No 2010/4: Analysing the Environmental Content of Financial Analyst Reports by developing an ESG Framework that incorporates Business Opportunities and the Product Perspectives

Abstract: Unlike most previous research that merely looks at the perceptions of analysts, this report examines the environmental information financial analysts actually use in their analyst reports. Out of almost 4,500 analyst reports about 36 percent contain environmental information, varying between 3 to 79 percent depending on industry sector where, in general, analyst reports in sectors with more severe environmental aspects to a larger degree contain environmental information. The type of environmental information that the analysts foremost 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 litigation. The financial analyst reports, furthermore, practically lacks environmental preparedness aspects – like environmental strategies, policies, management systems, reporting and auditing – that are core issues of the ethical and SRI analyses. The financial analysts, hence, focus on different environmental aspects than the ethically specialised analysts. For analysing the environmental content in the analyst reports in this study an ESG framework was developed that, unlike previous research, also detects the environmental performance in the product dimension.

Keywords: Financial Analyst Reports; ESG Framework; Environmental Information; Responsible Investments; Business Opportunities; Product Perspectives

47 pages, April 30, 2010

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