EFFAS KPIs for ESG
DVFA/EFFAS KPIs for ESG Ralf Frank, DVFA Stoxx Webinar Frankfurt/Main 24. Januar 2013
Deutsche Vereinigung für Finanzanalyse und Asset Management
About DVFA and EFFAS • DVFA – Society of Investment Professionals with currently 1,200 individual members • EFFAS – European Federation of Financial Analysts Societies) representing 25,000 individuals in 27 European markets • Investment Professionals: − − − −
Evaluation or Or management Of investments Or credit risks
2
DVFA/EFFAS KPIs for ESG 3.0 • Framework for company ESG reporting and modelling of company risk/opportunity • Developed by DVFA in German ESG lab, endorsed by EFFAS • Single stakeholder approach: KPIs build exclusively to investment professional requirements • Features: • Sector-specific • Based on Stoxx Industry Classification Benchmark (ICB) at level “subsector” (in total: 114) • Publically available – no fee model for use • Backbone of Stoxx ESG Global Leader index family 3
DVFA Committee on Extra-Financials Mission •
Define set of quantitative, measurable KPIs for ESG aspects capable of integration into classic investment analysis
Due Process • Reduce long-list of 600 indicators to 25+ KPIs through multiple iterative process involving discussions with mainstream investment professionals and corporates • Surveying perception of set of identified KPIs to mainstream investment professionals • Public comment period • Gain EFFAS endorsement • Release standard in Oct 2010 4
Quality Criteria for KPIs IMPERATIVE: • Correlation to • Risk • Success factors of corporate business • Significant and relevant for investment decisions • Firmly anchored in corporate management system • Quantified, ideally: monetized • Comparable • Benchmarkable from peer to peer • Depict dynamic i.e. from reporting period to reporting period • Accepted by mainstream financial analysts and investors • Manageable amount („Key“) e.g. small set of max. 30 KPIs
5
Approach What is the impact of ESG factors on company growth, profitability, cost and risk? Sales
100
Cost of goods sold
60
Gross operating profit
40
SG&A expenses
15
EBITDA
25
Depreciation & amortisation
12
EBIT
13
Interest expense
4
Pretax income
9
Income taxes
4
Net income
5
Energy efficiency GHG emissions Emissions to air / soil / water Raw materials Waste Water consumption Staff turnover Training & qualification Maturity of Workforce Absenteeism rate Fatalities & injuries Litigation risks Corruption Revenues from new products R&D expenses Capacity utilisation
Goal: non-financial aspects should be integrated in valuation methods e.g. P/E or EV/EBITDA 6
6
Does it take a CSR report to decypher corporate sustainability?
7
Survey on Relevance: Participants International Dimension of the Survey
ABN AMRO Bank nv ABP Vastgoed Holding BV Allianz Allianz Dresdener Asset Management ampega Investment AG Argos Investment Managers AXA Banca di Intermediazione Mobiliare IMI S.p.A. Bankgesellschaft Berlin Banque General du Luxembourg BHF Bank AG BNP Paribas CEROS Vermoegensverwaltung GmbH CHEUVREUX DE VIRIEU Commerzbank AG creditmutuel Dexia Banque Belgique SA Dresdner Kleinwort Wasserstein DWS / Deutsche Asset Management EQUINET AG F&C Management Ltd.
Feri Finance AG Fortis Investments Goldman Sachs HSBC Bank JP Morgan Chase & Co Kempen&Co Kredietrust LAZARD Legal&General Investment Managers Merck Finck Merrill Lynch Morgan Stanley Group Inc. ODDO & CIE Rothschild Bank AG Sal. Oppenheim jr. & Cie KGaA SAM Group Holding AG Schweizerische Rueckversicherungsgesellschaft Societe Generale Union-Investment WestLB AG Zürcher Kantonalbank
8
8
Survey on Relevance: Distribution by Function 122 Respondents Distributed in 6 Classes
Asset Owner/Pensionfund Manager
Others Equity Sell Side Analyst
16%
32%
2%
9 Institutional Investor/Asset Manager 24%
Bond Analyst 4%
Equity Buy Side Analyst 22%
9
Example: Entry level for Subsector Automotives 3353 KPI
1
Spez.-ID Scope Specification
(Scope I = Entry Level; Scope II = Midlevel; Scope III = Highlevel) Energy Efficiency E01-01 I Energy consumption, total
2
GHG Emissions
E02-01
I
GHG emissions, total (scope I,II)
3
Staff turnover
S01-01
I
Percentage of FTE leaving p.a./total FTE
4
Training & qualification
S02-02
I
Average expenses on training per FTE p.a
5
Maturity of workforce
S03-01
I
Age structure/distribution (number of FTEs per age group, 10-year intervals)
6
Remuneration
S08-01
I
Total amount of bonuses, incentives and stock options paid out in €,$
S08-02
I
Total number of FTEs who receive 90 % of total amount of bonuses, incentives and stock options
S08-03
I
Key Performance Narrative (Please answer the questions in max. 500 words) Do you take ESG performance into account in your performance agreements? How do you integrate ESG principals within performance agreements in your company and to what extent do you apply it?
7
Litigation risks
V01-01
I
Expenses and fines on filings, law suits related to anti-competitive behavior, anti-trust and monopoly practices
8
Corruption
V02-01
I
Percentage of revenues in regions with Transparency International corruption index below 6.0
9
Revenues from new products
V03-02
I
Percentage of new products or modified products introduced less than 12 months ago
Innovation
V04-01
I
Total R&D expenses
V04-05
I
Number of patents registered within last 12 month
10
10
10
Appendix KPIs for ESG: http://www.dvfa.de/files/die_dvfa/kommissionen/non_financials/applic ation/pdf/kpis_esg_final.pdf
11
Deutsche Vereinigung für Finanzanalyse und Asset Management
About DVFA and EFFAS • DVFA – Society of Investment Professionals with currently 1,200 individual members • EFFAS – European Federation of Financial Analysts Societies) representing 25,000 individuals in 27 European markets • Investment Professionals: − − − −
Evaluation or Or management Of investments Or credit risks
2
DVFA/EFFAS KPIs for ESG 3.0 • Framework for company ESG reporting and modelling of company risk/opportunity • Developed by DVFA in German ESG lab, endorsed by EFFAS • Single stakeholder approach: KPIs build exclusively to investment professional requirements • Features: • Sector-specific • Based on Stoxx Industry Classification Benchmark (ICB) at level “subsector” (in total: 114) • Publically available – no fee model for use • Backbone of Stoxx ESG Global Leader index family 3
DVFA Committee on Extra-Financials Mission •
Define set of quantitative, measurable KPIs for ESG aspects capable of integration into classic investment analysis
Due Process • Reduce long-list of 600 indicators to 25+ KPIs through multiple iterative process involving discussions with mainstream investment professionals and corporates • Surveying perception of set of identified KPIs to mainstream investment professionals • Public comment period • Gain EFFAS endorsement • Release standard in Oct 2010 4
Quality Criteria for KPIs IMPERATIVE: • Correlation to • Risk • Success factors of corporate business • Significant and relevant for investment decisions • Firmly anchored in corporate management system • Quantified, ideally: monetized • Comparable • Benchmarkable from peer to peer • Depict dynamic i.e. from reporting period to reporting period • Accepted by mainstream financial analysts and investors • Manageable amount („Key“) e.g. small set of max. 30 KPIs
5
Approach What is the impact of ESG factors on company growth, profitability, cost and risk? Sales
100
Cost of goods sold
60
Gross operating profit
40
SG&A expenses
15
EBITDA
25
Depreciation & amortisation
12
EBIT
13
Interest expense
4
Pretax income
9
Income taxes
4
Net income
5
Energy efficiency GHG emissions Emissions to air / soil / water Raw materials Waste Water consumption Staff turnover Training & qualification Maturity of Workforce Absenteeism rate Fatalities & injuries Litigation risks Corruption Revenues from new products R&D expenses Capacity utilisation
Goal: non-financial aspects should be integrated in valuation methods e.g. P/E or EV/EBITDA 6
6
Does it take a CSR report to decypher corporate sustainability?
7
Survey on Relevance: Participants International Dimension of the Survey
ABN AMRO Bank nv ABP Vastgoed Holding BV Allianz Allianz Dresdener Asset Management ampega Investment AG Argos Investment Managers AXA Banca di Intermediazione Mobiliare IMI S.p.A. Bankgesellschaft Berlin Banque General du Luxembourg BHF Bank AG BNP Paribas CEROS Vermoegensverwaltung GmbH CHEUVREUX DE VIRIEU Commerzbank AG creditmutuel Dexia Banque Belgique SA Dresdner Kleinwort Wasserstein DWS / Deutsche Asset Management EQUINET AG F&C Management Ltd.
Feri Finance AG Fortis Investments Goldman Sachs HSBC Bank JP Morgan Chase & Co Kempen&Co Kredietrust LAZARD Legal&General Investment Managers Merck Finck Merrill Lynch Morgan Stanley Group Inc. ODDO & CIE Rothschild Bank AG Sal. Oppenheim jr. & Cie KGaA SAM Group Holding AG Schweizerische Rueckversicherungsgesellschaft Societe Generale Union-Investment WestLB AG Zürcher Kantonalbank
8
8
Survey on Relevance: Distribution by Function 122 Respondents Distributed in 6 Classes
Asset Owner/Pensionfund Manager
Others Equity Sell Side Analyst
16%
32%
2%
9 Institutional Investor/Asset Manager 24%
Bond Analyst 4%
Equity Buy Side Analyst 22%
9
Example: Entry level for Subsector Automotives 3353 KPI
1
Spez.-ID Scope Specification
(Scope I = Entry Level; Scope II = Midlevel; Scope III = Highlevel) Energy Efficiency E01-01 I Energy consumption, total
2
GHG Emissions
E02-01
I
GHG emissions, total (scope I,II)
3
Staff turnover
S01-01
I
Percentage of FTE leaving p.a./total FTE
4
Training & qualification
S02-02
I
Average expenses on training per FTE p.a
5
Maturity of workforce
S03-01
I
Age structure/distribution (number of FTEs per age group, 10-year intervals)
6
Remuneration
S08-01
I
Total amount of bonuses, incentives and stock options paid out in €,$
S08-02
I
Total number of FTEs who receive 90 % of total amount of bonuses, incentives and stock options
S08-03
I
Key Performance Narrative (Please answer the questions in max. 500 words) Do you take ESG performance into account in your performance agreements? How do you integrate ESG principals within performance agreements in your company and to what extent do you apply it?
7
Litigation risks
V01-01
I
Expenses and fines on filings, law suits related to anti-competitive behavior, anti-trust and monopoly practices
8
Corruption
V02-01
I
Percentage of revenues in regions with Transparency International corruption index below 6.0
9
Revenues from new products
V03-02
I
Percentage of new products or modified products introduced less than 12 months ago
Innovation
V04-01
I
Total R&D expenses
V04-05
I
Number of patents registered within last 12 month
10
10
10
Appendix KPIs for ESG: http://www.dvfa.de/files/die_dvfa/kommissionen/non_financials/applic ation/pdf/kpis_esg_final.pdf
11
