillion over the next 25 years. While the short term expenses of
moving to a more sustainable water supply seem significant, the
long-term consequences of not making these changes would mean
the population of California could not be supported in an
environment to thrive or even survive.
The last few miles approaching the winery continued to reveal the
dry landscape, as bare trellising from the recently harvested grapes
exposed the earth below. I expected the prospects for the wineries
coming vintages to be bleak from the drought conditions. However,
it turns out that grapes respond rapidly to the weather conditions
and force the vines to dig deep and squeeze more flavour into the
fruit, albeit with smaller berries and at much less quantities. A useful
lesson from nature can be learned here. Citizens and corporates of
water constrained regions need to adapt and innovate to bring more
sustainable supply of water and use the supplies that we do have
more effectively. 
7
Governance/
Section 2
The world would be a
“
better place if businesses
stopped thinking so much
about short term results and
focused more on the long
term.
”
Adi Ignatius, Editor of Harvard Business Review
8
ESG Matters | Issue 10
A better perspective:
Beyond the short term
In a world where the ever faster flow of information can encourage
short term thinking, ELIZABETH CORLEY opines on the benefits of
businesses taking a longer term strategic perspective. She also
looks at the role of asset management companies in providing
effective stewardship to achieve this goal.
Elizabeth Corley, CBE
Chief Executive Officer,
London
“The world would be a better place if businesses stopped thinking so
much about short term results and focused more on the long term”
was the view of Harvard Business Review editor Adi Ignatius in
January 2014. The same is sometimes said of asset managers and
the investors they serve. A longer-term approach in investment
practices can offer benefits for many market participants including
improved longer term decision making by companies and
consequentially better long term performance and sustainable
development, as well as better alignment between asset owners’
liabilities and assets.
Whilst a short term horizon is the essence of some activity, it can
also lead to negative consequences including the distortion of
prices and asset correlations, reducing wealth through churning,
and undermining potential long term value creation for clients.
Business models and investment strategies inevitably influence an
asset manager’s incentive and ability to exercise corporate
governance functions and therefore should be created with longterm perspective.
The problem of short termism
Whilst asset managers play a key role in the allocation of capital to
those that need it, they should also fulfil a crucial function in
promoting and encouraging the markets to take a longer term view
and encouraging investee companies to have more sustainable
business models. In 2010, the UK’s Financial Reporting Council
published the first UK Stewardship Code directed at institutional
investors, setting out key principles of effective stewardship, which
would promote long term success of the investee companies in
such a way that the ultimate providers of capital also benefit. Now
over four years old, almost 300 organisations have publicly
registered as signatories including more than 200 asset managers,
representing 32% of the UK equity market.1 The up take of the 
However, in a world of ever faster information flow and interactions,
it should not come as a surprise that businesses’ timeframes are
shortening. Innovation and the ability to utilise technology in a data
led marketplace has also inevitably enabled short term participants
to exercise greater sway. An example of which is trading patterns.
The increasing trading volumes of high frequency traders, the
incentive structures and strategies of activist investors, restrictions
on portfolio allocations driven by regulatory change and increasing
pressures on short term performance by asset managers, has led to
an increasing myopia, evidenced by steadily decreasing holding
periods (Figure 1).
Stewards of capital – the role of asset managers
9
GOVERNANCE/
SECTION 2
Figure 1: US equities holdings periods form 1975 to 2015
8
Number of Years
7
6
5
4
3
2
1
0
1975
1980
1985
Source: Thomson Reuters Datastream
1990
1995
2000
2005
2010
2015
Figure 2: Level of trust in industries in the UK
90
80
70
60
50
40
30
20
10
0
More trust
80
78
Less trust
77
75
2014
72
71
66
67
Consumer Automotive Entertainment
Electronics
Source: Edelman Trust Barometer 2015
Technology
67
Food and
Beverage
Over the past decades, there has been a seemingly inescapable shift
by the industry towards quarterly reporting. To its credit, the FCA
abandoned the rule in a move to encourage longer term thinking in
the stock markets, however only a handful of public firms have so far
begun to review the frequency of their reporting. Although
welcomed by many investors, asset managers must proactively
show support for the initiative, and for those companies brave
enough to implement such changes. As one of Diageo’s top
shareholders commented when the company announced its plans
to drop quarterly reports “This is a very good thing. We do not want
companies obsessing over the short term ups and downs of profit and
10
67
57
Code is an encouraging step forward in building a mass of investors
willing and able to engage in active stewardship, however, asset
managers must engage further in their role as stewards of capital.
The quality of engagement is still perceived to be too low and some
signatories appear not to be following through on their commitment
to the Code, perhaps seeing it as a box ticking exercise.2
2015
57
Chemicals
53
54
Financial
Services
54
53
Banks
52
51
Media
sales…. (with) a clear long term strategy in place… profits and sales
will follow”. 3
Promoting long term, responsible and sustainable investment
mandates
Policy makers and regulatory bodies must also address regulatory
barriers and other obstacles that hinder a longer term perspective,
such as accounting treatments of assets, as well as propose
guidelines to promote long term horizons in governance and
portfolio management. Here, the private sector can contribute ideas
on new models. A recent example is the work instigated by the
Cambridge Institute for Sustainable Leadership which focuses on
long-term responsible investment in the context of mandates. The
purpose is to develop a template for the optimal design and
characteristics of an equity investment mandate that encourages
long-term investment decisions and allows for improved
monitoring.
ESG Matters | Issue 10
However, to achieve real change the roles and approaches of all
stakeholders in the investment chain need to be considered.
Consultants, for instance, should be encouraged to also take a longer
term view and question fund turnover and agency effects to a
greater extent. Some do, but it is not yet common practice. Incentive
schemes across the industry must better align rewards with the long
term goals of clients. In addition, while not all asset managers will
have sufficient resources to do so, more should be done to engage
with investee firms on their governance and ensure the right skills
and teams are brought together to align and achieve the long term,
responsible and sustainable mandates asset managers are being
encouraged to use.
better governance standards and improved longer term
outcomes.
1
Developments in Corporate Governance and Stewardship
2014, Financial Reporting Council, January 2015
2
Who Can Really Take on Short-Termism, Adi Ignatius, Harvard
Business Review, 2014
3
UK asset manager calls for end to quarterly reporting,
Financial Times, 8th June 2015
At a time where the financial services industry remains one of the
less trusted industries in the UK (Figure 2), asset managers must play
their part in rebuilding confidence in markets, thus encouraging
investing for future growth and in turn jobs. This would lead to
11
Fracking/
Section 3
12
ESG Matters | Issue 10
Fracking: Boom
and burst
Marie-Sybille Connan
ESG Analyst,
Paris
MARIE-SYBILLE CONNAN examines fracking in the US and
raises questions about the economic and environmental
impact of this technique for gas and oil extraction.
For nearly a decade, we have been hearing
that the US is poised to regain its role as a
leading oil & gas producer thanks to the
widespread use of horizontal drilling and
fracturing, a process that made oil and gas
extraction
from
shale
formations
economic. This shale boom was expected
to change the US energy picture for
decades, leading to energy independence
and security, the re-birth of US
manufacturing and to a much better
environmental footprint thanks to the shift
from coal to gas in power generation. This
game changer would consequently
influence climate policy, foreign policy and
investments in alternative energy sources.
However, stepping back a little, we should
wonder whether this shale boom is
sustainable and even desirable.
There were key drivers and enablers of this
revolution in the US:
the combination of which is the best
economic equation.
2. Population density is relatively low,
limiting the risk of local resistance.
Landowners also have mineral rights
and as such are more likely to
monetize their rights and permit
drilling.
3.
1.
Shale rock is present across the US,
and most of the US major shale
regions can produce both oil and gas,
Regulation has been state, not federal
driven, and actually struggled to keep
pace with the entrepreneurial spirit of
the Exploration & Production 
13
FRACKING/
SECTION 3
Source: US Energy Information Administration (EIA)
(E&P) industry. There is no equivalent
outside the US in terms of equipment
availability (drilling rigs, gasification
facilities) and technical expertise.
All the conditions were met to make the
exploitation of shale formations an
economic success. In fact the shale frenzy
was credited as a key driver of the US
economic recovery after the 2008 financial
crisis.
Shale definitely presents attractive
opportunities but it comes with several
challenges. Fracking is a water intensive
technology.
Shale
formations
are
unfortunately located in water stressed
areas, such as the Texas Eagle Ford and
Barnett or the California Monterey
Formation, and water use competes with
agricultural and primary needs. Fracking
also requires the use of chemicals and
contaminants, and wastewater from the
14
fracking process needs treatment before
disposal or re-use. There is a risk of
groundwater contamination if there is a
fault in the well construction. The most
well-known concern, which has been
highly publicized by the movie “Gas Land”,
deals with potential methane emissions
during the completion process as they have
a much greater global warming effect than
carbon dioxide (75 – 105 time greater over
100 years and 25 – 33 times greater over 20
years). Land communities are also
concerned by land use, given the higher
number of wells than for conventional
oilfields, and road transport­
ation with
heavy trucks transporting equipment,
chemicals, sand, water and fuel for
generators and compressors.
As such, the US had to strike a fragile
balance between the opportunity driven by
the shale boom and the duty to limit its
environmental and social impact. But
beyond
these
pure
sustainability
considerations, more and more voices have
started raising concerns on the underlying
economic sustainability of fracking and the
economic mirage in which Americans
would be versed. The US could be left
unprepared for a painful, costly and
unexpected shock when the shale boom
winds down sooner than expected because
of declining production, unclear economics
in a context of depressed oil prices and the
flight to quality for investors who no longer
want to fund the growth strategy of E&P’s.
Among these voices, we heard the
geoscientist David Hughes, who in October
2014 released a new report “Drilling
Deeper: a reality check on US government
forecasts for a lasting tight oil and shale gas
boom”. This report brings a viewpoint to the
table that is outside of the mainstream
ESG Matters | Issue 10
Hydraulic fracturing or fracking
is the process of injecting, at a
high pressure, over a million
gallons of water, sand and
chemicals via a pipeline which
contains small holes .
Gas Well
It is drilled deep into the earth
– wells can reach 10,000 feet
below ground – at around 9,000
feet it curves horizontally.
Well
The highly pressured mix causes
cracks and fissures which are
held open by the sand particles
and the natural gas flows back
up the pipeline to the wellhead.
Acquifer\Water Table
Upper casing of well is
encased in cement
Water mixed with
Sand & Chemicals
Gas Line turns
horizontal
Fissures caused by
pressure inside well
Shale
rhetoric (brokers, companies, politicians)
and deserves to be taken into consideration
for the robustness of its methodology. The
analysis is based on the potential
production and shale depletion over time
and does not take into account price
assumptions. This worsens the picture
given that tight oil (shale oil) production is
viewed as costly and may not prove
economic if oil prices remain depressed.
The plays analyzed collectively are
representative of the US potential and
account for 89% and 88% of current tight oil
and shale gas production respectively.
The primary source for rosy forecasts of
future oil & gas production is the US
Department of Energy (DoE). Each year, the
DoE’s Energy Information Administration
(EIA) releases its ‘Annual Energy Outlook’
which provides a range of forecasts for
energy production, consumption and
prices. Hughes investigates whether the
EIA’s expectation of long term domestic oil
and gas production is founded, as
policymakers, media, investors and more
generally the public society take EIA
assumptions for granted and this is despite
their poor track-record. As an example, in
2011 the EIA was forced to cut its estimates
of technically recoverable shale gas in the
Marcellus play in Pennsylvania by 80% and
in Poland by 99% after the US Geological
Survey came out with much lower
numbers. In 2014, the EIA slashed its
estimate of technically recoverable tight oil
from California’s Monterey Formation by a
startling 96%.
Hughes concludes are that gas and tight oil
will peak before the next decade but that
production will be more front-loaded.
Production will also be far below EIA’s
forecast by 2040: oil production rates from
the Bakken and Eagle Ford will be less than
a tenth of the EIA forecasts and shale gas
production will be about one third! Meeting
the shale gas forecasts of the EIA would
require drilling some 130,000 additional
wells by 2040 at a cost of nearly USD1trn. It
would require a similar investment for a
total of about USD2trn to meet tight oil
forecasts. All in all, that is USD3trn that
could be invested in more sustainable
alternatives such as renewable energy and
smart grids. A second study from the
University of Texas came out in December
2014 with similar conclusions. Against this
backdrop, it is clear that prices must remain
considerably high to justify this level of
capital expenditures but this is not the
direction that oil prices took after the OPEC
summit in November 2014, where quite the
opposite outcome occurred. Oil prices
actually plummeted by 44% as OPEC, 
15
FRACKING/
SECTION 3
Figure 1: Falling cost of solar photovoltaics, solar PV
“ A large number
USD/MWH
of new wells must
350
PV - Thin Film
300
PV - Crystalline-Silicon Tracking
be drilled every
PV - Crystalline-Silicon
year in order to
keep production at
250
least flat.
200
”
H2 2014
H1 2014
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
100
Q3 2009
150
Source: BNEF, Global LCOE xls, 14 August 2014
led by Saudi Arabia, decided against the
output cut.
The drop in oil prices has clearly impaired
the shale lifecycle and revealed to the world
its inherent weaknesses. Indeed, the
business model of US E&Ps relies upon
quick payback by drilling the sweet spots of
shale plays. The issue is that depletion rates
are much higher than with conventional
wells (75% over the first three years against
15-20% for conventional wells). A large
number of new wells must be drilled every
year in order to keep production at least flat.
The drilling treadmill gives rise to the capex
treadmill but in a context of depressed oil
prices, the weakest E&P companies (i.e. the
least positioned and the most leveraged)
cannot keep the momentum and fund the
treadmill. WBH Energy and Quicksilver
Resources filed for bankruptcy and while
Whiting put themselves up for sale.
Furthermore, well productivity in the topproducing counties of the Bakken and Eagle
Ford is declining despite of the application
of the best technology available. It is due
16
both to the saturation of the sweet spots
within wells, the resulting move to lesser
quality areas, and potentially to well
interference as densely spaced wells
cannibalize each other’s production, a
phenomenon that should also only
increase.
Shale advocates use the technology
argument to wave away the evidence of
this steep decline rate for wells and plays.
But technology improvements cannot
achieve so much against this inexorable
reality of geology. It may be a hazardous bet
to take while renewables have significantly
improved their economics (see figure 1). It
was astonishing to hear at the recent Paris
Finance Climate Week in May the Saudi oil
minister and Chairman of Saudi Aramco,
Al-Naimi, saying: “We recognize that
eventually, one of these days, we’re not going
to need fossil fuels. I don’t know when – 2040,
2050 or thereafter. So we have embarked on
a program to develop solar and wind energy.
Hopefully, one of these days, instead of
exporting fossil fuels, we will be exporting
gigawatts of electric power”. He also added:
“I believe solar will be even more economic
than fossil fuels”. Is it another example of the
provocative attitude of a leader that in
January 2015 declared that he would not
care if the brent would go to USD 20 per
barrel and had decided to challenge the
high-cost US E&Ps? Or the statement of a
visionary? We don’t know but the US would
be wise to embrace a more sustainable
energy policy going beyond the next
election.
Shale has undoubtedly been a gamechanger but its long term sustainability is
questionable based on the pure geology.
These concerns have come to the forefront
in the current depressed oil price
environment. The US is entering a new era
of uncertainties. What would happen if the
infrastructure
investments
already
committed were based on flawed EIA
forecasts? Only the future will tell us if the
New York Times was right in 2011 when it
made headlines in drawing a parallel
between fracking operations and Ponzi
schemes.
ESG Matters | Issue 10
17
The Sharing
Economy/
Section 4
The sharing economy:
A problem shared is a
problem halved
ROBBIE MILES discusses the sharing economy as an alternative
solution to meeting growing consumer demand while at the
same time minimising the impact of this demand on the
environment.
Robbie Miles
ESG Analyst,
London
The problem is demand and the solution is a social
behavior that humans have evolved better than any
other animal on the planet – sharing. Lord Stern has
an uncanny skill in communicating the effects of
our problem by taking the barrage of disorientating
information and distilling from it the essential facts.
Speaking at the Guardian’s divestment debate in
May 2015, he set out our global challenge with
sobering simplicity:
•
We have a budget of roughly 1000gt of carbon
emissions before we warm the planet past 2°C
and climate change ‘self-reinforces’, i.e. spirals
out of control.
•
We currently emit 50gt of carbon per year.
•
This gives us just 20 years to transition to a
completely sustainable economy.
We can criticize the malevolence of the mining
companies for digging, fossil fuel companies for
18
ESG Matters | Issue 10
drilling, industries for burning and the
banks for funding but perhaps we should
confront the source of the problem:
consumer demand.
As long as we aspire to have a car for every
family, a variety of food flown in from
abroad, a new smart phone every couple of
years and a new wardrobe every season,
the old system of extraction, which is
jeopardizing life for all in as soon as 20
years, will continue to rumble on as usual.
However does all this ‘stuff’ actually make
us happy? Global Gross Domestic Product
has increased over three times since 1950,
whilst welfare, as estimated by the Genuine
Progress Indicator, has actually decreased
since 1978.1 Healthy ecosystems and the
services they provide are more important
for our long-term wellbeing than how
much stuff we can consume. This is ancient
wisdom. The aphorisms of Patanjali, written
in India 1600 years ago, warn that, “taking
more than we need, and wasting it, is a
form of stealing from the rest of mankind.”2
In essence we must get better at sharing.
The sharing economy provides access to
things rather than ownership. It takes
underutilised assets such as parked cars,
empty bedrooms, unseen art, spare seats,
dusty tools, etc. and puts them to work.
Without the burdens of storage or
maintenance, people enjoy all the utility
(getting from A to B, entertainment,
nourishment, shelter, etc.) for a fraction of
the cost. It reduces our unsustainable
demand without limiting lifestyle choices.
Exploiting idle resources replaces the need
to extend humanity’s destructive impact on
the planet, removing the need to excavate
virgin resources and convert them into
goods, polluting land, water and air in the
process. In social terms, sharing taps into
our deep-seated desire to connect with
others and be part of a community, as John
Donne wrote ‘no man is an island’. Enabled
by the internet, it is also convenient –
allowing us access to things we perhaps
couldn’t have afforded before and proving a
lucrative way of utilising our spare space,
things and time. 
19
THE SHARING
ECONOMY/
SECTION 4
The sharing economy in action
The sharing economy life-cycle
Niche
Breakthrough
Normalised
Mature
Book
rental
B&B and
hostels
Equipment
rental
Music
and video
streaming
Car
sharing
Peer-to-peer
accommodation
Online
staffing
Peer-to-peer
lending and
crowdfunding
Source: PwC analysis
20
Car
rental
Decline
or rebirth
DVD
rental
The sharing economy has been most
successful in disrupting traditional housing
and transport businesses. Take for example
the average cost of running a car in the UK,
estimated at GBP 3,453/year3, and compare
that to the cost of a lift from London to
Edinburgh approximately GBP 30, and
Bristol to London approximately GBP 8, on
the car sharing website ‘Bla Bla car’ Another
example is the website ‘Airbnb’ through
which I recently rented a room in Paris, 15
minutes walk from the Louvre, and for only
GBP 30 per night. The cheapest hotel
equivalent would have been at least double
as much and, to my mind at least, half as fun.
These businesses, and many others, are
beginning to breach the ‘adoption gap’ and
are becoming increasingly mainstream. The
disruptive threat is so significant that even
major car manufacturers are diversifying
into sharing. BMW has launched ‘DriveNow’,
a car-sharing application that has proved
successful in Germany and is now being
piloted in East London. Disintermediation of
the finance industry has been another huge
disruption. Funding Circle, a peer-to-peer
(P2P) lending site, employs just 200 people
whilst JPMorgan, a traditional loan provider,
employs 30,000 people in regulatory jobs
alone. This sort of huge cost base being cut
out by P2P lending explains why this facet of
sharing is expected to grow by 63% per year.
The ramifications of such disruption
however include a loss of jobs and the
potential for increasing inequality as the rich
squeeze more cash from their assets. These
are the negative externalities that
governments need to compensate for by
tweaking taxes and retraining the affected
workforce. After all, the transition to a low
carbon economy is a huge employment
opportunity. IRENA found that the global
renewables industry added 1 million new
jobs in 2014.4
The challenges
For some, the perception of risk is a
deterrent and a sceptic may think,
ESG Matters | Issue 10
“ The disruptive
threat is so
significant that
even major car
manufacturers are
diversifying into
sharing.
”
“Splendid, so I’ll just cross my fingers and
jump into this stranger’s car and maybe
even lend him my chainsaw?” The creation
and preservation of trust has always been
sharing’s biggest barrier. A problem that
eBay, an ecommerce platform, is all too
familiar with. In this context trust has been
built over time by accumulating
reputational capital via online reviews.
Privacy and ease of sharing pose additional
challenges. A new trade body, ‘SEUK’, has
been set up to represent the UK’s sharing
economy and overcome some of the
obstacles that willing participants
encounter. It is establishing a Code of
Conduct and developing a kitemark for
responsible sharing practices, which will
provide helpful tools for verifying and
protecting participants. And what about
the likelihood of people mistreating stuff
that isn’t theirs? Even that is more difficult
to get away with in our technical savvy age,
for example, cars these days have inbuilt
sensors that can monitor depreciation of
vehicles in real-time so that any wear and
tear can be factored into the cost of renting.
These monitoring technologies will help
cause even greater efficiencies in our use of
resources.
The solution
Benita Matofska, a champion of the sharing
movement, has launched ‘Compare and
Share’, a comparison site for the sharing
economy. What is striking is the plethora of
things that people are already sharing, for
free and for profit. ‘Borrow my Doggy’, ‘Girl
Meets Dress’, ‘Just Park’, ‘Nanny Share’ and
hundreds more. The savvy among you may
also notice the number of assets not
currently listed on Benita’s site: jewellery,
horses, freezer space… I’m not giving away
all my ideas but you’ll see there are big
opportunities for business here, without
much initial investment required. The
sharing economy is growing faster than
Facebook, Google and Yahoo combined.
Currently valued at USD 15 billion, PwC
predict this to grow to USD 325 billion by
2025.5 68% of the global population are
willing to share assets with 28% already
doing so.6 Young digital natives have been
the quickest demographic to embrace the
movement.
things, but sharing time. The cohesive
effect of the sharing economy is perhaps
akin to David Cameron’s failed vision of the
Big Society. Social bonds are incrementally
strengthened with each layer of trust built
up by successful exchanges. On a crowded
planet with limited resources, we need to
fundamentally change our patterns of
consumption to increase our resource
efficiency and build resilient communities.
By providing an opportunity to facilitate
such change, the sharing economy is a
savvy consumer’s dream, an entrepreneur’s
playground and, to round off in a circular
fashion, an environmentalist’s solution. 
1
Beyond GDP: Measuring and
achieving global genuine progress,
www.sciencedirect.com.
Communities are also collaborating in
response to climate change and resource
scarcity – becoming greener, more
inclusive and more resilient. The ‘Transition
Network’ engages local people to build
collectively-owned renewable energy
infrastructures and grow their own food.
The 3,270 participants in Totnes, the
world’s first transition town, have
generated income of £861,000 from
sharing locally grown veg, fruit and nuts,
solar panels and their knowledge in the art
of resilience.7 People are not only sharing
2
Yoga Aphorisms of Patanjali 400 CE.
3
Webuyanycar.com study, 2013.
4
IRENA, Renewable Energy and Jobs
– Annual Review 2015.
5
The Sharing Economy, PwC analysis
2014-2015.
6
Sharing Economy Survey, Nielsen,
2014.
7www.transitionnetwork.org/
initiatives/totnes.
21
Global
Gender Gap/
Section 5
The global gender gap:
Changing course and
discourse
In ESG matters 8, I wrote an article entitled Women in the Boardroom –
Why Europe is Winning the Race, without the background that this
figurative race was actually unfolding outside of the boardroom in the
run up to the 2015 Boat Race, the traditional annual rowing competition
between Cambridge and Oxford Universities in the UK.
22
ESG Matters | Issue 10
MARISSA BLANKENSHIP examines how closing the gender gap
can lead to important social, political, and economic outcomes
including promoting diversity in corporate leadership.
The world famous boat race is a treasured part of
the UK sporting landscape. Until 2015, only the
men’s race was fully sponsored and for the
previous 69 races where women also
participated, the race was even staged at
different courses. However, four years ago, a plan
was adopted to change the course so that both
the men’s and women’s teams could row on The
Tideway, River Thames and receive equal
sponsorship. This new arrangement was hard
fought by the CEO of Newton Investment
Management, Helena Morrissey, who is not an
oars women but is a Cambridge graduate, and is
known for her global leadership role in gender
diversity as the founder of the 30% Club, a
collaborative and voluntary effort to achieve 30%
of women on boards in the UK by 2015.
Both Ms. Morrissey’s initiative and the UK’s
Women on Boards voluntary, business led
framework have shown remarkable gains. In
March a progress report on the UK FTSE 100
showed that the 25% target by the end of 2015 is
well within reach and significantly, there are no
all-male boards in the FTSE 100.1 This voluntary
regime was launched in 2011 to a mixed
reception and in the shadow of the EU Directive
on legislative quotas. However, it success can be
measured with fewer than 20 new women
appointments to go to reach its target.
Marissa Blankenship
ESG Analyst,
London
23
GLOBAL GENDER
GAP/SECTION 5
Figure 1: Women on boards: progress on FTSE 100 boards
GDP per capita (constant 2011 international $’000)
30%
25%
20%
15%
10%
5%
0%
2010
2011
2012
2013
2014
2015 Q4 2015
Source: www.gov.uk/government/uploads/system/uploads/
attachment_data/file/415454/bis-15-134-women-on-boards
-2015-report.pdf
While the UK marches ahead, the 2012 Proposal for a Directive of the
European Parliament on improving the gender balance among nonexecutive directors through quotas is still awaiting approval. Of the
European Union 28 member states, the closest to meeting the
quantitative objective of at least 40% representation for each gender
by 2020 are France (31%), Finland (30%), Sweden (29%), and
Germany (26%). 2
Until an EU system is in place, Italy’s regulation is perhaps the most
stringent whereby if the less-represented gender does not hold at
least one-third of board seats by 2015, the company risks fines of up
to EUR 1 million and elected members could lose their office. Not
surprisingly, Italy has made substantial progress with 22% women on
the board as of 2014 up from only 6% in 2011. Germany has
implemented a quota of 30% by 2016 for the 100 largest listed
companies. They are close to achieving this having reached 26% as
of 2014. Companies that fail to find suitable candidates will be
obliged to leave those board seats vacant until a candidate is found.
In other markets, such as Japan, little progress has been made since
2013 and meeting the target of 30% corporate leadership posts to be
held by 2020 may be an improbable task from the current base of
3.1%. However, Ms. Morrissey’s 30% Club is in the early stages of
setting up plans to launch in Japan which should provide a necessary
catalyst for change following its successful expansion to other
markets outside of the UK including Hong Kong, Malaysia, and
Southern Africa.3
While progress on increasing female participation in management
on a global basis is mixed, importantly, the discourse on gender is
broadening in economic terms to include closing the gender gap,
24
Figure 2: GDP per capita vs. Global Gender Gap Index 2014
140
130
Qatar
120
110
100
90
Luxembourg
Kuwait
80
Singapore
70
Norway
60
Ireland
Switzerland
Saudi Arabia
50
Sweden
40
New Zealand
Iceland
Finland
30 Russian Federation
Brazil
20 Yemen India
China
Pakistan
Philippines
10
Lesotho
Nicaragua
Chad
Burundi
0
0.50
0.60
0.70
0.80
0.90
1.00
Global Index 2014 (0.00 - 1.00 scale)
Source: Global Gender Gap Index 2014 and the World Bank's World
Development Indicators (WDI) online database, accessed July 2014.
Note: The Global Gender Gap Index has been truncated to enhance
readability.
measuring the investment case for diversity, and recognising
women as growth generators as part of the labour force including
the informal economy.
The gender gap largely refers to the disparities between women and
men in important aspects of equality including the economy, politics,
health and education. The most impactful change of course on
gender issues dates back 20 years to the 1995 Fourth World
Conference on Women held in Beijing where 189 countries adopted
the Beijing Declaration and the Platform for Action. One of the 12
critical areas in the declaration was ‘women in the economy’ which
encompasses access to employment, appropriate working
conditions, and control over economic resources.
The outcome from the Platform for Action is that it has become a
key global document influencing many of the policies and initiatives
we are integrating today including Goal 5, achieve gender equality
and empower all women and girls, of the forthcoming Sustainable
Development Goals, the W20 (subset of the G20 charged with
furthering the issue of gender-driven growth), and most recently
the G7 commitment to female empowerment.
Specifically, the G7 has recognized the role of female economic
participation in reducing poverty and inequality, and have
committed to reducing the gender gap in workforce participation in
their countries by 25% by 2025.4 This commitment would bring more
than 100 million women into the labour force and significantly
increase global growth. It is particularly relevant for G7 member
Japan who ranks 104th out of 142 countries having only closed 65%
of the gender gap, ranking below Brazil at 71st (69%) and China at
87th (68%) according to the World Economic Forum’s Global Gender
ESG Matters | Issue 10
Figure 3: MSCI ACWI Index (>$10bn market cap)
“ The G7 has recognized the
180
160
role of female economic
140
120
participation in reducing
100
poverty and inequality, and
80
60
have committed to reducing
40
the gender gap in workforce
World - No WoB
World - > 1 WoB
Sep 14
participation in their countries
May 15
Jan 14
May 13
Sep 12
Jan 12
Sep 10
May 11
Jan 10
May 09
Sep 08
Jan 08
May 07
Jan 06
0
Sep 06
20
by 25% by 2025.
US - > 1 WoB
”
Source: Credit Suisse.
Gap Index (Figure 2).5 The Nordic countries of Iceland, Finland,
Norway, Sweden, and Denmark have each closed over 80% of the
gender gap and make up the top five members of the index.
At the company level, the proof statement for companies who have
diversity high on their agenda, specifically at the management and
board level, is to measure their investment performance versus
peers who lack diversity. According to the Credit Suisse Gender 3000
research, where 15% of senior management is female, return on
equity (ROE) in 2013 was 14.7% compared to 9.7% at companies with
less than 10% female representation. Equally, companies in the MSCI
All Country World Index (Figure 3) have demonstrated that since
2006 companies with at least one woman in management versus
none have outperformed. This builds an interesting investment case
for diversity although in order to reach parity in the boardroom and
in corporate society as a whole, adding one woman to a
management committee is not sufficient.
To put all the data in perspective, these varied initiatives, targets and
policies set by governments, international organisations, businesses
and collaborative grassroots efforts have the collective power to
lead to an increase in women in the economy which can lead to
equality in the workforce including more women in management
and women in the boardroom. Opportunities for women in the
workforce can lead to a reduction in poverty and inequality at a
minimum and for companies with greater diversity in corporate
leadership, this can lead to outperformance. None of this will be
possible, however, without equal consideration of the barriers which
prevent women from entering, re-entering and remaining in
employment including cultural and structural issues such as
opportunities for promotion, assistance with child and elder care
and achieving work-life balance.
Closing the gender gap has been and will be a long-term effort and it
appears that the change of course has been firmly set however just
how quickly this pace of change may be achieved is an open ended
question. While another 70 years per the Cambridge and Oxford
rowing legacy is clearly unreasonable, using the framework of 2030
per the Sustainable Development Goals steers the many milestones
from a country, company and society level down a productive
path. 
1www.gov.uk/government/uploads/system/uploads/
attachment_data/file/415454/bis-15-134-women-on-boards2015-report.pdf.
2http://ec.europa.eu/justice/gender-equality/files/gender_
balance_decision_making/boardroom_factsheet_en.pdf
3http://www.ft.com/cms/s/0/6b4460d0-1992-11e5-8201cbdb03d71480.html#axzz3ejLqjTvz.
4http://knowledge.allianz.com/?2975/7-surprising-outcomesof-the-G7.
5
http://reports.weforum.org/global-gender-gap-report-2014/
economies/
25
ALLIANZGI AND
ESG/SECTION 6
Please find below biographies of the contributors to this edition of ESG Matters:
Elizabeth Corley, CBE
Chief Executive Officer
Elizabeth Corley is Chief Executive Officer of Allianz Global Investors, a global asset manager 100% owned by Allianz. Prior to joining
Allianz in 2005, Elizabeth spent eleven years working at Merrill Lynch Investment Managers (formerly Mercury Asset Management).
Before this, Elizabeth was consultant and then partner with Coopers & Lybrand, and prior to that worked for a number of years in the
Life & Pensions industry.
Having served for two terms as Chairwoman of the Forum for European Asset Managers (an industry grouping of CEOs), she now is
a member of the Management Committee. In 2014 she was appointed to the European Securities and Markets Authority’s
stakeholder group. Elizabeth is also an Advisory Council member of TheCityUK Ltd and a member of TheCityUK International
Regulatory Strategy Group. Since April 2011 she has served as non-executive director on the Financial Reporting Council, the UK’s
independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. Since 2012
she also has served on the British Museum Investment Committee and is a member of the CFA Future of Finance Council. On 1 May
2014 she was appointed as an independent non-executive director of Pearson plc, the British multinational education and publishing
company. In June 2014, Elizabeth was asked to chair a panel of market practitioners to contribute to the Fair and Effective Markets
Review in the UK. Additionally, Elizabeth is an Advisory Council member for the AQR Institute of Asset Management at London
Business School.
Elizabeth was named ‘Most Influential Woman in Asset Management’ in 2009, CEO of the Year in 2011 and Most Influential Person in
Asset Management in 2012 by Financial News. She is a member of the Committee of 200, a membership organization of the world’s
most successful women business leaders. In addition, Elizabeth is a member of the Microloan Foundation Women’s Development
Group. As well as being a fellow of the Royal Society of Arts, Elizabeth is a writer and has had five thriller novels published.
Bozena Jankowska
Global Co-Head of ESG, ESG Research
Bozena Jankowska is a Director and the Global Co-Head of ESG with Allianz Global Investors, which she joined in 2000. Being the cohead of the firm’s Environmental, Social and Governance (ESG) team, Bozena is responsible for directing the firm’s global ESG
research, engagement and proxy voting platform which supports both specialist SRI funds and ESG integration. Bozena also leads the
firm’s efforts to provide insights into sustainability issues, and establishes and manages research partnerships within the firm and
with external research institutes and academic institutions. In 2006, she was responsible for the design, launch and management of
the Global Ecotrends Fund which became a significant global fund franchise reaching assets under management of EUR 1bn. Between
2012-2014 she was Chair of the UK SIF Analyst Committee and is representing Allianz Global Investors on the Cambridge Institute for
Sustainability Leadership Investment Leaders Group. She previously worked at John Laing PLC as their business and environment
advisor. Bozena has a B.Sc. in environmental science from the University of Sussex and an M.Sc. with distinction in Environmental
Technology from the Imperial College of Science, Technology and Medicine. In 2009, she was named as a Financial News Rising Star in
Fund Management.
Biographies
26
ESG Matters | Issue 10
Jeremy Kent, CFA
Portfolio Manager, ESG Analyst
Jeremy serves as deputy portfolio manager for the Global Sustainability strategy and is an ESG analyst responsible for covering
Industrials. Jeremy joined AllianzGI in 2008 through the graduate programme, starting an 18 month rotation of roles within the
company which include investment management and research analysis. Jeremy graduated from California State University in 2007
with a BA in Entrepreneurial Management. Jeremy is a CFA charterholder and holds the IMC designation.
Marie-Sybille Connan
ESG Analyst
Ms. Connan is an ESG analyst with Allianz Global Investors, which she joined in 2008. As a member of the firm’s Environmental, Social
and Governance (ESG) team, she is responsible for the energy, media and telecom sectors. Ms. Connan was previously a fund
manager and credit analyst with the firm. She has 16 years of investment-industry experience. Before joining the firm, Ms. Connan
was a senior credit analyst at Fortis Investments and Aviva Investors; before that, she worked at Natixis AM as a fund manager and
equity analyst, focusing on IT and software. Ms. Connan has a master’s in finance from the ESC Montpellier Business School. She is a
member of the French Society of Financial Analysts and a graduate of the Centre de Formation des Analystes Financiers.
Robbie Miles, ACA
ESG Analyst
Robbie is an ESG analyst with Allianz Global Investors, which he joined in 2014. He has analytical responsibilities on the Environmental,
Social and Governance (ESG) Research team for the utilities and industrials sectors. He has three years of sustainable finance
experience. Robbie qualified as a chartered accountant with PwC and holds a BA in Environment and Business from the University of
Leeds.
Marissa Blankenship
ESG Analyst
Marissa Blankenship is an ESG analyst with Allianz Global Investors, which she joined in 2011. As a member of the firm’s Environmental,
Social and Governance (ESG) team, she is responsible for conducting sustainability research on the financial sector. Marissa has 14
years of investment-industry experience. Before joining the firm, she worked as an associate in the equity-strategies group at Hall
Capital Management. Ms. Blankenship also conducted sustainability research on a wide range of sectors, companies and funds at
Truestone Impact Investment Management and Incofin Investment Management. She has a BS in Economics from the University of
California, Davis, an MSc in Latin American Economic Development from the University of London and is currently completing a
Master’s in Sustainability Leadership from the University of Cambridge. Marissa holds the IMC designation.
27
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28
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