How to Count What You Can't See
It's one of the primary rules of entrepreneurialism: To be successful, a business needs to help address a problem. From that perspective, Peter Ohnemus and his company, Asset4, are off to a good start.
They're going after pretty much everything that ails us, from global warming to child labor to excessive executive pay. Better yet, there are already a few trillion dollars betting that Ohnemus knows what he's doing. So why have you never heard of him?
Because Ohnemus, who was born in Denmark and lives in Switzerland, isn't actually out to directly solve the problems facing humanity. Instead, he's focused on helping investors figure out how to incorporate such considerations into the way they evaluate the companies they invest in.
But here's the thing: If his idea catches on, it might just have the same ultimate effect. If no one invests in companies that don't have a social conscience, they'll be hard-pressed to keep the doors open and the lights on for long.
Ohnemus, a serial entrepreneur, admits that the motivation behind Asset4 was as much selfishness as it was a desire to make the world a better place. Since 1993, when he sold a database company, SQL, to Sybase, he'd either built or been involved with three other companies that went public. By the turn of the century, he found himself preoccupied with what you might call a high-class problem: how to invest the substantial wealth he'd accumulated to that point.
Around that time, he came across a book that instilled in him both a sense of dread for the planet as well as an idea for a new business. The tome is High Noon: 20 Global Problems, 20 Years to Solve Them by Jean-Fran�ois Rischard, the chief economist for the World Bank.
"It's a scary book," Ohnemus says. "I read it twice in one week. And then I called Henrik Steffensen, my co-founder, and told him I had an idea for a new company. We would create the Bloomberg for extra-financial data."
Investors, says Ohnemus, have no shortage of providers of financial information from the usual suspects: Bloomberg, Reuters, Thomson, Standard & Poor's, and more. What they don't have, he argues, is a reliable source for everything else that matters about a company-intangible assets like reputation, environmental policy, and a commitment to workplace safety.
A 2002 study of the drivers of public market value shows just how important intangibles have become over time. In 1982, 62 percent of the public market value of the world's 150 largest companies could be attributed to their tangible assets-things like their buildings, inventory, and equipment. By 1999, the proportion had fallen to a mere 16 percent, leaving a full 84 percent of a company's value reliant on intangible inputs such as patents, trademarks, and other intellectual property, as well as its environmental, social, and corporate governance practices.
It's those last three that Ohnemus and his team have set their focus on. And it's made their sales pitch about as easy as can be: Who in their right mind would try to determine a fair value for a stock using just 16 percent of the necessary inputs?
And so, in August 2003, Ohnemus and Steffensen founded Asset4, which is based in Zug, Switzerland. Today, the company has 200 employees in six global offices, and has attracted a very prominent firm as both investor and customer: Goldman Sachs.
Ohnemus and his team have identified what they refer to as four pillars of corporate performance: economic, environmental, social, and corporate governance. The latter three make up the extra-financial component, and Ohnemus refers to them as E.S.G.'s.
The platform produces a total of 900 unique data points for each company analyzed. It can produce a range of tailored reports on companies or industries, as well as reports on categories or indicators across the universe of 3,500 companies in the MSCI World Index.
Data points and indicators collected by Asset4 analysts run the gamut of nonfinancial aspects of the life of a business: animal testing, consumer complaints, energy footprint, the female-to-male employee ratio, pay practices, political contributions, staff turnover, and even noise reduction.
To date, Ohnemus' customers include Goldman, UBS, Swiss Re, the Pension Fund of New Jersey, and Shell Asset Management.
All-in, he estimates that trillions of investment dollars are either directly or indirectly using the Asset4 model. And it might just get easier from here. The more people come to value some input, the more that will be reflected in the public value of companies, which will probably lead to investors' coming to value that input even more.
It's already happening. In October of 2006, for example, Goldman Sachs released a 105-page report on the global energy industry that made extensive use of Asset4 data and noted that "winners" in an E.S.G. framework had outperformed their peers by 6 percent since August 2005. "We believe the strong relationship between E.S.G. leaders and stock market performance will persist," the bank's analysts wrote.
Bank Sarasin, a Swiss private bank that in 1994 launched the world's first investment fund based on the concepts of eco-efficiency, has also chosen to integrate Asset4 data into its own research. Dr. Eckhard Plinke, head of sustainability research at Bank Sarasin, says that the sheer number of companies covered by Asset4 makes the database valuable, as well as the ability to customize the information for the bank's own in-house rating systems. "Those are major advantages for us," he says.
With those who argue that the most important thing a company must do is-and always will be-to make money, Ohnemus doesn't entirely disagree. "I'm a capitalist," he says. "I believe the business of business is to do business. But if consumers start to dictate that they want companies to behave in a certain way, business is going to have to start caring about that as well."
Investors, it seems, already have. An index of top-ranked companies in the Asset4 model outperformed the MSCI World Index by 67.1 percent from July of 2000 through July of 2005. The following year, that margin expanded to a full 84.8 percent.
The inescapable conclusion is that the market already cares about things other than the bottom line, and investors who fail to do so themselves do so at their own peril.
And what about Ohnemus' own problem: investing his money? It looks like that's one problem that will probably get worse.
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