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29 January 2008
EAI reports broader use of Extra-Financial Information in Investment Research
Source: www.enhancedanalytics.com
The Enhanced Analytics Initiative (EAI) has today announced the results of its latest Evaluation of investment research, covering analysis produced between May to October 2007. This Evaluation is the seventh since the Initiative was launched in 2004 and has seen a positive trend towards broader and more sophisticated coverage of extra-financial issues by sell-side and independent Research Providers.
EAI Members reward Research Providers that are effective at analysing material extra-financial issues (EFI) and intangibles. The half-yearly Evaluation serves as the basis for EAI Members’ allocation of a minimum of 5% of their respective brokerage commissions or research budgets for the coming six months. The 30-Member Initiative collectively now owns or manages ¼2.1 trillion (c. US$ 3 trillion) of assets. The latest Evaluation, undertaken by investment consultancy onValues Ltd., assessed reports from a total of 26 Research Providers. The following institutions (listed in alphabetical order) have been evaluated as providing the best analysis of extra-financial issues in the period and will be eligible for EAI commissions in the first half of 2008:
x CA Cheuvreux x JP Morgan
x Citigroup x Oddo Securities
x Credit Suisse x UBS
x Deutsche Bank
The Initiative also recognised the performance of Goldman Sachs and Société Générale, both of which scored highly in the Evaluation. The latest Evaluation was characterised by a number of emerging trends and themes including:
¾ A positive trend towards broader and more sophisticated coverage of EFIs
¾ Analysts increasingly venturing into under-researched sectors / regions and into challenging EFIs such as corporate governance research applied to emerging markets, or research on physical impacts of climate change on a range of sectors
¾ Some researchers covering very-long-term time horizons and dealing with related uncertainties. In the future it is hoped that uncertainties will be assessed more systematically by means of sensitivity, scenario or other types of analyses
¾ A better integration of EFI analysis when forecasting financials and when calculating the fair value of companies still remains a challenge, despite a progression of the integration of EFIs into financial analysis noted in the latest Evaluation report
¾ Strongly under-researched areas still exist, such as analysis into the impact of human capital management, workplace and stakeholder related issues. There was also little coverage of EFIs related to mergers and acquisitions
Ivo Knoepfel, Managing Director of onValues, the consultancy that conducts the Evaluations on behalf of EAI, commented:
" This latest Evaluation confirms the commitment of a part of the research community to start tackling the more challenging extra-financial issues, which explains the title of our report, ‘Beyond the low-hanging fruit’. It is very encouraging to see the creativity, intellectual rigour and hard work underlying some of the recent research outputs. The sophistication of research relating to climate change has reached new highs, but we also note that difficult-to-assess issues such as the financial impacts of human capital, workplace issues and stakeholder relations management need more attention in the future.”
Peter Scales, Chairman of the Enhanced Analytics Initiative, commented:
“The results of this Evaluation are compelling with a number of strong trends emerging in relation to the coverage of specific sectors and regions and the inclusion of longer term horizons in research. The breadth of corporate governance research is improving in response to a request made by EAI during the last Evaluation and indicates the important role which the Initiative continues to play in affecting a permanent change in the scope and integration of EFIs into investment research. I would hope to see a similar response on the issues over human capital management in the next Evaluation. The financial integration hurdle remains an essential element of the Evaluation criteria if we are to achieve greater use
of EFI analysis in mainstream investment decision making.”
To access the full report, and for further information on the EAI, please visit: www.enhancedanalytics.com.
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