beyond the materiality debate to applications

1ASSET4 AG | Fall 2009 Webinar

Chris topher GreenwaldDirector of Data Content

Beyond the Materiality Debate to Applications


Agenda

Introduction to ASSET4

ESG data and integration− Problems with the Materiality Debate− The macro view: ESG data as a measurement of management quality− The micro view: ESG materiality in CO2, energy, employee turnover, lost

days/training and corporate governance

Recent human rights study

Q&A and discussion


: The s tate of ESG integration a macro and micro view


Annual Reports

CSRReports

CompanyWebsites

NewsSources

NGOWebsites

4 ASSET data s ources and products

Stock Exchange Filings

ObjectiveESG Database

Data Collec tion

Negative Screening News Monitoring

One-Click ESG Interface

Fixed IncomeCarbon Data & Estimates

asse tmas te rProfe ss ional

Data Analys is


- Importance of monitoring extra financ ial ris k

MerrillLynch

LehmanBrothers

MorganStanley

GoldmanSachs

BearStearns

Average2002-2006 5%15%6%17%5%17%6%19%3%16%

ROICROEROICROEROICROEROICROEROICROE

-Equal weightedas s es sment

BB-A-A-D

Market cap today Acquired$0$40B$85B$0

, 2007Market cap May $90B$50B$90B$100B$17B

2006Credit RatingsAa3AA-A1A+Aa3A+Aa3AA-A1A+

S&PS&PS&PS&P‘Moody sS&P ‘Moody s ‘Moody s ‘Moody s ‘Moody s


Getting Beyond the Materiality Debate

The current gap between the SRI community and the mainstream− Mainstream: Significant interest in the data but lack of knowledge how to use the data− ESG/SRI: Deep knowledge of the data but not translating into applications that the mainstream

can understand

Problems with Materiality Debate

− Studies of SRI Fund performance = Studies of fund managers not of truly integration of ESG and financial data

− Demands to prove financial out-performance via correlation with asset prices are misplaced Modern finance theory would claim this is impossible. How one uses the data in an investment strategy is key Still distinction between ESG and financial data

How to move beyond this debate− Conduct more performance studies which integrate ESG data into various financial models− Focus on s implification and materially relevant data− Provide tools for eas y acces s for integration− Do more education for the mainstream: Provide more work on demonstrating the relationship

between ESG data and financial risks/opportunities


: ESG a proxy for management quality

According to a recent Issue of The McKinsey Quarte rly :

80% of CFOs and CIOs believe that ESG information can s erve as a ’ .proxy for the quality of a company s management

Source: The McKinsey Quarte rly , Feb. 2009


CO2 Value / EBITDA

2Materiality of CO

0%

20%

40%

60%

80%

100%

120%

140%

160%

Indus trials ,Energy Oil &Gas

Chemicals AirTrans port

Stee l Utilitie s Cement

€13.3/ton

€62/ton

Source: ASSET4

3.6%0.5%7.3% 8.1% 11%

21%31%


Materiality of energy

Energy Cost / EBITDA

Source: ASSET4


Materiality of employee turnover rates

Value of Employee Churn Rates / EBITDA

Source: ASSET4


Materiality of los t days and training

Lost Days and Training Expense / EBITDA

Source: ASSET4

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Financ ials Health Care Utilities Materials Energy / IT Te lecom . .Cons Non.Dis c

. .Cons Dis c Indus trials

Lost DaysTrainingTotal


Brand value and market caps

Brand Value as a Percentage of Market Caps

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Health Care Ene rg y Ut ilit ie s Financia ls / IT Te le com Industria ls . .Cons Non.Disc

. .Cons Disc


4, New s tudy from ASSET Harvard Law and IRRC

- SUPPLY CHAIN LABOR AND HUMAN RIGHTS POLICIES ARE BECOMING THE NORMFOR LARGE CAP COMPANIES

Firs t-of-a-Kind Be nchmark S tudy Finds 43 Pe rce nt of Europe an Companie s Have S upply -Chain Labor and Human Rights Polic ie s , With U.S . and As ia Lagg ing Be hind

, , 11, 2009NEWYORK NY November – Some 28% of global companies – including nearly half of those with market capitalizations of more than $10 billion – have labor and human rights (LHR) policies covering their global supply chains. However, materially fewer have established follow-up monitoring and enforcement procedures.


- Supply chain polic ie s by geography

Percentage of Companies with Supply-Chain Policies by Geography

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Supply Chain HR Po licy

Supply Chain He alth & Safe ty

Po licy

Child Labo urPo licy

Fo rce d Labo urPo licy

Fre e dom o f Assn Po licy

Code o fConduct

ILO

EuropeUSAsia/Pac


0%

10%

20%

30%

40%

50%

60%

70%

Supply Chain HR

Po licy

SupplyChain

He alth &Safe tyPo licy

ChildLabo urPo licy

Fo rce dLabo urPo licy

Fre e dom o f Assn Po licy

Code o fCo nduct

ILO

House ho ld &Pe rso nalPro ducts

Co nsume r Durable s &

Appare l

Re tailing

Fo o d Staple sRe tailing

,Fo o d,Beve rag e

To bacco

- Supply chain polic ie s by s e lec ted indus trie s

Percentage of Companies with Supply-Chain Policies by Selected Industries


: ESG integration the new normal

“It will no longer be a question of who is and is not integrating ESG,

the question will be ’ who s doing the bes t job of it?”

Source: Quantitative Services Group LLC (QSG)


Ques tions and Answers

beyond the materiality debate to applications

Economy & Finance