The FarSight model of company analysis offers the asset management industry a rating of the maturity of a company’s leadership based on how it responds to material non-financial issues (material to the medium- to long-term financial sustainability of the company).
FarSightFirms analysis serves as:
- a measure of the quality of a company’s leadership,
- a guide to the non-financial issues emerging now, that may have an impact on the value creation ability of a company in a three- to five-year window,
- a list of key aspects that the asset manager can refer to when engaging with company management, or when delivering opinions around proxy voting.
By applying this analysis, asset managers can exploit the integrated reporting industry’s newly adopted approach to the concept of responsible business. This recognises that by taking into account the interests of society only where relevant to business, and responding with effective business strategies to these challenges, a company is better placed to serve the long-term interests of its shareholders.
Confirming this hypothesis, a Harvard Business School Working Paper, published in March 2015, by Khan, Serafeim and Yoon, found that “firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing.” Further: “firms that spent more on immaterial sustainability issues, performed worse in this study.”