New European ESG company performance indicators could herald mainstream investment analysis

The Frankfurt-based European Federation of Financial Analysts Societies (EFFAS), could shortly adopt a set of 30 Key Performance Indicators (KPIs) for environmental, social and governance issues and long-term viability that investors can promote amongst corporations in a bid to get clear and comparable data.
Investment analysts argue they cannot currently get enough financially relevant and comparable information on ESG issues from companies, despite projects such as the Global Reporting Initiative, which aims to get firms to report uniformly on sustainability.
The KPIs have been developed by DVFA, Germany’s Society of Investment Professionals, which represents over 400 investment firms, banks, asset managers and consultants. Their adoption by EFFAS, the umbrella organisation for more than 14,000 European investment professionals, would put significant pressure on companies to report clearly to investors on issues such as carbon emissions, energy efficiency, staffing policies, preventing corruption and supply-chain management.
Speaking at the FAIRE conference in Paris, Alexander Bassen, professor at the University of Hamburg and a member of the DVFA Committee on Non-Financials that compiled the indicators, said: “We believe this will get endorsed by EFFAS, which is now looking at theproposals. This would take the indicators to the international level. We are now sitting down with companies to see how these criteria can be met and how investors can use the data.” Bassen said the indicators had been produced by a working group involving fund managers, analysts, companies, academics and selected NGOs and include both general and company sector specific categories.
Hendrik Gartz, director of SRI research at WestLB, the German bank, said: “This is a very important step because at the moment it is not clear for companies what ESG information financial markets want to see. In our view ESG reporting is just the tip of an iceberg where 10% of what is relevant is above the surface and the remaining 90% is hidden. We believe that a lot of company value is driven by intangibles ESG factors and traditional research models have no way to access this ‘off balance sheet’ information.”
Ursula Mathar, vice president environment and sustainability at Bayer, the German chemicals and healthcare group, said: KPI’s in this area make it possible for our managers to measure these things and then report on them. We believe that increased transparency on ESG issues is expected from company reports for comparability.”