Environmental Research Needed to Protect Shareholder Value, Says U.N. Study

Environmental Research Needed to Protect Shareholder Value, Says U.N. Study

A new report by the United Nations Environment Programme and 12 fund managers representing $1.6 trillion of assets, calls on investors, government, and business leaders to embed environmental and social best practice at the heart of the world’s markets.

Without bold steps taken now these issues will threaten long-term shareholder value, concludes the summary report, The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing, launched last week at the United Nations Global Compact Leaders Summit in New York.

Speaking from the summit, UNEP Executive Director Klaus Toepfer said: "This new report is a crucial recognition from major financial institutions that the environmental and social components of sustainable development, as well as the economic considerations, should sit at the heart of investment and capital market considerations."

"The financial analysts who undertook the research believe sustainability issues impact long-term shareholder value. It is clear, however, that to protect shareholder value the response must start with action today by companies serious about our environment and that wish to contribute to thriving communities worldwide", said Toepfer.

The summary report is based on 11 sector reports by brokerage house analysts and was produced for the UNEP Finance Initiative Asset Management Working Group. It is the first time the financial impact of environmental, social and corporate considerations and criteria as they relate to the portfolio management of mutual, pension and other institutional funds have been studied in this way.

The leading brokerage houses that undertook the work for the UNEP FI group concluded that aviation, insurance, oil and gas, and utility companies already face material threats linked to climate change, while some sectors were witnessing evolving opportunities in the form of new "Carbon Markets".

Industry sectors covered by the brokerage research included: aviation; clothing; electronics; oil and gas; insurance; pharmaceuticals; and utilities. The resulting 11 reports covering eight industry sectors provide a rich insight into how mainstream financial analysts are tackling a range of complex new threats and opportunities in their assessments of corporate performance.

Key findings include:

  • Environmental, social and corporate governance issues affect long-term shareholder value. In some cases those effects may be profound.

  • Financial research is hindered both due to the paucity of reporting on the part of many companies concerning environmental, social and corporate governance issues and because of insufficient disclosure of these issues in annual reports.

  • Financial research is greatly aided when there are clear government positions with respect to environmental, social and corporate governance issues. In some cases analysts were not able to provide in-depth reports due to a lack of certainty regarding government policy.

    "The analyst findings demonstrate clearly that consideration of environmental, social and corporate governance factors are essential to prudent investment management and, therefore, essential to the fiduciary responsibility of pension fund trustees and investment managers", said Carlos Joly, Co-Chair of the UNEP FI Asset Management Working Group, and representative of Storebrand Investments. "It is to be expected that regulators will take this into account when updating fiduciary law, and that institutional investment consultants will also take notice", he said.

    Anthony Ling, of Goldman Sachs, one of the brokerage houses that contributed to the report commented: "We strongly believe in a full and consistent disclosure of Corporate Social Responsibility data by companies so that they can be included in fundamental company analysis, where we believe they belong." He added: "We see such issues as being an integral part of successful management in the modern world and that they should be taken into account in financial analysis and, therefore, investment considerations."

    Brokerage houses contributing sector research for the UNEP FI report included: ABN AMRO Equities (UK); Deutsche Bank Global Equity Research and South African Equity Research; Dresdner Kleinwort Wasserstein Europe and UK; Goldman Sachs European Equity Research; HSBC; NikkoCitigroup Japan Equity Strategy; Nomura Japanese Equity Markets; UBS Global Equity Research; and West LB Equity Markets.

    The 12 financial institutions that worked with UNEP on the report include: Acuity Investment Management, Canada; BNP Paribas Asset Management, France; Calvert Group Ltd., USA; Citigroup Asset Management, USA; Groupama Asset Management, France; Morley Fund Management, UK; Nikko Asset Management, Japan; Old Mutual Asset Managers, South Africa; San Paolo IMI Asset Management, Italy; Storebrand Investments, Norway; ABN AMRO Asset Management, Brazil; and HSBC Asset Management, Europe.