At the event, hosted by Mistra (the Foundation for Strategic Environmental Research) and moderated by onValues, leading institutional investors, asset managers, investment and academic researchers took an in-depth look at key ESG issues at the company and country level in emerging markets, priority areas for engagement with companies and ways in which academic research can support the work of practitioners. The discussions were based on the findings of the earlier ‹Who Cares Wins› event held on 5 July 2007 and were aimed at exploring the issues in more depth and integrating them in investment decisions. A selection of lessons-learned includes (a detailed workshop report will be made available shortly):
- Corporate governance at the company level was seen as the best starting point for integrating ESG issues in emerging markets investments, because of its usefulness as a proxy for overall management quality – not just in dealing with risks but also with opportunitie
- The importance of visiting companies and being able to contextualise ESG information was stressed. Where the investor (or an agent acting on his behalf) is not able to meet directly with companies, the only ESG research likely to add value was found to be basic corporate governance work and checking for major breaches of international norms
- Other important ESG issues highlighted were rising costs and shortages of energy and water (both a source of risks and opportunities)
- Quality of disclosure on ESG issues (particularly voluntary disclosure that goes beyond legal requirements) was seen as a proxy for the company's willingness to be transparent and treat all investors fairly, and for overall management quality
- In conclusion, workshop participants also stressed investors’ increasing exposure to ESG issues in emerging markets through their investments in multinational companies with growing production and sales volumes in those markets.
«Emerging markets investments: do environmental, social and governance issues matter?»
The Swiss market for ESG-inclusive investments continues to show strong growth, according to a biannual market survey produced by onValues. Swiss assets (including funds, mandates and structured products) that are managed with the explicit inclusion of environmental, social and governance issues totalled approximately CHF 25 billion at the end of the first half of 2007. This represents an increase of 39% relative to the volume per end of 2006, and a doubling of ESG-inclusive assets in the past 12 months. Interesting trends observed are the increasing share of private client investments and the strong growth of new products with a focus in sustainable themes such as climate change, water and alternative energy.
Press release (in German)
This was the topic of the fourth annual Who Cares Wins event which brought together more than 80 investment professionals from leading asset owners, asset managers, investment research and consulting institutions. It took place on 5 July 2007 in Geneva and was facilitated by onValues on behalf of the Federal Department of Foreign Affairs, the International Finance Corporation and the UN Global Compact. The goals of the event were to 1) assess the importance of environmental, social and governance (ESG) issues in emerging markets investments; 2) showcase and reinforce best-practice in the consideration of ESG issues in asset management and investment research; 3) identify opportunities for future developments and collaboration in this area.
New Frontiers in Emerging Markets Investment
The Enhanced Analytics Initiative (EAI), an alliance of asset owners and managers who collectively represent more than 1.9 trillion (US$ 2.6 trillion) in assets, commissioned onValues to produce a case study of the quality of investment research on mergers and acquisitions (M&A). The study investigated whether research providers covering M&A transactions are addressing the full range of issues that may be material to long-term investors. Depending on the type of M&A activity, these issues might include the impact of combining different corporate governance regimes and corporate cultures, the role of management, potential impacts on intangible assets, and environmental liabilities acquired in a transaction. The study's main conclusions are presented in the public summary report below
Summary report on EAI case study
The survey per end of December of 2006 shows an impressive increase in the size of this market compared to the previous year (17.9 billion compared to 10.6 billion CHF). The survey covered 21 providers and different investment products and services (funds, mandates, structured products). The growth in volume of ESG-inclusive funds in 2006 (+55.7%) was more than five times as big as the growth of the overall Swiss fund market. An increasing interest by private banking clients and the growing demand for structured products and funds dedicated to sustainable themes, such as alternative energy and water, were seen as being main drivers for this development.
In the latest edition of the Environmental Finance magazine, Gordon Hagart and Ivo Knoepfel provide an overview and assessment of current trends in the ESG-inclusive investment field. More sophisticated applications of environmental, social and governance (ESG) information to a wider range of asset classes and financial products could mean that in future ESG issues increasingly become drivers of financial product innovation rather than niche concerns, argue the authors.
Environmental Finance article
The Enhanced Analytics Initiative (EAI) yesterday announced the results of its latest evaluation of investment research providers, which is based on analysis provided by onValues. On the eve of its second anniversary, the Initiative has seen a surge in new members in the past months and now represents total assets under management of €1.8 trillion. The EAI is an international collaboration between asset owners and asset managers aimed at encouraging better investment research, in particular research that takes account of the impact of extra-financial issues on long-term investment. The EAI incentivises research providers to provide better analysis of extra financial issues within mainstream research.
For further information on EAI: http://www.enhanced-analytics.com
Three of the most influential climate policy and economics research institutions – the ‹Potsdam Institute for Climate Impact Research›, ‹Germanwatch› and the ‹Deutsches Institut für Wirtschaftsforschung› (DIW) – have launched a multi-year research programme on the risks (and opportunities) that climate change and carbon mitigation strategies are expected to pose to the financial industry. onValues is part of the consortium and will contribute dedicated research and support. As part of a first set of research tasks, onValues has assessed the way in which sell-side investment research is dealing with these aspects and developed a conceptual framework through which carbon and climate risks could better be factored into current stock valuation models. Special attention was dedicated to dealing with the intrinsic uncertainty related to these aspects.
onValues contributed to the organisation of an event on 10 November 2006 at the Palais des Nations (the United Nations Office at Geneva) that discussed expanding the range of ESG-inclusive investment strategies offered by private banks. The meeting, which was hosted by the United Nations Environment Programme Finance Initiative (UNEP FI), assembled senior executives from a range of international private banking institutions. The challenges of improving ESG-inclusive investment services for private clients are detailed in a UNEP FI publication prepared by onValues, which can be downloaded below.
«Unlocking Value: The scope for environmental, social and governance issues in private banking»
For further information on UNEP FI: http://www.unepfi.org