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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.
SocialFunds.com --
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.’"
©
SRI World Group, Inc. All Rights Reserved.
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