TBLI Europe 2006 Paris 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 What is the latest sell side research on SRI risk? Are extra-financial issues relevant in company analysis?
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TBLI Europe 2006 Paris
TBLI Europe 2006 Paris
Can extra-financial research complementfinancial research?
Moderator: Michael Jantzi , Jantzi Research/SiRi Company
Speaker: Dominique Habegger, VP of Research, ASSET4
What is the latest sell side research on SRI risk?
Are extra-financial issues relevant in company analysis?
TBLI Europe 2006 Paris
Knowing. Not guessing.
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Short-term thinking has not proven to generate better long-term alpha.
Long-term risks have shown to materialize sooner than expected.
Transparency on extra-financial issues is on the rise.
Can extra-financial research complement financial research? YES
…But to add more value it sill needs
Better Information databases
Data track record (historical data)
More qualified (SRI)-analysts spending more time analyzing data rather than gathering it!
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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
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Intangible Assets as Key Driversof Market Value
Source: Juergen H Dalum, Intangible Assets and Value Creation, John Wiley & Sons, 2002
62%
38%
16%
62%
84%
38%
0
0
0
1
1
1
1982 1992 1999
Market value
(S&P 500)
Intangible assets
Tangible assets
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ESG – risks are becoming real
Environmental risk:Hurricanes produced cost / losses of USD 170 bio in 2005; less than 50% were covered by an insuranceHistorical data for cost / losses: 1960: USD 4 bio1970: USD 7 bio1980: USD 24 bio1990: USD 113 bio2000-2005: USD 273 bio)Source: EarthPolicy.org
Social risk:Life span of CEO / top management less than 5 years
Corporate Governance risk:1‘200 public US companies had to restate financial results 2005 – lack of good management systems
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Extra-Financials Becoming a PriorityKey Trends
Risk Opportunities Reputation Performance
Whether you believe in it or not, you better start gaining knowledge on these issues:
Capital markets care about them – and external perception drives stock price, cost of capital and reputation.
Your clients want to feel more certain than ever about your integrated performance and decision-making process.
Knowledge-based decision making is essential for the long term.
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0
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40
60
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120
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Jul-00Nov-00Mar-01
Jul-01Nov-01Mar-02
Jul-02Nov-02Mar-03
Jul-03Nov-03Mar-04
Jul-04Nov-04Mar-05
Jul-05Nov-05Mar-06
Jul-06
Price Returns EUR (in %)
Index upper 50%Index lower 50%
Weighted ASSET4 Algorithm
Most important aspects:
59.68%44.47%
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Who is ASSET4
Employees 150
Denmark, DK
HQ Zug, CH
India, IN
Mauritius, MU
Head Quarter Zug (CH)
Management (Zug) Peter Ohnemus, CEOHenrik Steffensen, MarketingWolfgang Kreft, SalesDominique Habegger, ResearchErik Troelsen, TechnologyTed Yarnell, Vice President AmericasSimon Rowell, Managing Director UKFabrice Fayd’herbe de Maudave, Data Service
Founded August 2003
Shareholders High Net Worth Individuals and Goldman Sachs
Partners International Institute for Management Development (IMD), GOE / Swiss Federal Institute of Technology (ETH); Copenhagen Business School (CBS)Suppliers Thomson Financial (financial data), LexisNexis (5000 news sources)
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 IntegratedRatingTM 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.
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IntegratedRating
Economic Performance
Environmental Performance
SocialPerformance
Corporate Governance Performance
Revenues / Client Loyalty
Margins / Performance
Profitability / Shareholders Loyalty
Resource Reduction
Emission Reduction
Product Innovation
Workforce / Employment Quality
Workforce / Health & Safety
Workforce / Training & Dev.
Workforce / Diversity & Opportunities
Society / Human Rights
Society / Community
Customer / Product Responsibility
Board of Directors / Board structure
Board of Directors / Compensation Policy
Board of Directors / Board Functions
Shareholders / Shareholders Rights
Integration / Vision and Strategy
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.
ASSET4 Framework of 18 CategoriesThe Extra-Financial Library
Example
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Driver Indicators
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.
Outcome Indicators
give a picture of actual performance, performance improvements, transparency and areas with higher than average risk exposure.
Checks and BalancesAccording to the Balanced Scorecard
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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/YesRating: A (88%)
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How does it work?Choose out of 480 Measurements…Access to Medicine Accounting Compliance Accounting Controversies Accuracy Animal Testing Announced Lay-offsAnti-competition ComplianceAnti-competition ControversiesAnti-takeover DevicesAudit and Accounting FeesAudit Committee ExpertiseAudit Committee IndependenceAudit Committee Management’s IndependenceAuditor IndependenceAwardsBackground and SkillsBenefitsBiodiversity ControversiesBiodiversity ImpactBoard AttendanceBoard DiversityBoard MeetingsBoard Member CompensationBoard Member MandatesBoard of Directors / Board Functions Board of Directors / Board Structure Board of Directors / Compensation Policy Board’s OversightBonus PlanBrand ValueBribery, Corruption and FraudBusiness Ethics ComplianceCapital ExpenditureCash Flow GrowthCement CO2 EmissionsCement Energy UseCEO – Chairman SeparationChallenges and Trade-offChild LaborClient SatisfactionClinical Trials and Research ControversiesClinical Trials and Research GuidelinesCO2 ReductionCommercial Risks/Opportunities Due to Climate Change Compensation Committee IndependenceCompensation Committee Management’s IndependenceCompensation ControversiesConsumer ComplaintsCorporate Governance ReportCost InnovationsCredit RatingsCrisis ManagementCustomer / Product Responsibility Customer ControversiesDebt to EquityDevelopmentDischarge into Water SystemDiseases of the Developing WorldDiversity ComplianceDiversity ControversiesDividend Payout RatioDonations in CashDonations 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 DelaysEarnings RestatementEmission Reduction 104Employee CostEmployee ProductivityEmployee SatisfactionEmployment AwardsEnergy Efficiency InitiativesEnergy FootprintEnergy UseEnvironmental Asset ManagementEnvironmental CitizenshipEnvironmental ComplianceEnvironmental ExpendituresEnvironmental Labels and AwardsEnvironmental PartnershipsR&DEnvironmental R&D Expenditures Environmental Supply Chain ManagementExcessive ConsumptionExperienced BoardExposure Board of Directors / Board Functions Exposure Environmental Project FinancingEnvironmental Quality ManagementEnvironmental 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 Family FriendlyFDA Warning LettersFemale Male RatioF-Gases Emissions
Fleet CO2 EmissionsFleet Fuel ConsumptionFleet RecyclingFreedom of AssociationGlobal ReportingGMO freeGMO ResearchGreen BuildingsGreenhouse Gas EmissionsGRI ReportHarmful ProductsHazardous WasteHealth and Safety ComplianceHealth and Safety ControversiesHighest SalaryHIV-AIDS ProgrammeHuman Rights ControversiesImplementation 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
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
tim
e
Fig. 2.1 - History Trend
Revenue Sustainability
2001 2002 2003 2004 years
100 %
0 %
Fig. 2.0 - Best in Class
Fig. 1.9 - Strength & Weaknesses
Benchmarking
Best in Class
Trend
RevenueGrowth
MarketShare
MarketLeadership
ConsumerComplaints
Product RecallsWithdrawals
BrandValue
Anti-CompetitionControversies
Revenue Sustainability
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
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… choose your desired indicators
20012002
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
tim
e
…Build tailor made reports or exports
… ASSET4 - Indicator List
Industry Reports
Industry Report
Indicator Reports
Companies comparison on very specific indicators …
My Ratings 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
My Reports assetmasterProfessional 2.4 will enable our users to define their own exporting formats (spreadsheets, or pdf reports) ASSET4 enables the generation of individually designed reports according to your needs (tables, graphs, data, etc.) With assetmasterProfessional, tailor made company reports and newsletters can be designed and automated to meet
your clients’ reporting expectations
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…Integrated in the Investment Process
Strategy Team
FocusAllocation Themes
Financial Analyst Research Buy-Side
Stock Picking + Valuations
Economics
Risk
Portfolio Manager
TechnicalAnalystQuant Analyst
100110101001010111100111110110111001111
SRI Analyst
Risk Monitoring
Alerts
Investment StrategyModel Portfolio
Client RelationshipManagement
Push - PullMandates
Reporting
Marketing
!
Profiling
Client
Politics…
Analyst Research Sell-Side
Research Reports
Corporations
Broker Stock
Exchange
ASSET4 – Investment Professionalism for Your Investment DecisionsDefinition Investment UniverseBottom-up Stock Selection / Definition of Products or PortfoliosRisk ManagementReportingIntegratedRatingsTM
EESG Rating / MyRating Company / Portfolio AnalysisData collectionAlgorithms
Institutional
Private
Country Exposure Currency Exposure Sector Exposure Environmental Exposure Extra – Financial Exposure …
Risk Models Performance Models Algorithm Optimisation Quantitative Research Correlation Studies
IntegratedRatingsTM
Raw Data Analysis Analysis / Benchmarking Reporting MyRatings EESG exposure of Stocks EESG exposure of Industries Alerts