Asset4 Enriches Risk Assessment

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The idea for Asset4 came when Steffensen and Ohnemus, a tech industry veteran, were running a small Swiss investment boutique called E-firm. The two men found that the value of the companies they were investing in often wasn't adequately reflected on their balance sheets, so they set out to develop a new methodology for evaluating risk and opportunity. That led to the creation of a vast database spanning 250 factors from environmental policies to social and governance issues—known in industry parlance as ESG.

To add credibility to their model, Steffensen and Ohnemus submitted it for testing and analysis to third parties including the Swiss Federal Institute of Technology, the Lausanne-based International Institute for Management Development (IMD), and the Copenhagen Business School. (IMD professor Ulrich Steger now sits on Asset4's board of directors.) Today, Asset4's database contains information on almost 2,500 top companies that together account for about 60% of worldwide stock trading volume.

The attraction for a customer—and investor—like Goldman Sachs is clear. "There is a strong appetite from investors for nontraditional metrics and evaluation that go beyond general financials," says Raj Mehta, executive director for principal strategic investment in Goldman's London-based securities division. "Price-earnings ratios and cost-to-income are not sufficient to predict how a company will perform in the future." Mehta is especially keen on information about issues such as corporate governance and social responsibility, which, he says, "influence how the world and the markets will experience the companies and how investors will make money on the back of them."

A Growing Appetite

Asset4 already counts among its marquee clients BNP Paribas Asset Management (BNPP.PA), Société Générale (SOGN.PA), Axa Investment Managers (AXA), and Switzerland's Bank Sarasin (BSAN.MU), which launched one of the world's first investment funds based on the concept of eco-efficiency. Other users include Canadian socially responsible investment manager Ethical Funds and the pension funds of Royal Dutch Shell (RDSA), Philips Electronics (PHG), and the State of New Jersey.

There's no question appetite is growing for innovative services such as Asset4's. Funds handling over $4 trillion in assets have signed on to a set of six principles put forth by the U.N.'s Responsible Investing Initiative, which calls for pension funds, asset managers, and mutual funds to integrate ESG into their research and investment decision-making. To meet the demand, other firms such as Britain's Maplecroft benchmark corporate performance and analyze risk in economies around the world.

To be sure, such information needs to be used in conjunction with traditional financial metrics in making investment decisions. "ESG measurements have only been taken for about four years, but we are starting to get a larger set of information that indicates trends in the marketplace," says Goldman's Mehta. "The data will get sharper and smarter as time goes on."

Schenker is a BusinessWeek correspondent in Paris.