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Evaluation of CSR in financial terms Brussels 22 October 2013
2. Vigeo Rating
11 years as the European leader on researching
Environmental, Social & Governance (ESG)
performance of companies around the world
§ 2500+ issuers covered in Europe, North America, Asia-Pacific and Emerging markets
§ More than 300 action principles under review, based on universally opposable standards and guidelines (UN, ILO, OECD, Global Compact…)
§ Rating on a scale from 1 to 100 on the basis of 38 criteria spread on 6 domains
§ 70 ESG in house analysts, average assessment 6 days per company
§ Multicultural team with 16 nationalities; offices in Paris, Brussels, Milan, Casablanca, London
Our Core business: deliver ESG data to investors, showing the (potential ) material (financial) impact of a company’s CSR performance
3. Vigeo Methodology
More than 300 action principles under review,
based on public international standards, allowing us to precisely question companies’
governance and managerial systems on the degree to which they have integrated
universally recognised CSR objectives.
Conventions, Recommendations,
Statements, Guidelines from the UN, ILO, UNEP, OECD,
Global Compact, European Union, etc.
For countries For companies
Internationally recognized standards
CSR Domains of analysis*
Environment
Human Resources
Human Rights
Community Involvement
Business Behaviour
Corporate Governance
~ 300 Managerial action
principles
Universally defined Social Responsibility
objectives
38 Sustainability
drivers
Evaluation criteria
Based on recognized standards, identification of action steps for
companies were to create evaluation criteria
Consolidation of criteria into domains, each of which
represents the interests of a different company stakeholder
*See appendix 1 for the exhaustive presentation of Vigeo Sustainability Criteria
4. Steps in the analysis process
Based on universally opposable standards and guidelines (UN, ILO, OECD, Global Compact…) 6 domains 38 sustainability drivers
Analysing the materiality of CSR issues Assigning sector weights to sustainability drivers
GENERIC EVALUATION
FRAMEWORK
SECTOR ANALYSIS
Collecting and pre-treating public information from companies and stakeholders Additional information through the specific questions to companies
INFORMATION COLLECTION
Analysis of managerial systems • Leadership (L) • Implementation (I) • Results (R)
COMPANY ANALYSIS
• Scores and ratings
• Company profiles
• Sector studies
• Alerts
PERFORMANCE MEASUREMENT
1 2 3 4 5
5. Importance of non-financial information for investors
ESG info can help reduce and manage risks for investors + Identify opportunities Reduce Risks: avoid being involved in controversies and allegations that can have an adverse material impact on company’s performances: fines due to corruption or anti-competitive behaviour, fines linked to ENV pollution, scandals, controversies related to human rights issues, problems in supply chain (textile industry Bangladesh – mining strikes and violence in South Africa)…. Take advantage of opportunities: companies investing in energy efficient technologies / reducing energy and greenhouse gas emissions, saving costs…taking lead in opening new markets with green products…/ companies with well developed HR policy : less employee turnover, higher productivity. Companies investing in customer satisfaction…
6. Good ESG performance = higher financial return?
• No clear figures that they overperform the market. When we compare
Sustainability Indices with mainstream indices we see that in general they are in line or slightly over perform, but also follow the economic cycles. In general, also more long-term strategy.
• But on the other hand, what we clearly see is that bad performers in
general underperform, and at least that for example involvement in controversies and allegations in short and mid-term can have severe financial impact + impact on reputation. (mining companies in South-Africa hit by social unrest)
7. CSR and HR management
Board diversity: there is a consensus that more diverse board in terms of educational background/nationality/cultural background/sex will avoid the problem of ‘group thinking’ which hinders the development of new ideas within a company. Executive pay: Link CSR performances with short and long term bonuses - Health and safety indicators - Employee turnover - Employee satisfaction - Diversity indicators - CO2 emissions - Customer complaints/satisfaction - Absence of controversies & allegations • Good HC management will go hand in hand with an overall good CSR
performance • Good HC management will go hand in hand with good economic
performance
8. Main SRI strategies
In Europe, we distinguish seven main SRI strategies: • Sustainability themed investment • Best-in-Class investment selection • Norms-based screening • Exclusion of holdings from investment universe • Integration of ESG factors in financial analysis • Engagement and voting on sustainability matters • Impact investment
9. Concluding remarks
• Integration of non-financial indicators into mainstream financial analysis
• Wide range of ESG strategies used by investors
• Materiality of ESG factors is a key driver
• Increased ESG reporting by companies
• Integrated reporting / third party verification
• Link ESG strategy with overall company strategy • Looking over the frontiers: good practices in Emerging
Markets
• Focus E - S - G: balance
