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TBLI Europe 2006 Paris Can extra-financial research complement financial research?  Moderator: Michael Jantzi  ,  Jantzi R...
Knowing. Not guessing.
<ul><li>Short-term thinking has not proven to generate better long-term alpha. </li></ul><ul><li>Long-term risks have show...
Companies start to think long-term!   2003  2004   With lack of quarterly guidance / reporting, ESG information will becom...
Intangible Assets as Key Drivers of Market Value Source: Juergen H Dalum,  Intangible Assets and Value Creation , John Wil...
ESG – risks are becoming real <ul><li>Environmental  risk: Hurricanes produced cost / losses of USD 170 bio in 2005; less ...
Extra-Financials Becoming a Priority Key Trends  <ul><li>Whether you believe in it or not, you better start  gaining knowl...
Weighted ASSET4 Algorithm Most important aspects:  59.68% 44.47%
Who is ASSET4 Employees 150 Denmark, DK HQ Zug, CH India, IN Mauritius, MU Head Quarter Zug (CH) Management (Zug) Peter Oh...
ASSET4 Framework of 18 Categories The Extra-Financial Library IntegratedRating Economic  Performance Environmental  Perfor...
<ul><li>Driver Indicators </li></ul><ul><li>provide information on management quality, by looking at the different policie...
ASSET4 Indicator Sample Content for Johnson & Johnson Does the company have a POLICY, code of conduct, procedure, programm...
How does it work? Choose out of 480 Measurements… A ccess to Medicine  Accounting Compliance  Accounting Controversies  Ac...
278 Indicators Economic Environmental Corporate Governance Social 2001 2002 2003 Revenue Sustainability INDICATOR WEIGHT 2...
…  choose your desired indicators … Build tailor made reports or exports …  ASSET4 - Indicator List Industry Reports Indus...
… Integrated in the Investment Process  Strategy Team Focus Allocation Themes Financial Analyst  Research Buy-Side Stock P...
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Talk by Dominique Habegger

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Dominique Habegger, Vice President Research - Asset4 - Switzerland

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Transcript of "Talk by Dominique Habegger"

  1. 1. TBLI Europe 2006 Paris Can extra-financial research complement financial research? Moderator: Michael Jantzi , Jantzi Research/SiRi Company Speaker: Dominique Habegger, VP of Research, ASSET4 <ul><li>What is the latest sell side research on SRI risk? </li></ul><ul><li>Are extra-financial issues relevant in company analysis? </li></ul>
  2. 2. Knowing. Not guessing.
  3. 3. <ul><li>Short-term thinking has not proven to generate better long-term alpha. </li></ul><ul><li>Long-term risks have shown to materialize sooner than expected. </li></ul><ul><li>Transparency on extra-financial issues is on the rise. </li></ul>Can extra-financial research complement financial research? YES … But to add more value it sill needs <ul><li>Better Information databases </li></ul><ul><li>Data track record (historical data) </li></ul><ul><li>More qualified (SRI)-analysts spending more time analyzing data rather than gathering it! </li></ul>
  4. 4. Companies start to think long-term! 2003 2004 With lack of quarterly guidance / reporting, ESG information will become mission critical Source: Greenwich Associates / WSJ, 385 public quoted companies 55% 72% Percentage of US companies surveyed that provide earnings guidance to analysts
  5. 5. Intangible Assets as Key Drivers of Market Value Source: Juergen H Dalum, Intangible Assets and Value Creation , John Wiley & Sons, 2002 Market value (S&P 500) Intangible assets Tangible assets
  6. 6. ESG – risks are becoming real <ul><li>Environmental risk: Hurricanes produced cost / losses of USD 170 bio in 2005; less than 50% were covered by an insurance Historical data for cost / losses: 1960: USD 4 bio 1970: USD 7 bio 1980: USD 24 bio 1990: USD 113 bio 2000-2005: USD 273 bio) Source: EarthPolicy.org </li></ul><ul><li>Social risk: Life span of CEO / top management less than 5 years </li></ul><ul><li>Corporate Governance risk: 1‘200 public US companies had to restate financial results 2005 – lack of good management systems </li></ul>
  7. 7. Extra-Financials Becoming a Priority Key Trends <ul><li>Whether you believe in it or not, you better start gaining knowledge on these issues: </li></ul><ul><ul><li>Capital markets care about them – and external perception drives stock price, cost of capital and reputation. </li></ul></ul><ul><ul><li>Your clients want to feel more certain than ever about your integrated performance and decision-making process. </li></ul></ul><ul><ul><li>Knowledge-based decision making is essential for the long term. </li></ul></ul>Risk Opportunities Reputation Performance
  8. 8. Weighted ASSET4 Algorithm Most important aspects: 59.68% 44.47%
  9. 9. Who is ASSET4 Employees 150 Denmark, DK HQ Zug, CH India, IN Mauritius, MU Head Quarter Zug (CH) Management (Zug) Peter Ohnemus, CEO Henrik Steffensen, Marketing Wolfgang Kreft, Sales Dominique Habegger, Research Erik Troelsen, Technology Ted Yarnell, Vice President Americas Simon Rowell, Managing Director UK Fabrice Fayd’herbe de Maudave, Data Service Founded August 2003 Shareholders High Net Worth Individuals and Goldman Sachs Products assetmasterProfessional, assetmasterExecutive Market Financial Institutions (Buy-Side, Sell-Side Research, Asset Management, Quant, Risk, Marketing & Reporting) Insurance House, Pensions Funds, Specialized Funds, Corporations Headquarter ASSET4 AG, Zug Switzerland Partners International Institute for Management Development (IMD), GOE / Swiss Federal Institute of Technology (ETH); Copenhagen Business School (CBS) <ul><li>Suppliers Thomson Financial (financial data), LexisNexis (5000 news sources) </li></ul>Offices New York (US), London (UK) Denmark (DK), Mauritius (MU), India (IN) New York, USA London, UK Business statement ASSET4 is the world’s leading provider of comprehensive, integrated and transparent financial and extra-financial information, which is essential to understanding and managing the long-term performance and risk profile of today’s corporations. The ASSET4 IntegratedRating TM framework supported by 120+ analysts, offers investment professionals the data and tools necessary to track, analyse and benchmark the practices and performances of their portfolios, funds and companies.
  10. 10. ASSET4 Framework of 18 Categories The Extra-Financial Library IntegratedRating Economic Performance Environmental Performance Social Performance Corporate Governance Performance <ul><li>Revenues / Client Loyalty </li></ul><ul><li>Margins / Performance </li></ul><ul><li>Profitability / Shareholders Loyalty </li></ul><ul><li>Resource Reduction </li></ul><ul><li>Emission Reduction </li></ul><ul><li>Product Innovation </li></ul><ul><li>Workforce / Employment Quality </li></ul><ul><li>Workforce / Health & Safety </li></ul><ul><li>Workforce / Training & Dev. </li></ul><ul><li>Workforce / Diversity & Opportunities </li></ul><ul><li>Society / Human Rights </li></ul><ul><li>Society / Community </li></ul><ul><li>Customer / Product Responsibility </li></ul><ul><li>Board of Directors / Board structure </li></ul><ul><li>Board of Directors / Compensation Policy </li></ul><ul><li>Board of Directors / Board Functions </li></ul><ul><li>Shareholders / Shareholders Rights </li></ul><ul><li>Integration / Vision and Strategy </li></ul><ul><li>The customer/product responsibility category measures a company's management commitment and effectiveness towards creating value-added products and services upholding the customer's security. It reflects a company's capacity to maintain its license to operate by producing quality goods and services integrating the customer's health and safety, and preserving its integrity and privacy also through accurate product information and labeling. </li></ul>Example
  11. 11. <ul><li>Driver Indicators </li></ul><ul><li>provide information on management quality, by looking at the different policies, means of implementation and control mechanisms a corporation has in place. They are lead indicators forecasting future outcome. </li></ul><ul><li>Outcome Indicators </li></ul><ul><li>give a picture of actual performance, performance improvements, transparency and areas with higher than average risk exposure. </li></ul>Checks and Balances According to the Balanced Scorecard
  12. 12. ASSET4 Indicator Sample Content for Johnson & Johnson Does the company have a POLICY, code of conduct, procedure, programme, compliance mechanism or management system for --reducing the use of natural resources, such as raw materials, energy or water? AND --finding more eco-efficient solutions by improving supply chain management? Value: Yes/Yes Rating: A (88%)
  13. 13. How does it work? Choose out of 480 Measurements… A ccess to Medicine Accounting Compliance Accounting Controversies Accuracy Animal Testing Announced Lay-offs Anti-competition Compliance Anti-competition Controversies Anti-takeover Devices Audit and Accounting Fees Audit Committee Expertise Audit Committee Independence Audit Committee Management’s Independence Auditor Independence Awards B ackground and Skills Benefits Biodiversity Controversies Biodiversity Impact Board Attendance Board Diversity Board Meetings Board Member Compensation Board Member Mandates Board of Directors / Board Functions Board of Directors / Board Structure Board of Directors / Compensation Policy Board’s Oversight Bonus Plan Brand Value Bribery, Corruption and Fraud Business Ethics Compliance C apital Expenditure Cash Flow Growth Cement CO2 Emissions Cement Energy Use CEO – Chairman Separation Challenges and Trade-off Child Labor Client Satisfaction Clinical Trials and Research Controversies Clinical Trials and Research Guidelines CO2 Reduction Commercial Risks/Opportunities Due to Climate Change Compensation Committee Independence Compensation Committee Management’s Independence Compensation Controversies Consumer Complaints Corporate Governance Report Cost Innovations Credit Ratings Crisis Management Customer / Product Responsibility Customer Controversies D ebt to Equity Development Discharge into Water System Diseases of the Developing World Diversity Compliance Diversity Controversies Dividend Payout Ratio Donations in Cash Donations in General Driver Board of Directors / Board Functions Driver Board of Directors / Board Structure Driver Board of Directors / Compensation Policy Driver Customer / Product Responsibility Driver Emission Reduction Driver Integration / Vision and Strategy Driver Margins / Performance Driver Product Innovation Driver Profitability / Shareholders Loyalty Driver Resource Reduction Driver Revenue / Client Loyalty Driver Shareholders / Shareholders Rights Driver Society / Community Driver Society / Human Rights Driver Workforce / Diversity and Opportunity Driver Workforce / Employment Health & Safety Driver Workforce / Employment Quality Driver Workforce / Training and Development Drug Delays E arnings Restatement Emission Reduction 104 Employee Cost Employee Productivity Employee Satisfaction Employment Awards Energy Efficiency Initiatives Energy Footprint Energy Use Environmental Asset Management Environmental Citizenship Environmental Compliance Environmental Expenditures Environmental Labels and Awards Environmental Partnerships R&D Environmental R&D Expenditures Environmental Supply Chain Management Excessive Consumption Experienced Board Exposure Board of Directors / Board Functions Exposure Environmental Project Financing Environmental Quality Management Environmental Board of Directors / Board Structure Exposure Board of Directors / Compensation Policy Exposure Customer / Product Responsibility Exposure Emission Reduction Exposure Integration / Vision and Strategy Exposure Margins / Performance Exposure Product Innovation Exposure Profitability / Shareholders Loyalty Exposure Resource Reduction Exposure Revenue / Client Loyalty Exposure Shareholders / Shareholders Rights Exposure Society / Community Exposure Society / Human Rights Exposure Workforce / Diversity and Opportunity Exposure Workforce / Employment Health & Safety Exposure Workforce / Employment Quality Exposure Workforce / Training and Development F amily Friendly FDA Warning Letters Female Male Ratio F-Gases Emissions Fleet CO2 Emissions Fleet Fuel Consumption Fleet Recycling Freedom of Association G lobal Reporting GMO free GMO Research Green Buildings Greenhouse Gas Emissions GRI Report H armful Products Hazardous Waste Health and Safety Compliance Health and Safety Controversies Highest Salary HIV-AIDS Programme Human Rights Controversies I mplementation Board of Directors / Board Functions Implementation Board of Directors / Board Structure Implementation Board of Directors / Compensation Policy Implementation Customer / Product Responsibility Implementation Emission Reduction Implementation Integration / Vision and Strategy Implementation Margins / Performance Implementation Product Innovation Implementation Profitability / Shareholders Loyalty Implementation Resource Reduction Implementation Revenue / Client Loyalty Implementation Shareholders / Shareholders Rights Implementation Society / Community Implementation Society / Human Rights Implementation Workforce / Diversity and Opportunity Implementation Workforce / Employment Health & Safety Implementation Workforce / Employment Quality Implementation Workforce / Training and Development Improvements Board of Directors / Board Functions Improvements Board of Directors / Board Structure Fig. 3.3 - Indicator Overview … see ASSET4 - Indicator List
  14. 14. 278 Indicators Economic Environmental Corporate Governance Social 2001 2002 2003 Revenue Sustainability INDICATOR WEIGHT 2004 Revenue Growth 20 % Market Share 15 % Consumer Complaints 10 % Product Recalls / Withdrawals 15 % Brand Value 10 % Anti-Competition Controversies 10 % 100 % … choose your desired indicators The ASSET4 assetmasterProfessional solution permits users to build their own themes. They choose any indicators they think are particularly important and weight them according to their preferences. In constructing these themes we suggest that they match financial indicators with extra-financials indicators to strengthen their analysis. Our system allows you to construct any theme of your interest, such as Management Ratings, Industry specific Ratings or Risks Ratings . My Rating time Fig. 2.1 - History Trend Fig. 2.0 - Best in Class Fig. 1.9 - Strength & Weaknesses Benchmarking Best in Class Trend The Spiderweb Diagram shows you immediately strengths and weaknesses against the benchmark. Best in Class is a quick view of a company's position within the industry. Monitor performance over time. Fig. 1.8 - Theme building The ASSET4 assetmasterProfessional solution provides 278 financial and extra-financial indicators that can be individually selected to obtain an aggregate rating on specific themes. A direct benchmark analysis will provide a transparent comparison and best in class to the respective peers. Fig. 2.2 - Symbolic view of Indicators … Create your own ratings or themes Market Leadership Market Leadership Revenue Sustainability 2001 2002 2003 2004 years 100 % 0 % Revenue Growth Market Share Market Leadership Consumer Complaints Product Recalls Withdrawals Brand Value Anti-Competition Controversies Revenue Sustainability
  15. 15. … choose your desired indicators … Build tailor made reports or exports … ASSET4 - Indicator List Industry Reports Industry Report Indicator Reports Companies comparison on very specific indicators … Data Reports Data Report … create tailored reports <ul><li>My Ratings </li></ul><ul><ul><li>The ASSET4 assetmasterProfessional solution allows building multiple personal ratings, such as management ratings, industry specific ratings, risks ratings by selecting and weighting any item from the indicator list </li></ul></ul><ul><li>My Reports </li></ul><ul><ul><li>assetmasterProfessional 2.4 will enable our users to define their own exporting formats (spreadsheets, or pdf reports) </li></ul></ul><ul><ul><li>ASSET4 enables the generation of individually designed reports according to your needs (tables, graphs, data, etc.) </li></ul></ul><ul><ul><li>With assetmasterProfessional , tailor made company reports and newsletters can be designed and automated to meet your clients’ reporting expectations </li></ul></ul>2001 2002 2003 Revenue Sustainability INDICATOR WEIGHT 2004 Revenue Growth 20 % Market Share 15 % Consumer Complaints 10 % Product Recalls / Withdrawals 15 % Brand Value 10 % Anti-Competition Controversies 10 % 100 % Market Leadership time Category Reports Category Report Resource Reduction … Company Reports Company Report IntegratedRating D +
  16. 16. … Integrated in the Investment Process Strategy Team Focus Allocation Themes Financial Analyst Research Buy-Side Stock Picking + Valuations Economics Risk Portfolio Manager Quant Analyst Risk Monitoring Alerts Investment Strategy Client Relationship Management Push - Pull Mandates Reporting Marketing Profiling Client Politics … Analyst Research Sell-Side Research Reports Corporations Broker Stock Exchange ASSET4 – Investment Professionalism for Your Investment Decisions Definition Investment Universe Bottom-up Stock Selection / Definition of Products or Portfolios Risk Management Reporting IntegratedRatings TM EESG Rating / MyRating Company / Portfolio Analysis Data collection Algorithms Institutional Private <ul><li>Country Exposure </li></ul><ul><li>Currency Exposure </li></ul><ul><li>Sector Exposure </li></ul><ul><li>Environmental Exposure </li></ul><ul><li>Extra – Financial Exposure </li></ul><ul><li>… </li></ul><ul><li>Risk Models </li></ul><ul><li>Performance Models </li></ul><ul><li>Algorithm Optimisation </li></ul><ul><li>Quantitative Research </li></ul><ul><li>Correlation Studies </li></ul><ul><li>IntegratedRatings TM </li></ul><ul><li>Raw Data Analysis </li></ul><ul><li>Analysis / Benchmarking </li></ul><ul><li>Reporting </li></ul><ul><li>MyRatings </li></ul><ul><li>EESG exposure of Stocks </li></ul><ul><li>EESG exposure of Industries </li></ul><ul><li>Alerts </li></ul><ul><li>Category Reports </li></ul><ul><li>Portfolio Exposure Reports </li></ul><ul><li>Risk Reports </li></ul><ul><li>IntegratedRating Reports </li></ul><ul><li>Indicator Reports (e.g. CO2) </li></ul><ul><li>Risk Exposure – EESG - Indicator </li></ul><ul><li>Risk Reporting </li></ul><ul><li>Alerts </li></ul><ul><li>Investment Universe Definition </li></ul><ul><li>Industry versus EESG Exposure </li></ul><ul><li>Country versus EESG Exposure </li></ul><ul><li>IntegratedRatings TM </li></ul><ul><li>MyRatings </li></ul><ul><li>Stock Selection </li></ul><ul><li>Raw Data Analysis </li></ul><ul><li>EESG Analysis </li></ul><ul><li>Benchmarking </li></ul><ul><li>Reporting </li></ul><ul><li>Best in Class </li></ul><ul><li>IntegratedRatings TM </li></ul><ul><li>Stock Selection </li></ul><ul><li>Products Definition - EESG </li></ul><ul><li>Reporting </li></ul><ul><li>Exposure / Ratings EESG </li></ul><ul><li>Raw Data Analysis </li></ul><ul><li>Optimisation with EESG Algorithms </li></ul><ul><li>Scenario Analysis / MyRatings </li></ul><ul><li>Alerts </li></ul><ul><li>Stock Picking, Best in Class </li></ul><ul><li>IntegratedRatings TM </li></ul><ul><li>Portfolio Management - EESG </li></ul><ul><li>Risk Monitoring - EESG </li></ul><ul><li>Alerts </li></ul><ul><li>MyRatings </li></ul><ul><li>Portfolio Construction </li></ul><ul><li>Profiling </li></ul><ul><li>EESG Expertise </li></ul>Investment Strategy Profiling Asset Allocation Monitoring Reporting MSCI Parameters Universe Stock Selection E Economic E Environment S Social G Governance M&A <ul><li>Cultural Synergies </li></ul><ul><li>Risk Exposures </li></ul>Portfolio Management Communication Risk Management EESG Valuation Economic Environment Social Governance Fig. 2.3 - ASSET4 in the Investment Process Technical Analyst 1001101010010 1011110011111 0110111001111 SRI Analyst Model Portfolio !
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