Oliver Jaeggi (Switzerland )
Managing Partner/ Chairman - ECOFACT AG
How To Transtlate The PRI Framework Into Practice: Norm-based Exclusion
More and more financial institutions are becoming signatories of the United Nations' PRI. However they find it difficult to figure out how they can translate the PRI framework into practice.
Traditional SRI/ESG solutions take a "best-in-class" approach, trying to indentify the best companies within a sector. This leads to investments into shares of companies such as Shell, Nestle, British Airways, etc. Some funds exclude the most controversial sectors, such as defense or tobacco.
For most investors this has two downsides:
a. This approach reduces the investment universe significantly because only a few hundred companies will be "best-in-class" [this point is especially relevant for institutional investors because they fear exposing themselves to higher risk by reducing the portfolio.]
b. Most investors would like to see some form of positive impact on sustainable development. The "best-in-class" approach is difficult to communicate; investors remain skeptical. How can I do good by investing in British Airways? Why is this company more "ethical" than Continental Airlines?
The approach ECOFACT has taken with RepRisk is much easier to communicate: By simply excluding a small number of the worst companies one has no impact on the investment universe (a.) and the "ethical" upside is obvious (b). If I hold a stock I bet on the company's future cash flows. By excluding the worst violators ("norm-based exclusion") an investor can easily avoid participating in the revenues of a company that grossly violates international minimum standards.
- RepRisk is a web-based tool that provides insights into environmental and social issues that present financial and reputational risks to a bank, company, or investment portfolio. It facilitates the identification and assessment of controversial issues associated with specific companies and business relationships.
RepRisk covers controversial issues ranging from employee and community relations to resource availability and efficiency, environmental footprint and product portfolio-related risks. In particular, it addresses all of the principles of the UN Global Compact.
RepRisk's assessment of the environmental and social performance of a company is based on the company's activities in the field as observed by independent third parties, and is not derived from information provided by the company itself.
RepRisk monitors all print media, more than 700 NGO websites, newsletters, news websites, blogs and other online sources daily. As of June 2009, RepRisk had identified 10,700 companies as well as 2,000 projects that are viewed as controversial.
- ECOFACT is a leading provider of reputational, environmental and social risk management solutions in the financial industry. ECOFACT is based in Zurich and leverages a global network of sector and issue specialists. Our client base consists of asset managers, pension funds, commercial and investment banks, the leading development banks, insurance companies, and governmental agencies.
ECOFACT AG was founded in 1998 as a spin-off from a leading Swiss bank and is a fully independent corporation.