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The challenge for rating innovative and sustainable companies

Kyoko SakumaAsia-Pacific Team Leader, Vigeo Group

Presented at TBLI Asia 2006

26 May 2006

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Based in Paris, Brussels and Casablanca, the VIGEO Group is a corporate social responsibility rating agency.

Created in 2005 from the merger of two companies, • Stock at Stake /ETHIBEL (1992)

• VIGEO ( ARESE, 1997)

• The VIGEO Group is the leading provider of information on corporate social responsibility in Europe

INTRODUCTION TO THE VIGEO GROUP

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Companies30,2%

NGOs and Unions 23,6%

Financial institutions

46,2%

Capital : 16 Millions €

Ethibel Register Committee

group

Scientific Committee

VIGEO GROUP GOVERNANCE STRUCTURE

N. NotatCEO

Chairman

M. BontempsDirector

SRI ResearchDepartment

An international team composed of 60 professionals: 14 Nationalities

2 Business Activities

Investors Solicited Ratings: 50+ asset managers and institutional investors, and in-depth coverage of 850 companies (Europe 550, Asia Pac 130, USA 170)

Corporate Solicited Ratings: 35+ large European Corporations

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VIGEO Group Solutions

ETHIBEL services

Mainstream services

Equi-Plus

Equi-Perso

Equi-Compact

Thematic services

Ethibel label

Ethibel indexes

Equi-Carbon

Equi-Rights

Equi-Standards

SOLUTIONS

PIONEER

• A list of +/- 260 companies in 24 sectors and 3 regions, Europe (57%), Asia Pacific (20%) and Americas (23%), selected from MSCI World 1500

EXCELLENCE

• A list of +/- 350 companies in 24 sectors and 3 regions, Europe (57%), Asia Pacific (20%) and Americas (23%), selected from MSCI World 1500

INDEXES Pioneer and Excellence

A list of +/- 200 companies in 24 sectors and 3 regions, in the Pioneer Register or +/- 280 companies in the Excellence register

Two index families: Global and Europe

Equi Standards © Best in Class CSR Research & Identification risk/opportunities850 companies (550 Europe, 130 Asia Pac, 170 USA)

Equi Plus © Equi Standards +Detailed Scores

Tailor-made services

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VIGEO Group Asia Pacific Research

1. Index-based selection combined with Bottom-up approach Ethibel Best-in-class & exclusionary criteria

Equi-Standards Best-in-class & risk/opportunity identification

2. Bottom-up approach

Asunohane (“Feather for Tomorrow”) SRI fund, Asahi Life Asset Management (ALAMCO) Best-in-peers & risk/opportunity

identification

Common criteria:

Stakeholder Expectation

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VIGEO Group tailored-made solution

Asahi Life Asset Management’s SRI fund “Feather for Tomorrow”(AUM 5.1 Billion JPY as of 7 April 2006)

Vigeo Group response• What are the essential conditions for Japan’s and world’s sustainable growth in 20-30 years? And what will be more expected by the society then?-Need for better care and nursing to meet the aging population-energy and material-saving (zero emission) in business model Etc.

“Feather for Tomorrow” SRI fund manager’s view

• Companies with sustainable management in 20-30 year

• Companies with uniqueness compared to its peers

• Companies providing an innovative solution to societal challenges

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VIGEO Group tailored-made solution

Expansion of Stakeholder

research into Group-wide

activities

Stock at Stake became a research partner in 2002

Evolution of partnership with ALAMCO

in “Feather for Tomorrow “SRI fund

Inception in 2000

Identification of sector

risks/opportunity issues

Identification of risks/opportunity

issuesamong peers

Identification of uniqueness

of the company, cf. peers

• Joint selection of research universe

• Shared views on materiality

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Identification of risks and opportunities

SRI analyst challenge 1: What are the conditions on which possible risks/opportunities become

probable risks/opportunities ?

Inventories of “possible” risks/opportunities

Identifying “probable” risks/opportunities

SRI analyst challenge 2:

How probable /material are the identified risks and opportunities for the company in question compared to its peers ?

Probable risks/ opportunities

Company A

Company B

Company C

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Recommended companies

Company Mission:Contributing to improvement in medical quality and to reduction in medical costs

simultaneously

Company strategy: Help improve knowledge management and efficiency of in-house testing laboratory

Company Solutions:• Providing state-of-art IT-based analysers and labo systems, as an integral part of management solutions for better use of labo’s physical/human resources as part of medical team

• Introducing an “open platform” labo-system (small size) with its competitors

Company A is a producer of analysers, laboratory systems.

Issues at stake

• As population grows older, rationalisation of medical costs becomes imminent.

• 10% of public hospitals, and more plan to outsource the management/process of clinical testing to a testing centre to cut costs.

• A short-term cost cut is achieved, but “quality of medical care” and a clinical path suffer.

• Recent accidents at hospitals heighten public awareness about care elements of hospital management: a hospital rating and a second opinion system.

• Advantage of in-house labo can be maintained, if a testing/analyser equipment is small and less costly, which consequently allows free time for clinical examination technicians to become a medical team member for the patients.

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Recommended companies

Company Mission:Providing reliable quality products at

low cost through steel recycling

Company strategy:

Make difficult “impurity” removal possible at lower cost, by selecting steel scraps with

optimal and safe elements

Solutions:• Commercialise diversified steel products applicable for high quality use (cf. automobiles)

(first company supplying steel plats to automobiles in 2005)

Issues at stake: • The iron & steel industry voluntarily commits to reduce by 10% CO2 (1990 level) by 2010: 6.4% reduction in 2003.

• But heat reuse and energy-saving technologies are insufficient to cut a link between production increase and CO2 emission.

• A larger role of environmentally more friendly electric furnace (cf. blast furnace) is expected, particularly when Japan’s electric furnace ratio is still lower (26%) than US (54%) and the world average (34%).

• Enough steel scraps for electric furnace is expected, as Japan’s 1.2 billion accumulated steel is set to grow (2-3% of accumulated steel estimation is steel scrap)

• But steel scrap contains impurity: limited use for construction materials and little access to automobile application.

Company B is an electric furnace steel producer.

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Two questions for discussion

The bottom-up company research is often understood as suitable for retail investment. But can long-term investment be realisable without the in-depth bottom up research ?

Can we say that Small and Medium-sized companies with little CSR information are less sustainable than the large companies with good CSR information ?

Can SRI analysts play a bridging role in filling the information /analysis gap for Small and Medium-sized company for the institutional investors?

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Thank You Very MuchContact：

Kyoko SakumaTel: +32 2 206 6797 directMobile: +32 495 501 004Fax:+32 2 206 1110kyoko.sakuma@vigeogroup.com