PRODUCED BY THE
WITH SUPPORT FROM
RIAA Responsible Investment Academy Business Plan November 2008
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RIAA RESPONSIBLE INVESTMENT
CREATING AN INDEPENDENT GLOBAL CENTRE FOR RESPONSIBLE INVESTMENT
EDUCATION, TRAINING, RESEARCH, POLICY AND INNOVATION
The Responsible Investment Academy addresses four fundamental weaknesses in our
financial market system:
WEAKNESS 1: Traditional valuation models lead to mispricing which leads to
inefficient allocation of resources.
Traditional accounting and valuation models were developed for an era which has
now passed. The factors which drive company value in the 21st century include a host
of environmental, social, ethical and governance risks which are currently not
considered by analysts in valuation models.
WEAKNESS 2: Insufficient disclosure by companies on ESG issues leads to inaccurate
valuations which results in the inefficient allocation of resources.
Traditional forms of corporate reporting do not require companies to disclose their
management of environmental, social or governance issues. This leads to a lack of
analysis of these factors that impacts on valuation.
WEAKNESS 3: At present, many of the negative consequences of doing business
are borne by society or the environment.
The failure to take into account negative externalities leads to the inefficient allocation
of resources. The 21st century will increasingly require companies to pay for negative
externalities through a tightening of regulations and laws.
WEAKNESS 4: Pricing is based on historical data.
The new world in which we live requires analysts to look forward, not backwards. Two
major investment banks have stated that 77% to 85% of company value is not reflected
in the profit and loss or the balance sheet. If this is