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19 February 2004

SustainAbility Press Release

A study released today predicts that specialised research organisations providing data for sustainable and socially-responsible investment (SRI) face major challenges, particularly in their attempts to attract interest from mainstream investors. The study also urges leading investors and asset managers to take a more active role in shaping the future of SRI. These are the key conclusions from a new study by SustainAbility supported by Mistra the Swedish Foundation for Strategic Environmental Research.

The report - Values for money: Reviewing the Quality of SRI Research – involves a detailed review of 15 organisations from around the world. The report points to major challenges to SRI research organisations including the emergence of sell-side brokers as suppliers of research, the ongoing erosion in the price of research and higher investor expectations of research services.

However the report also argues that there is an extraordinary opportunity for research organisations to target the growing numbers of mainstream investors interested in related concepts such as reputation, corporate governance and management quality. The challenge for these organisations is to develop ‘second generation’ approaches that service this growing mainstream audience.

“These organisations have played a pivotal role in building the SRI market over the past twenty years,” said Seb Beloe, director of research and advocacy at SustainAbility and one of the report’s authors. “But if the industry does not succeed in evolving ‘second generation’ models of research, it is likely to lose its relevance in the eyes of all but a small niche of ethical investors.”

Mans Lonnroth, Managing Director of Mistra, said, “As an investor we need research that supports both our social and environmental objectives as well as our financial responsibilities. Unfortunately, very few specialist SRI research organisations meet these objectives, and so we intend to encourage researchers to co-evolve these approaches over the next few years.”

To help research organisations develop second generation research methodologies, the report recommends that:

- Research Methodology: Methodologies be developed that uncover the links between sustainability issues and investment value drivers sector by sector. Currently only 3 organisations do this effectively.

- Quality of data sources: The range of sources that are used in the research process be broadened, including integrating strategic and financial research into company assessments. Currently information is gathered primarily from the companies themselves.

- Quality of research management and processes: Researchers provide assurance of their research processes in order to mitigate growing concerns about the validity and credibility of research. Currently only one organisation has had its process independently verified.

- Research Team: Increase the amount of financial skills and large-cap experience in research teams. Currently the best profile only achieves 30% and 41% of analysts respectively.

- Company coverage and client service quality: The overall universe of companies being covered be expanded, particularly in emerging markets, and of small and mid cap companies.

- Transparency and Governance: Organisations declare and address any potential conflicts of interest inherent either in their ownership structure or on account of the services they provide. This is likely to be of particular concern where independence is deemed to be particularly important. The report is available to download from www.sustainability.com

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http://www.sustainability.com/publications/latest/values-money.asp

Seb Beloe +44 207 269 6900
beloe@sustainability.com

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Notes to Editor:

Founded in 1987, SustainAbility is the longest established international consultancy specializing in business strategy and sustainable development – environmental improvement, social equity and economic development.
www.sustainability.com

Mistra is a Swedish foundation founded in 1994 by the Swedish Government with a capital base worth SEK 3.2 billion. The foundation supports strategic environmental research that aims to solve major environmental problems and contribute to the development of a sustainable society.
www.mistra.org

040219_SustainAbility_pressrelease.pdf

040219_SAM_pressrelease.pdf