press conference by un Environment Programme,
swiss agency for development and cooperation
Failure to integrate environmental, social and corporate governance issues in equity pricing would endanger long-term shareholder values, according to the findings of a report launched by the United Nations Environment Programme (UNEP) Finance Initiative at a Headquarters press conference this afternoon.
The UNEP Executive Director Klaus Toepfer said that the report, produced with the financial support of the Swiss Government, contained 11 sector studies by brokerage house analysts at the request of the UNEP Finance Initiative. Entitled “The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing”, it had been integrated into the work of today’s Global Compact Leaders Summit.
Introducing a related report, “Who Cares Wins: Connecting Financial Markets to a Changing World”, Serge Chappatte of the Swiss Agency for Development and Cooperation, said that the Government of Switzerland had financed the reports because of its very early involvement in the Global Compact secretariat.
Accompanying Mr. Toepfer and Mr. Chappatte were officials of financial institutions which made recommendations on better integration of environmental, social and governance in analysis, asset management and securities management. They were Anthony Ling, Managing Director of Goldman Sachs; Espen Klitzing, Chief Executive Officer of Storebrands Life Insurance; and Izalco Sardenberg of Bovespa, the Brazilian stock exchange.
Asked how much financial institutions felt they should appropriate to environmental, social and governance issues, given that their main objective was to make profits, Mr. Klitzing replied that Storebrands asked its policy holders what was important to them and what they wanted the company to do. All its clients agreed, for instance, on the need to avoid investing in companies that used child labour. It was possible to apply such criteria without harming investment performance.
Mr. Ling added that attitudes were changing. While it was true that in the short term there was a great degree of scepticism as to whether environmental, social and governance really made a difference, studies had found that they did have an impact. Many investors were now demanding a much greater awareness and study of those issues by their portfolio managers.
Another correspondent asked whether environmental, social and governance issues were really influencing profit estimates or stock and price predictions by the analysts of financial institutions. In response, Mr. Ling said there was no doubt that, in a number of fairly high-profile cases within the energy industry those issues were increasingly being taken into account on a project-by-project basis.
Asked by the same journalist whether management practices in one project area could be isolated from other places where such companies operated, he replied that one could draw very misleading conclusions by looking at just one element of overall ESG (environmental, social and governance) performance in isolation. It was necessary to be totally objective; everybody was distinctly hampered by the lack of objective, transparent information. One of the key aims of the financial institution initiatives presented to the Global Compact Leader Summit was to get companies to release enough information on a consistent, transparent basis to facilitate adequate analysis.
Responding to a question as to what financial institutions expected from regulators and how they could gain their participation, Mr. Ling said that one theme running through the main Global Compact meeting was to move towards incorporating particulars relating to environmental, social and governance issues in stock exchange listings, which could be voluntary.
He said that the real key was to have transparent and consistent data so that institutions could perform and the markets could see adequate analysis. In that way, environmental, social and governance issues worked their way into valuations and stock market performance much quicker and much more consistently, rather than having a vacuum followed by an enormous explosion when something went wrong with the company.
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