Innovest Strategic Value Advisors, Inc. Energy Efficiency Screening Enhances Investor Returns www.innovestgroup.com Green Mountain SRI Summit Stowe, VT, September 10, 2002 Frank Dixon Managing Director 4 Times Square, 3rd Floor New York, N.Y. 10036 Tel. 1 212 421 2000 x.200 [email protected]
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Innovest Strategic Value Advisors, Inc. Energy Efficiency Screening Enhances Investor Returns Green Mountain SRI Summit Stowe, VT,
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InnovestStrategic Value Advisors, Inc.
Energy Efficiency Screening Enhances Investor Returns
Sustainability Risk:- Energy intensity and efficiency
- Resource use efficiency and intensity
- Product life-cycle durability and recyclability
- Exposure to shifts in consumer values
- Social/community “license to operate”
EcoValueEcoValue'21
RATING
Sustainable Profit Opportunities:- ability to profit from
environmentally and socially -
driven industry and market trends
Multi-factor EcoValue’EcoValue’2121 algorithms integrate over 60 key data points, including:
EcoValue’21 Overlay I N N O V E S T Strategic Value
Advisors
Research Process
Framing the Sector
Contacting the Company
Reviewing Third-Party Data
Reviewing Company Data
Interviewing the Company
Completing the Rating Process
Writing Company Reports
I N N O V E S T Strategic Value
Advisors
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100 bp
75 bp
50 bp
25 bp
This chart shows four alternative portfolios constructed to maximize EcoValue'21 ratings
subject to tracking error limits as shown (25 bp to 100 bp). Over an 18 month period, the 25
bp TE portfolio outperformed the Standard & Poor's 500 by 181 bps, while the 100 bp TE
portfolio outperformed by 444 bps. Optimization techniques were used to neutralize any
other tilts or "bets" on factors such as market capitalization, P/E, beta, industry sector, and
value/growth. The analysis was undertaken by external consultants to maximize objectivity.
EcoValue’21: Time Series EvaluationRelative Performance Since 12/31/98
Vs. S&P 500
EcoValue’21:Time Series Evaluation
I N N O V E S T Strategic Value
Advisors
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Petroleum SectorTop Half Outperforms by 16%
Mining SectorTop Half Outperforms by 23%
Steel SectorTop Half Outperforms by 38%
Alpha Generation
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Semiconductor Sector
Top Half Outperforms by 27%
I N N O V E S T Strategic Value
Advisors
Electric Utilities
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Difference Top Half Average Bottom Half Average
I N N O V E S T Strategic Value
Advisors
Stakeholder Capital:• External stakeholder input, community boards• Plant closure policies / practices• Local recruitment• Local suppliers, contractors• Corporate philanthropy
Human Capital Development:• Employee Retention Rate• Work policy, diversity, job sharing, flexible schedule, telecommuting.• Training and Skills Development• Benefits, wellness programs, healthcare, child care, etc.• Health & Safety performance
Products / Services:• Human safety / Risk• Environmental harm / Risk• Product stewardship• Life cycle analysis• Social impact assessment• Respect of local culture
Supply Chain:• Screening standards• Education / training• Audits / Verification• Third Party Reviews• Positive Discrimination
International:• Developing country policies, standards and practices.• Human rights / Child Labor• Social and Environmental impact• Local economic/social benefits• Skills/Technology transfer
IVAIVA
RATING
Social Strategy & Policy:• Social/ethical standards• Codes signatory / Child labor• Human Rights, SA 8000, ETI, ILO, etc.• Integration with Core Business• Consistency / International• Performance Indicators and Targets• Accounting /Reporting/Disclosure/Auditing
Intangible Value Assessment I N N O V E S T Strategic Value
Advisors
Carbon Policy and Strategy:- Climate Change Policy
- Mitigation and Innovation Measures
- Emission Trading Competence
- Voluntary Charters and Working Groups
Carbon Risks:- Direct Carbon Risks
(from in house operations)
- Indirect Carbon Risks (from suppliers)
- Carbon Liability (embedded in products)
- Financial Exposure (calculated)
CarbonValueCarbonValue'21
RATING
Strategic Carbon Opportunities:
- Project Involvement (JI, CDM, etc.)
- Geographic Involvement
- Phase-Out Risk of Products and Services
due to Climate Change
- Carbon Improvement Potential
- Involvement in Carbonless Businesses
or Products
CarbonValue’CarbonValue’2121 algorithms integrate over 25 key data points, including:
CarbonValue’21 Overlay I N N O V E S T Strategic Value
Advisors
Company Risk Exposure
Results of recent benchmarking exercise in the US energy sector…...
0.00%
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60.00%
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Expected Carbon Exposure as a % of Market Cap.
Light
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Kyoto
I N N O V E S T Strategic Value
Advisors
Energy Efficiency Research Objectives
• Determine whether or not superior energy management adds value for investors
• If value is added, raise financial community awareness
• Encourage investors to consider corporate energy efficiency performance
I N N O V E S T Strategic Value
Advisors
Barriers
• Poor Data Quality and Availability
• Limited Reliability of Existing Research
• Low Financial Relevance of Energy Costs in Many Sectors