Sustainable Investment and Corporate Governance Working Papers, Sustainable Investment Research Platform
No 2009/8:
Extra Financial Analysis – EFA: Environmental and financial performances of ABB, Akzo-Nobel and SCA: Picturing the business opportunities and risks associated to stakeholder perceptions and environmental and social prerequisites
Pontus Cerin ()
and Mohammed Belhaj
Abstract: External assessment of companies’ environmental aspects
often focus on the existence of strategies, commitments, management systems
and reporting of firms that concerns environmental aspects. Instead, in
line with extra financial analysis, in order to play a role in
decision-making, analysis of environmental aspects should incorporate the
influence that stakeholders may have on future revenues of the assessed
firm and how well advanced corporate strategies are in meeting these
threats, turning them into business opportunities. Thereafter, the
environmental information financial analysts’ use in their financial
analyst reports as well as the relation between environmental and financial
performance are illuminated. Three industry sectors, Chemicals, Electrical
Equipment and Paper & Forest Products, are specially analysed in this
report. Out of almost 4500 analyst reports about 36 percent contain
environmental information, but when looking at industry sectors these
numbers range from only 3 to up to 79 percent. The type of environmental
information that the analysts focus on in their reports are on how firms’
products and product portfolios are adopted to Environmental regulations
facing customers/markets, Customer demands and Eco-Efficiency. This product
perspective is strongly related to discussions of business opportunities of
the firm. In fact, a good 77 % of the financial analyst reports containing
environmental information dealt with opportunities linked to environmental
aspects. To a lower extent, financial analysts write about company specific
risk issues like emissions and litigations while their reports is virtually
absent from aspects like environmental strategies, policies, management
systems, reporting and auditing. The correlation between corporate
financial and environmental performances is illuminated through regression
analyses. Industry environmental risk is found to be negatively correlated
to corporate return on assets – ROA – (in an static model) while (when
applying a dynamic model) corporate environmental performance and ROA have
a positive correlation in the short term, which can find support by other
studies using different data.
Keywords: Extra financial analysis; EFA; Financial analyst reports; Content analysis; ESG Framework; Return on assets; ROA; Environmental performance; Social performance; financial performance; Financial accounting; Non-financial information; (follow links to similar papers)
122 pages, November 21, 2009
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