This is a printer friendly version of the article. To print, please use your browser Print function.


January 18, 2005

Enhanced Analytics Initiative Picks Sell-Side Brokerage Houses with Best Intangibles Research
    by William Baue

EAI awards seven firms and three runners-up for outstanding sell-side analysis of corporate social and environmental issues.

SocialFunds.com -- Yesterday, the Enhanced Analytics Initiative (EAI) announced the results of its broker evaluation, identifying seven firms that provide outstanding sell-side analysis of corporate social and environmental issues, otherwise known as "intangible" or "extra-financial" information. EAI was established in October 2004 by a group of European institutional investors to incentivize extra-financial research by allocating five percent of their 2005 brokerage fees (anticipated to run between €4 and 5 million) to the brokerage houses producing the best such research.

A report released last week by the World Economic Forum (WEF) and AccountAbility entitled Mainstreaming Responsible Investment concluded that providing incentives is key to achieving the titular development. EAI answers this call.

"By allocating five percent of their broker fees to the analysts that provide the best research on extra financial and intangible issues, members of the EAI are sending a strong message that these issues are important to our funds and we are prepared to pay for information on them," said David Russell, advisor for responsible investment with UK-based EAI founding member Universities Superannuation Scheme (USS).

Of the 21 brokerage houses who applied (out of 31 contacted), EAI singled out Deutsche Bank, Dresdner Kleinwort Wasserstein (DrKW), Goldman Sachs, HSBC, Morgan Stanley, UBS, and WestLB, as well as three runners-up--ABN Amro, Citigroup, and CM-CIC. The evaluation, performed by Zurich-based investment research consultancy onValues, assessed both past research and 2005 commitments in areas such as comprehensiveness and integration of extra-financial issues into financial analysis.

A sell-side analyst with one of the EAI-endorsed firms describes factors driving the shift toward assessing social and environmental issues in more depth.

"For the past couple of years, we have been increasingly looking at these issues, focusing on where they have a commercial impact," said Myles Packman of DrKW. "One of the areas we have focused on a lot is emissions trading," he added, referring to the European Union Greenhouse Gas Emission Trading Scheme (EU ETS) going into force this month.

"In certain cases, we were putting in 20 to 30 percent changes to our earnings forecasts on the back of it, so there was a direct material impact," Mr. Packman explained.

Stepping back to assess the broader perspective, he characterized the move toward assessing extra-financial issues as an inevitable response to market forces.

"It's simple economics of supply and demand: you've got increasing demand from the buy-side for this service, so that is pushing it forward," Mr. Packman told SocialFunds.com. "We are seeing increasing demand from investors for extra-financial information--at the moment, the demand is coming from SRI specialists and extra-financial analysts."

However, mainstream investors do not exist in a vacuum, a reality EAI seeks to leverage.

"EAI is potentially very significant--what it's managed to do is get a lot of the mainstream brokers interested who previously weren't really doing anything" in regards to analyzing corporate social and environmental performance, Mr. Packman said.

EAI also announced the addition of another institutional investor to the initiative: SNS Reaal Group of the Netherlands. The addition of yet another European member highlights a very visible absence.

"It's worth noting that there are currently no US members of the initiative, either from the 'mainstream' or from the SRI community, and EAI would welcome US members," said Raj Thamotheram, chair of the EAI and a senior advisor at USS. "This would send a powerful signal to the global broker community--many of whom are headquartered in the US--that local asset owners and fund managers want to see research on the implications of extra financial issues on investee companies."

"Our experience is that extra-financial research--covering issues like value-destroying mergers and acquisitions, CEO remuneration packages not aligned with business strategy, human capital issues, and eco-efficiency performance--will be of particular relevance to US asset owners and their managers who have commitments to being active and responsible owners, who are passively invested, or who are taking big, long-term positions using a fundamental research approach," Mr. Thamotheram told SocialFunds.com.

© SRI World Group, Inc. All Rights Reserved.

Order reprints | Print it | Save it

Related Articles

Top


Home | Individual Investors | Institutional Investors | Financial Professionals | Media Center
Do your own Research | Work with a Professional | News | Learning Center
home | about | search | register | login | contact

© 1998-2017 SRI World Group, Inc. All Rights Reserved.
Terms of Use
| Privacy Statement| Reprint Policy | OneReportTM Network

Do your own research Work with an advisor SRI News SRI Learning Center Home