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Special Report

Impact investing


Managers would pay premium for better governance

UK- 80% of UK asset managers would rather pay more for shares of well-governed companies than take risks, in the light of corporate scandals from Enron, Tyco and WorldCom, reveals a survey by KPMG.

The survey, carried out in July and August 2002 among UK’s asset managers controlling over $1trn in funds, showed that, on average, investors would be prepared to pay a premium of 11% for shares in a company that demonstrated high governance standards.

Investors no longer focus solely on profits and earnings. Over 40% of managers surveyed now consider non-financial disclosure as important as final statements when making investment decisions.

Says Tim Copnell, director of corporate governance at KPMG: “clearly high quality financial statements are of immense importance, but in the current environment, the investment community is not only looking at financial reporting. It is looking more to wider indicators of the performance of a company to evaluate whether it is a sound investment.”

Fund managers are also keen to see the introduction of a third party into the equation, that could keep tabs on a company’s corporate governance practices. Regular appraisal of board members and a separation of the roles of CEO and chairman are also deemed relevant.

In response to corporate abuses, several of the world’s leading pension funds have already introduced corporate governance policies. In August Sweden’s third largest pension fund, AP3, decided to step up its shareholder activism. In a five page policy document demands for a clearer division of roles between corporate managements and board of directors were laid out.

Also in August US’s largest pension fund, CalPERS, announced that investment banks and money managers wishing to do business with it would now be required to adopt stringent conflict of interest principles.

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