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Hiroshi miyai Hiroshi miyai Presentation Transcript

  • TBLI CONFERENCE ASIA 2011Workshop 9 – TBLI Research and Innovation ESG Factors in Corporate Valuation -from the research by the SAAJs Working Group- September 15, 2011 Hiroshi Miyai, CMA Senior Executive Managing Director
  • Contents1. How financial analysts in Japan adopt ESG factors in their corporate valuation?2. Study of the relationship between ESG factors and the corporate performances3. How long term investors reflect the research on ESG factors into their investment process? Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 2
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (1)Present situation of responsible investments in the world Distribution of asset owners Others Japan Asia April,2006 May,2008 Aug.,2011 1.3% Africa 2.1% exclude 0.8% Japan Northern 1.7%PRI 362 929 Europe 33 institutions Oceania 18.6%Signatories Asset owners :133 237 19.0% Investment Managers :152 528 South Professional service America North 164 Europe partners :77 6.8% America 35.4%Assets under $2 trillion $22 trillion 14.3% $4.3 trillionmanagement (as of Jun, 2010) (Source) UNPRI Home Page Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 3
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (2)Activities of world analysts associations to promote ESG factors CFA Institute launched “Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors” on July 8, 2008. EFFAS(European Federation of Financial Analysts Societies) has been studying the KPIs(key performance indicators) for ESG and published 3.0 version on September 2010. The Securities Analysts Association of Japan(SAAJ) formed a “Working Group on ESG Factors in Corporate Valuation” in April 2009 and published the report on June 2010. Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 4
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (3)Awareness survey on ESG factors ①Overview of the survey Awareness Survey of ESG Factors by the Financial Analysts in Japan. Method : Online via website Subjects : 17,086 SAAJ’s chartered members Period : 28 October – 9 November, 2009 Number of Respondents : 599(among which 236 or 39.4% are engaged in corporate valuation)(Source) Quoted by NFI from the report of SAAJ Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 5
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (3)Awareness survey on ESG factors ②Recognition of the ESG related words 98.8% CSR(Corporate Social Responsibility) SRI(Socially Responsible Investment) 88.1% COP15 33.6% CDP(Carbon Disclosure Project) 23.9% PRI(UN Principles for Responsible … 23.7% UNEP-FI(UNEP Financial Initiative) 20.0% Global Compact 15.4% Materiality 14.2% CSP(Corporate Social Performance) 12.5% Millennium Development Goals 10.9% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%(Source) Drawn by NFI based on the report of SAAJ Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 6
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (3)Awareness survey on ESG factors ③Recognition of the ESG related terminologies by PRI recognition / non-recognition members COP15 25.4% 59.9% CDP(Carbon Disclosure Project) 17.5% 44.4% UNEP-FI(UNEP Financial Initiative) 6.6% 63.4% Global Compact 7.2% PRI Non- 41.5% Recognition Materiality 7.7% Members 35.2% PRI CSP(Corporate Social Performance) 9.4% Recognition 22.5% Members Millennium Development Goals 6.6% 24.6% 0% 10% 20% 30% 40% 50% 60% 70%(Source) Drawn by NFI based on the report of SAAJ Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 7
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (3)Awareness survey on ESG factorsMore than 80% respondents recognize the importance of ESG factors in their corporate valuation analysisESG factors are more referred by those who evaluate corporations in a medium to long term Recognition to be important to consider ESG factors in a different time frame work Short term Medium term Long term (<1 year) (1~3 years) (>3 years ~) Evaluation term 9% 51% 39% ESGs are important 86% 77% 87% 86% ESGs are not important 14% 23% 13% 14% Reasons to consider ESG factors by a different time frame work Short term Medium term Long term (<1 year) (1~3 years) (>3 years ~) Sustainable growth 53% 56% 66% Identifying risk 60% 68% 60% Request from clients 23% 19% 18% (Source) Drawn by NFI based on the report of SAAJ Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 8
  • 1. How financial analysts in Japan adopt ESG factors in their corporate valuation? (3)Awareness survey on ESG factors ④ESG factors in corporate valuationWhat do you think is necessary to increase the use of EGS factors in corporate valuation? Proven relationship between ESG factors 68.6% and corporate performance Improved corporate disclosure of ESG 64.6% issues Increased demands of investors for ESG 25.7% considerations Enhanced ESG research function in the 15.0% organizations others 5.3% 0% 10% 20% 30% 40% 50% 60% 70% 80%(Source) Drawn by NFI based on the report of SAAJ Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved. 9
  • 2. Study of the relationship between ESG factors and corporate performances (1)How to analyze ESG factorsHypothesis : The higher the ESG score, the higher the corporate profitability.Method : Regression analysis were conducted as follows,CFPi   i  1CSPi   2 LogSi+ 3 Di+ 4YDi   5 IDi CFPi:Financial data (ROA, Labor share, Labor productivity, Corporate value) CSPi:ESG score (JRI scores*) *Scores are given based on responses to the survey Si : Market capitalization conducted by Japan Research Institute, Limited(JRI). JRI provides “overall”, “environmental”, “social”, Di :Interest-bearing debt ratio “governance”, and “social and governance” scores by YDi :Yearly dummy variable its own methodology. IDi :TSE 33 sector dummy variable 10 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • 2. Study of the relationship between ESG factors and corporate performances (2)Results of the Analysis●Hypotheses : β1<0, statistically significant → high CSP score stocks have low CFP ⇒ ESG may be cost to corporate β1>0, statistically significant → high CSP score stocks have high CFP ⇒ ESG may contribute to corporate profitability β1 , not statistically significant → CSP score dose not show the relationship b/t CSP and CFP●Results :CFP level : β1 <0, statistically significant ⇒ ESG is a cost factorCFP increasing rate : β1 >0, some statistically significant ⇒ ESG may contribute to improve profitabilityStock return volatility : β1 <0, statistically significant ⇒ ESG may contribute to reduce volatility of return(Source) Drawn by NFI based on the report of SAAJ 11 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • 3. How long term investors reflect research on ESG factors into their investment process? (1)ESG factors for long term investment Long term investors need long term valuation Research for long term valuation needs long term data SAAJ’s Working Group continues to study on “ESG Factors in Corporate Valuation” as one of the important topics to celebrate SAAJ’s 50th anniversary(October, 2012).Corporate Financial Data Corporate Social Data=ROA, PER, Sales, etc. = ESG data Short Medium Long year 1 2 3 4 5 12 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • 3. How long term investors reflect research on ESG factors into their investment process? (2)How to use ESG valuations Viewpoint of Global Agreements corporate ・ILO Conventions productivity ・Framework Convention on Climate Change ・Ottawa Treaty on Anti-Personnel Landmines ESG rating agency’s own methodology + and sustainable ・Others growth is requiredInformation Sources Investorsof Corporate ESG Rating Agencies ・InvestmentESG Activities Survey analysis Management・Information Vendors ・Classification ESG Firms・Surveys to Companies ・Weighting Scores ・Banks・Corporate Annual Reports ・Correlation between ・Pension・Corporate CSR Reports factors Funds・Corporate Websites ・Other Global Information Sources of Corporate ESG Initiatives ・GC (Global Compact) ・CDP (Carbon Disclosure Project) Analysis of ESG data by ・GRI (Global Reporting Initiative) investors by themselves is (Source) Drawn by NFI using various sources. also important 13 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • 3. How long term investors reflect research on ESG factors into their investment process? (3)How to incorporate ESG factors into their investment Process Investment Philosophy ・Small Cap/Large Cap ・Value/Growth ・Others Domestic Equity Portfolio Construction Process Individual Management Construction Investment Investable Stock Research Portfolio Portfolio Trading Universe Selection Stocks Sector Allocation (a)Screen (b)Evaluate ESG Factors (c)Control・Environmental Risk Management・Social (Human Resources) ・Benchmarks・Governance ・Risk scores of ESG Factors (Source) Drawn by NFI using various sources. 14 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • 3. How long term investors reflect research on ESG factors into their investment process? (4)How Company provide ESG Data ①In-house Investments / EngagementsFunds, Insurance Companies) Asset Owners (Pension ②Asset Manager with specialized ESG Analysts (PRI Signatories) (PRI Signatories) Asset Managers ESG Company Rating ③Data Agencies Data ・Interviews Outsource ④Data ・Survey Investment ・CSR reports ・Websites Information (venders) ⑥Data(Indexes) ⑤Data (Source) Drown by NFI using various sources. 15 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.
  • Nikko Financial Intelligence (Corporate Profile) Corporate Name Nikko Financial Intelligence, Inc. Established December 1, 1970 Capital 1.0 billion YEN Shareholder SMBC Nikko Securities Inc. 100% Registration Financial Instruments Business Operator Investment Advisory / Agency Business, Director of Kanto Financial Bureau Registration No.915 A member of the Japan Securities Investment Advisors Association Address 8-1, Nihonbashi Kabuto-cho, Chuo-ku,Tokyo, 103-0026, Japan TEL :+81-3-5644-1600 FAX :+81-3-5644-1698 http://www.nikko-fi.co.jp/ Number of Staffs 36(as of August 2011)All the data and information in this material is provided for information purpose only, and shall not be construedas an attempt to encourage, arrange, intermediate, recommend, or advise any transaction related to sales offinancial products or services.All the data and information in this material was based on responsible sources but NFI provides no guarantee foraccuracy, completeness, timeliness, or non-violation of intellectual property rights. 16 Copyright NIKKO FINANCIAL INTELLIGENCE, Inc. All right reserved.