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January 24, 2007
Surveyed Managers Emphasize Socially Responsible Issues
    by Anne Moore Odell

EIRIS’ newest survey asserts that both SRI and mainstreams investors view specific environmental, social, and governance factors as important when applied to certain sectors.


Concerns over climate change, the environment, and corporate responsibility are in the forefront of investors’ minds reports a new survey conducted by London-based Ethical Investment Research Services, LTD (EIRIS). Investors strongly feel that environmental, social and governance (ESG) issues affect market value in over 50% of companies included in the FTSE All World Developed Index. Energy and utility companies were ranked first by investors as the sectors most affected by ESG issues.

Conducted in late 2006, the on-line survey asked 40 socially responsible asset managers and mainstream managers which ESG issues investors considered the most important to investment performance. EIRIS then scrutinized the data, drawing some telling results for companies worldwide.

Stephanie Maier, Strategic Research Development Manager for EIRIS explained to SocialFunds.com: "Investors were asked to attribute a value from ‘no impact’ to ‘over 25% of value’ for the sectors and rank issues from ‘most financially significant’ to ‘least financially significant’ within each sector."

Ninety percent of investors said that ESG issues would have some impact in the top ten sectors’ value over the short to medium term. EIRIS identified the top ten sectors as oil and gas producers, gas, water and multi-utilities, electricity, automobiles and parts, forestry and paper, chemicals, mining, food producers, construction and materials, and travel and leisure.

EIRIS noted five themes that emerged as serious areas of concern for investors across the top sectors. Climate change was one of five most financially significant ESG issues for investors.

Climate change found itself at the top of investors’ concerns for the automotive, airline, electricity, and forestry and paper sectors. It ranked second for the oil and gas and the mining sectors. The response to climate control varies from sector to sector, EIRIS pointed out, citing the example that in the automotive sector the focus is on fuel economy while for forestry and paper the focus is on energy intensity.

Environmental degradation topped the list in the mining and oil and gas sectors. Maier noted, "It may be unsurprising that climate change was ranked highly, in a number of sectors, as the issue with potential to impact companies financially. However, it may come as a surprise to some investors that environmental degradation was ranked above climate change as the top issue for the oil and gas and mining sectors."

Environmental degradation ranked second for the chemicals and construction and materials sectors. Environmental degradation got the silver from the travel and leisure sector as investors question the role tourism plays on eliminating bio-diversity.

The top issue for both food producers and food and drug retailers was product safety, including genetically modified foods, food additives and food contamination. Product safety was also an issue for the pharmaceutical, biotechnology and leisure goods sectors. Although product recalls and litigation can be expensive for these sectors, it is often the damage done to a company’s brand or reputation that has a longer-term effect.

As the risks of man-made chemicals become clearer to consumers, chemicals of concern was the top ranked issue for the chemical and household goods sectors. It ranked second for the leisure goods sector. Public health worries over chemicals in the environment, in homes and workplaces adds pressure on companies to improve the safety of their products. Many international initiatives have been passed and contribute to the financial response to chemicals in the environment.

"Other themes that emerged--environmental degradation and chemicals of concerns in products--show that environmental issues are not just limited to climate change," Maier said to SocialFunds.com.

Several sectors had specific issues that could have potential financial impact. For example, in the gas, water and multi-utilities sectors, investors voted the security of supply as the issue of most concern. In the banking sector, customer policy was ranked first including concerns about consumer debt, high interest rates, and high banking charges.

Another example of an issue facing a specific sector is obesity. Maier added, "Last year EIRIS launched a risk briefing analyzing the risks and opportunities that obesity posed for companies and how well companies were responding to this challenge through their management response."

The non-profit EIRIS conducts independent research into corporate responsibility and sustainability issues for the benefit of investors. Instead of looking at a company’s financial operations, EIRIS explores the company’s social, environmental and ethical policies and practices. EIRIS does not offer financial advice.

With more than seventy institutional clients, including banks, charities and religious institutions in Europe, the United States and Asia, EIRIS has conducted comprehensive research of more than 2,800 companies in Europe, North America and Asia Pacific.

EIRIS looks at over forty different areas to research individual company including environmental issues, governance, animal testing, military, environmental performance, nuclear power and human rights. However, EIRIS stresses that they do not promote one view or take a view on what they research. EIRIS then works with individual clients to set up specific screens.

Maier concluded, "ESG issues will continue to create both risks and opportunities for investors. The survey findings confirm the focus of EIRIS research and fits with the previous research EIRIS has conducted on issues such as ‘Beyond REACH – Chemical safety and sustainability concerns.’"

 

 
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