do sustanaible investments add value? - lars hassel

SIRP is funded by Mistra, the foundation for strategic environmental research

Do Sustainable Investments Add Value?

Lars G Hassel

Program Director

TBLI Zurich – November 9th 2012


Home About us Projects Publications Newsletters Conferences Media News Contact Search Login PRI Mistra Conferen

Sustainable Investment Research Platform is an international and interdisciplinary research program.

sustainable investment practices can create added value for institutional investors and identify barrier

The research includes Sustainable Investments and Markets, Sustainable Companies and Ratings and

SIRP is funded by Mistra, the Foundation for Strategic Environmental Research in Sweden. The resear

continue until 2012. The program is lead by Professor Lars G Hassel at Umeå School of Business.

The map below depicts the participating Universities and Institutes in SIRP

Sustainable Investment Research Platform - SIRP http://www.sirp.se/web/page.aspx?refid=191

1 av 1 2012-05-25 12:06

Umeå School of Business and Economics

Åbo Akademi University

University of Gothenburg

University of Leeds

Maastricht University

Tilburg University

EuroMed Management Marseille

University of Perugia

University of Rome, Tor Vergata


Programme objective

• Find out how sustainable investment practices can create

added value for institutional investors and identify barriers

to mainstreaming such practices

• Research on:

– Economic value of ESG/SRI

– Sustainable value and reporting

– Incentive Systems

– Fiduciary duty


SIRP vision

• Investors expect to create value added through sustainable

asset management

• But there are barrires because of uncertainty of financial

outcomes and the strict financial focus of fiduciary duty

• Important because institutional investors have the strength

needed to drive companies towards more sustainable

development.


ESG and Economic Value

• Sustainable business practices add economic value to assets!

– Innovest eco efficiency ratings of U.S. firms positively associated with firm

value and operating performance (Guenster et al. 2011)

– GES environmental ratings of Swedish firms positively associated with firm

value and operating performance (Semenova and Hassel, 2011)

– Green buildings in U.S. with a LEED or Energy Star certificate have higher

rental rates (Eicholtz et al 2010)

– Environmental performance associated with higher credit ratings and lower

cost of debt of U.S. firms (Hahn and Bauer, 2010)

Costs of practices drop (learning and scale) and future benefits increase

First mover advantage


SRI Risk/Return

• SRI funds and portfolios seem to perform neutrally (Olsson, 2007; Derwall and

Koedijk (2009); Herzel at al, 2012)

• Performance can be different in different SRI segments (Derwall et al 2011)

– Values driven (exclusion) and profit-seeking (alpha) segments

• Eco-efficiency portolios have outperformed in the past (Derwall et al 2005)

– Investors are learning and mis-pricing of large-cap firms is likely to disappear

over time (Borgers et al 2012)

As sustainability creates economic value, this value is priced, and does not

necessarily result in higher risk-adjusted returns of portfolios.

First mover advantage


Risk – Value - Reporting

• Environmental incidents bad news’ impact on firm value (Lundgren

and Olsson, 2010)

• Analysts use more downside risk than environmental opportunity

information (Nilsson et al, 2008)

• Analysts make better earnings forecasts by including risk related

environmental information (Bechetti et al, 2012)

• Sustainable Value of Nordic companies varies between and within

industries (Figge et al 2012)

– Emissions accounting and environmental reporting has limitations


Drivers of a Sustainable Firm

• Financial performance and size

• Industry risk

• Board structure and diversity

– External board members

– Female board members

– Board ownership

– Ethical compass of the board

• Hassel et al (2012)


Benchmarking

• Benchmarking needed when ratings and rankings are not

avaliable to asses upside potential for e.g. engagements

• Global Real Estate Sustainability Benchmark

• Improve transparency and market efficiency by extending

benchmarking to

– Small-cap firms

– Private equity

• Venture capital


A closer look at…

• Nadja Guenster, Maastricht University

– Insights in Risk and Return of Responsible Investing –

What We Can Learn for the Future

• Frank Figge, Euromed Management/Kedge Business Sch

– Is the Emperor Naked? Making Sense of Incomplete

and Misleading Sustainability Information


Photo: Bunsen Bookworm/Corbis/SCANPIX

SIRP - Sustainable Investment Research Platform

WHAT IS THE CHALLENGE?

More and more actors in financial markets are working to integrate

environmental, social and governance questions into their investment processes

and decisions.

»SIRP has fostered the development and

publication of research which, I believe, is not

only of assistance to other foundations wishing

to pursue the same journey but which also has

significant relevance to the broader investment

community. The need for a long term

perspective in the capital markets is greater than

ever.«

David Blood, Senior Partner Generation Investment Management

We are performing research about ways that institutional investors can create

economic value added through sustainable asset management, and what barriers

there are to adopting such practices. Institutional investors have the strength

needed to drive companies toward more sustainable development.

Barriers to sustainable development can include uncertainty regarding the

financial consequences of sustainable and responsible investment strategies and

whether sustainable investing can be expected to provide economic returns.

The strict financial nature of fiduciary responsibility and the short-term

perspectives in evaluation and bonus systems are also barriers, as is the lack of

sustainability data from companies as input to analysts´ recommendations and

asset managers´ decisions.

HOW CAN THE PROGRAMME CONTRIBUTE TO FINDING A

SOLUTION?

The goal of the programme is to develop guidelines and recommendations for

sustainable investing, so that they can be incorporated in asset managers´

responsibilities. We evaluate sustainable portfolios and the restrictions they

place on asset managers, and also include bonds, venture capital and real estate

as sustainable investment options.

Researchers in the programme are exploring how investors use sustainability

information and analyze companies based on economic, social and

environmental performance. Particular attention is paid to how pension funds´

fiduciary responsibility can be redefined from a strictly short-term financial

perspective to even include long-term responsibility issues.

In parallel, researchers are studying how companies´ profits, and returns for

institutional investors, are influenced when they take sustainable development

into account in their investment decisions.

The knowledge acquired from these studies is forming a basis for a more

developed and cohesive theoretical foundation for sustainable and responsible

asset management.

The programme is also developing proposals for guidelines regarding increased

accounting and management transparency for individual companies, funds and

pension funds among institutional investors.

WHO WILL BENEFIT FROM THE RESULTS?

The knowledge generated within the programme is useful for institutional

investors, analysts, those responsible for company oversight, and for companies

interested in developing more sustainably.

Amongst investors, the primary target groups are owners and managers of

capital. The SIRP programme is expected to contribute to research in the fields

of finance, accounting, law, economics, corporate leadership and psychology.

In the long run the programme will benefit — in addition to the private sector

and decision makers — nature and future generations.

– The primary aim is to support investors so

that they can support sustainable development.

Programchef Lars G. Hassel

Programme period:

2006-2012

Funding:

Mistra 103 MSEK

Main contractor:

Umeå School of Business

Programme director:

Lars G. Hassel, Umeå School of

Business, Umeå University

Executive committee chairman:

Ingrid Jansson

Contact at Mistra:

Fredrik Gunnarsson

Links:

Programme website

Articles about the programme:

2011-02-27

Ethical funds need to disseminate

information

2010-06-16

Board members of Swedish companies

with criminal convictions are common

2009-11-03

Investors Are Willing to Pay More for

Environmentally Aware Companies

2009-10-22

CDP: 80% of companies want to reduce

their CO2 emissions

2009-10-06

Better Than Expected Results for the

Carbon Disclosure Project

2009-09-29

Mistra Invests in Film

2009-09-14

Lars Hassel elected to PRI Academic

Network Committee

2009-06-09

Mistra is participating in ―The

Politicians’ Week‖ in Almedalen

2009-02-12

SIRP - Sustainable Investment Research Platform - Mistra http://www.mistra.org/mistraenglish/research/ongoingresearch/si...

1 av 2 2012-05-25 12:49

do sustanaible investments add value? - lars hassel

Economy & Finance