European research highlights

KeplerCheuvreux, Conflict Minerals, October 2012

KeplerCheuvreux ESG Team
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“Companies merely branding third-party goods with their own label, i.e. not specifically contracting the manufacturing need not report. Mining groups have not been required to comply with the new legislation either, although they are not exempt from the broader problems of operating in conflict regions. Reports of a de facto boycott of conflict minerals in the Eastern DRC regions began soon after Dodd-Frank legislation was authorised, through a large drop in demand through fears of non-compliance with the Act. Realistically there will be some continued sourcing shifts away from the region. The Dodd-Frank amendments require the companies in question to publish their conflict minerals status online. But consumers are also slowly demanding greater disclosure, and search engine technology has begun the aggregation and delivery of such information. Transparency regulation will empower this trend.”

KeplerCheuvreux, Climate Change Adaptation: Underwriting risks for (re)insurers, May 2013

Erwan Crehalet and Stéphane Voisin
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“The +2°C scenario is out of reach and climate change is likely to bring new weather extremes challenging the resilience of companies’ operating results and assets. Hurricane Sandy was only an early signal of future changes: studies point to a ~70% upside risk in storm damage potential in Europe and the US. We map climate change exposure of European (re)insurers. We first identify insurance lines and countries the most adversely exposed to climate change impacts, and propose an in-house risk exposure rating, based on companies’ business and geographical exposures. Property insurance in the UK notably appears as a hot spot. Pure life insurers are much less concerned. In the long term, we expect reinsurers to benefit from increased retrocession of weather risks from insurers. Despite projected increase in EU and US hurricane damage of 70%+ under climate change scenario, the risk of default for European reinsurers remains low in our view, especially for Hannover Re – the least exposed.”

Societe Generale, CEO Value – A long term winning combination of financial & corporate governance metrics to identify recovery stories, 11 June 2013

Yannick Ouaknine, Daniel Fermon, Carole Crozat, Niamh Whooley
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“The CEO Value stock selection process is based on a simple idea: a company that has relatively sound corporate governance principles, but which has underperformed its peers over four years, should see a turnaround in its share performance. The assumption is that sound corporate governance principles will prevent a weak situation from remaining the same or getting worse, either via a change of strategy or management. Our selection criteria are: 1) underperformance of >15% relative to peers over the past four years; 2) CEO in office for more than three years (the time necessary to implement a strategy and see the results); 3) “solid” financial structure; and last but not least 4) “sound” corporate governance standards. This report is an update of our CEO Value stock selection. We replaced fifteen stocks (out of 25) which have changed their profile, mainly due to outperformance over the past year (i.e. Renault SA +71%; Reed Elsevier PLC +51%; Roche Holding AG +50%; L’Oréal +40%).”