Monitoring and disclosure could be required under Sarbanes-Oxley

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Monitoring and disclosure could be required under Sarbanes-Oxley

NEW YORK, NEW YORK, Apr. 5 -/E-Wire/-- Innovest Strategic Value Advisors, a financial services firm analyzing non-traditional drivers of investment risk and value, has released its most recent report on the U.S. Electric Power sector. The report analyzes the performance of 26 firms in areas including corporate governance, environmental risk and management, product/service risk and innovation, human capital strategies, emerging markets and supply chain management. Innovest found that the thirteen firms with above average ratings outperformed the lagging group by over 900 basis points in total shareholder return over the past three years. Similar results were found in nearly every other sector largely because firms with high Innovest ratings tend to have more sophisticated management teams that are better able to deal with complexity and rapidly changing markets.

Firms with high Innovest ratings also outperform because they do a better job of managing financially relevant governance, environmental and social issues typically not addressed in conventional financial analysis. This is particularly true in the resource and pollution-intensive electric power sector. Innovest found wide variations in risk exposure and management among firms in highly financially relevant areas, including air and water emissions, nuclear waste and strategic profit opportunities.

These relevant risk factors are often not disclosed in financial statements. This makes it difficult to assess a firm's likely liabilities going forward in absolute terms, and even more difficult to assess likely financial obligations relative to peers. This, in turn, makes it difficult for investors to identify which firms provide the lowest risk and highest return potential going forward.

Sarbanes-Oxley requires that a system be in place to monitor operational risks that could materially affect financial performance. If it becomes likely that these factors will have a material impact, they must be disclosed. Many of the factors analyzed in the Innovest report already have material impacts on firms. Forces reshaping the electric power sector will drive these factors to have an even larger financial impact going forward. As a result, monitoring and disclosure under Sarbanes-Oxley could be required in the near future.

The electric power sector produces roughly one third of the nation's air pollution. It is known that these emissions cause premature deaths, many different types of illnesses, acid rain damage to forests, and may contribute to birth defects through mercury emissions. These factors impose real costs on society that are not included in electricity prices. This creates the illusion that electricity is less expensive than it actually is.

Recently, the Federal government has scaled back environmental regulations in an effort to keep electricity prices low and help the economy. However, the cost to society of allowing emissions (i.e.: premature deaths, illness, birth defects, etc.) is far greater than the cost of lowering emissions. Quantifying the negative environmental and public health impacts of power generation is a highly complex process. Difficulty in quantifying impacts is the main reason power companies are not held fully responsible for their negative impacts on society.

Yet, not holding power companies responsible places investors at substantial risk. Sooner or later, investors (or taxpayers) will be forced to bear the full cost of power generation. Carla Tabossi, Senior Analyst at Innovest, stated that, "Firms proactively working to reduce emissions, and seeking regulations that encourage this, protect investors from catastrophic losses. These firms also consistently turn out to be better managed overall and provide safer, higher returning investments."

Climate change is one of the key issues covered in the report. As a global leader in assessing the financial impacts of climate change, Innovest comprehensively analyzes likely impacts on the power sector. In particular, growing capital market engagement climate change is addressed. For example, through the Investor Network on Climate Risk, investors representing over $1 trillion are encouraging firms to better mitigate climate risks.

In the Innovest electric power sector report, FPL Group and Pinnacle West Capital received the highest environmental ratings, while Allegheny Energy and First Energy received the lowest. These ratings have strong implications for Sarbanes-Oxley disclosure as well as investor returns.

Innovest Strategic Value Advisors is an internationally recognized, independent research firm specializing in non-traditional sources of investment risk and out performance, including companies' performance on governance, environmental, and social issues. Innovest's clients include leading institutional investors throughout the world. Founded in 1995 by Dr. Matthew Kiernan, Innovest has offices in New York, London, Paris, Madrid and Toronto. The company is chaired by Jim Martin, former Chief Investment Officer for North America's largest pension fund, TIAA-CREF.

Innovest Strategic Value Advisors

Innovest Strategic Value Advisors Inc

http://www.innovestgroup.com

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