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City analysts slow on uptake

July 2001

City analysts are slowly taking the social and environmental performance of companies into account when making investment decisions, according to a new study.

The Business in the Environment poll shows that a third of sell-side analysts it surveyed said environmental performance was ‘quite or very important’ in their evaluation of companies – compared with only 20 per cent when a similar BiE survey was last carried out in 1994. The figures for social issues have risen by an even wider margin, from 12 to 34 per cent.

However, the report of the findings, Investing in the future, says the views of analysts are ‘still clearly behind those of other groups in the City’.

The BiE survey was carried out by MORI, which conducted telephone interviews with 93 sell-side analysts, 50 institutional investors, 30 business and financial journalists and 30 investor relations managers from FTSE 250 companies.

When asked to consider non-financial indicators overall, 20 per cent of investors, 23 per cent of financial journalists and 30 per cent of investor relations managers identified environmental and social factors as important, but just nine per cent of analysts.

BiE claims this shows an ‘emerging gap between the thinking of analysts on these issues and that of their institutional investor clients’.

‘The low priority given to these issues in the City contrasts with the increased priority within listed companies,’ said BiE chairman Derek Higgs.

BiE says the onus is now on companies themselves to take the message to City analysts by improving the quality of information they provide about their ethical performance. One way of doing this would be to integrate financial data with figures on environmental and social policies and performance.

‘Of course, the City should take the initiative in developing its own methods of assessing companies in these areas,’ said Higgs. ‘But companies that have proved to themselves that social responsibility makes business sense must now show this in their reporting in a way that makes sense to the City.’

Most respondents placed a high value on the environmental and social information they received directly from companies, but a significant number complained its quality was poor.

The survey found that even when analysts expressed positive attitudes about social and environmental performance, few showed much knowledge of the issues involved. BiE concluded that ‘there remains a wide degree of confusion as to whether these issues should be an area of concern for the financial community.’

 




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