1ASSET4 AG | Fall 2009 Webinar
Chris topher GreenwaldDirector of Data Content
Beyond the Materiality Debate to Applications
2ASSET4 AG | Fall 2009 Webinar
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
3ASSET4 AG | Fall 2009 Webinar
: The s tate of ESG integration a macro and micro view
4ASSET4 AG | Fall 2009 Webinar
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
5ASSET4 AG | Fall 2009 Webinar
- 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
6ASSET4 AG | Fall 2009 Webinar
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
7ASSET4 AG | Fall 2009 Webinar
: 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
8ASSET4 AG | Fall 2009 Webinar
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%
9ASSET4 AG | Fall 2009 Webinar
Materiality of energy
Energy Cost / EBITDA
Source: ASSET4
10ASSET4 AG | Fall 2009 Webinar
Materiality of employee turnover rates
Value of Employee Churn Rates / EBITDA
Source: ASSET4
11ASSET4 AG | Fall 2009 Webinar
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
12ASSET4 AG | Fall 2009 Webinar
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
13ASSET4 AG | Fall 2009 Webinar
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.
14ASSET4 AG | Fall 2009 Webinar
- 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
15ASSET4 AG | Fall 2009 Webinar
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
16ASSET4 AG | Fall 2009 Webinar
: 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)
17ASSET4 AG | Fall 2009 Webinar
Ques tions and Answers