ESG Risk Assessment

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Talk by Henrik Steffensen, ASSET4
Vice President Marketing, Co-founder.

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ESG Risk Assessment

  1. 1. Henrik Steffensen, ASSET4 Vice President Marketing, Co-founder TBLI Conference Yokohama May 27-28 2009 ESG Risk Assessment
  2. 2. ASSET4 の ESG データとフレームワーク 全体的な成果 <ul><li>顧客への忠誠心 </li></ul><ul><li>業績 </li></ul><ul><li>株主への忠誠心 </li></ul><ul><li>資源の削減 </li></ul><ul><li>排出量の削減 </li></ul><ul><li>製品の開発 </li></ul><ul><li>雇用の質 </li></ul><ul><li>衛生と安全 </li></ul><ul><li>訓練と育成 </li></ul><ul><li>多様性 </li></ul><ul><li>人権 </li></ul><ul><li>コミュニティ </li></ul><ul><li>製品責任 </li></ul><ul><li>取締役会の構造 </li></ul><ul><li>補償方針 </li></ul><ul><li>取締役会の機能 </li></ul><ul><li>株主の権利 </li></ul><ul><li>ビジョンと戦略 </li></ul>経済的成果 環境関連の成果 社会的成果 コーポレート・ガバナンス による成果 会社の全体像 分類 指標 重要な柱 公開データソースにリンク 250 以上の 主要業績評価指標 / 900 のデータ・ポイント 初期の情報構造
  3. 3. <ul><li>Risk Assessment -- Can ESG Really Do the Job? </li></ul><ul><li>ESG risks – how are they covered today? </li></ul><ul><li>How does ESG complement financial risk assessment? </li></ul><ul><li>What are the key considerations – from a data perspective? </li></ul>
  4. 4. Are you at risk if you invest in companies that: <ul><li>Have the highest level of CO2 emissions in their industry </li></ul><ul><li>Deprive employees of freedom of association </li></ul><ul><li>Have suppliers using child labour </li></ul><ul><li>Ignore international health and safety standards </li></ul><ul><li>Cause severe environmental damages </li></ul><ul><li>Have excessive levels of remuneration for their senior executives </li></ul><ul><li>Fail to provide transparent reporting to their shareholders </li></ul><ul><li>Rely on extortion and bribery </li></ul><ul><li>Etc. </li></ul>Do you think these companies will outperform in the long run?
  5. 5. Are you comfortable if you can monitor whether your portfolio companies: <ul><li>Comply with fundamental international norms, such as the Global Compact </li></ul><ul><li>Are best-in-class in reducing carbon and other emissions as well as waste </li></ul><ul><li>Make efficient use of natural resources </li></ul><ul><li>Have high levels of employment satisfaction and low levels of employee turnover </li></ul><ul><li>Invest in developing new innovative products </li></ul><ul><li>Have a competent and independent board of directors </li></ul><ul><li>Develop a strong brand through strong relations with communities and other stakeholders </li></ul><ul><li>Manage their business in accordance with a long-term, sustainable strategy </li></ul><ul><li>Clearly report on issues that have a material impact on their business success </li></ul>Do you think this would limit financial risk?
  6. 6. Trends in ESG risk assessments <ul><li>Research providers and rating agencies </li></ul><ul><ul><li>Sector reviews </li></ul></ul><ul><ul><li>Corporate compliance assessments </li></ul></ul><ul><ul><li>Risk monitoring getting started </li></ul></ul><ul><li>Brokerage research </li></ul><ul><ul><li>Picking themes to uncover value & risk for long-term performance </li></ul></ul><ul><li>Convergence between ESG analysis and financial analysis </li></ul><ul><ul><li>Getting underway where ESG factors have an impact on valuation </li></ul></ul><ul><li>Progress in information and tools available </li></ul><ul><li>ESG – proxy for quality management </li></ul><ul><ul><li>Avoid systematic risk </li></ul></ul><ul><ul><li>Identify opportunity </li></ul></ul>
  7. 7. A key insight of CR Reporting: The quality of a company’s management <ul><ul><ul><li>80% of CFOs and Professional Investors believe that ESG information can serve as a proxy for the quality of a company’s management. </li></ul></ul></ul><ul><li>Companies defending the interests of various stakeholders are less likely to run into negative publicity and companies considering its stakeholders view gains competitive advantage. </li></ul>Source: The McKinsey Quarterly, Feb. 2009
  8. 8. Unique challenges of ESG data – differences with financial data <ul><li>Reports are voluntary </li></ul><ul><li>Variables are un-audited and not standardised </li></ul><ul><li>Scope and timing are inconsistent </li></ul><ul><li>Relevancy of data differs across sectors and industries </li></ul><ul><li>Reports are produced for a variety of reasons </li></ul>Global Scope Local Scope
  9. 9. Relevancy of data <ul><li>Relevance differs greatly across sectors </li></ul><ul><li>ESG reports are for various stakeholders </li></ul><ul><ul><li>Marketing for customers, employees, general public </li></ul></ul><ul><ul><li>Responding to problems and pressure </li></ul></ul><ul><ul><li>A reflection of leadership and management quality </li></ul></ul><ul><li>Necessity to cut through noise and stories </li></ul><ul><ul><li>Policies must be broken down, and the extent of implementation must be measured </li></ul></ul><ul><ul><li>Objective variables must be carefully considered </li></ul></ul><ul><ul><li>Contradicting controversies must be incorporated </li></ul></ul><ul><ul><li>Biases of the data must be considered: market cap </li></ul></ul>
  10. 10. Data availability: Improvement in CO 2 reporting Percentage of Companies Reporting on CO 2 Emissions Source: ASSET4
  11. 11. The need: objective, transparent and comparable data <ul><li>Standardised units across companies </li></ul><ul><ul><li>Consistent approach to the data </li></ul></ul><ul><li>Timely, on-going updates </li></ul><ul><ul><li>Relevant, current information must be reported </li></ul></ul><ul><li>Information broken into smaller units to measure performance </li></ul><ul><ul><li>Policies and outcomes </li></ul></ul><ul><li>Common starting point for customised uses of the data </li></ul><ul><li>Have access to all sides of the data </li></ul>
  12. 12. Importance of monitoring extra-financial risk Average 2002-2006 5% 15% 6% 17% 5% 17% 6% 19% 3% 16% ROIC ROE ROIC ROE ROIC ROE ROIC ROE ROIC ROE ESG assessment Market cap today Market cap, May 2007 Merrill Lynch Lehman Brothers Morgan Stanley Goldman Sachs Bear Stearns B B- A- A- D Acquired $0 $30B $68B $0 $90B $50B $90B $100B $17B Credit Ratings 2006 Aa3 AA- A1 A+ Aa3 A+ Aa3 AA- A1 A+ S&P S&P S&P S&P Moody‘s S&P Moody‘s Moody‘s Moody‘s Moody‘s

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