New York – The extra-financial research industry is showing signs of growing sophistication, according to a study issued by the Enhanced Analytics Initiative. The results of the study, which were released this past week, indicate that extra-financial research is beginning to tackle more challenging extra-financial issues, such as corporate governance in the emerging markets and climate change. At the same time, the study notes that “strongly under-researched areas still exist, such as analysis into the impact of human capital management, workplace and stakeholder related issues.”
The Enhanced Analytics Initiative (EAI) is a program sponsored by 30 asset managers representing approximately $3 trillion in AUM. The mission of the program is to “address the absence of quality, long-term research which considers material extra-financial issues within mainstream research.” The EAI defines extra-financial issues as “fundamentals that have the potential to impact companies’ performance or reputation in a material way, yet are generally not a part of traditional fundamental analysis.”
Twice a year, the EAI assesses extra-financial research providers and selects the firms with the top research offerings. Members of the EAI have committed to allocating a minimum of 5% of their respective brokerage commissions or research budgets to these top providers. This amounts to millions of dollars in commissions—a strong incentive for firms to develop more innovative extra-financial research offerings.
In the most recent evaluation of the extra-financial research industry, CA Cheuvreux, Citigroup, Credit Suisse, Deutsche Bank, JP Morgan, Oddo Securities and UBS were selected as the top providers of extra-financial research. These providers were selected on the basis of the following metrics: scope of extra-financial issues covered; overall presentation and originality; investment relevence of sector and issue analysis; comparative company analysis; and coverage of research universe.
The EAI’s biannual study is conducted by onValues ltd., a Swiss consultancy that provides research advisory work on the ESG space for institutional investors. The firm has two main practice areas: investment consulting and research advisory. The investment consulting practice is geared towards helping clients define investment strategies/methodologies, implement active ownership strategies, and select external managers and/or sub-advisors. The research advisory practice is geared towards evaluating independent and non-independent providers of ESG research.