"The fact that a foreign company is doing material business with a country, government, or entity on [the U.S. Treasury Department's Office of Foreign Assets Control] sanctions list is, in the SEC staff's view, substantially likely to be significant to a reasonable investor's decision about whether to invest in that company."

- SEC Chairman Laura Unger, 2001

What is Global Security Risk?

Global security risk has emerged in recent years as an important risk factor to institutional investors and other shareholders and as a new category of due diligence for corporate executives. Broadly defined, global security risk is the risk to share value and corporate reputation stemming from the intersection of a publicly traded company's international business activities and security-related concerns, such as terrorism and weapons proliferation.

Global security risk was first addressed by the Securities and Exchange Commission (SEC) in May 2001, when it determined, "The fact that a foreign company is doing material business with a country, government, or entity on [the U.S. Treasury Department's Office of Foreign Assets Control] sanctions list is, in the SEC staff's view, substantially likely to be significant to a reasonable investor's decision about whether to invest in that company." Since that determination, investors have primarily focused on those companies with business activities in or with terrorist-sponsoring states when assessing global security risk. Pursuant to Congressional legislation, the SEC has since opened an Office of Global Security Risk to ensure that companies under its jurisdiction properly disclose material information related to such activities.

The fact that company financials and share value can be affected by public perception of corporate activity and shareholder activism is not lost on investors and corporations. Industry experts point to Talisman Energy of Canada as a case study of the affects of global security risk; the company experienced a "Sudan discount" to its share price for some three years due to divestment pressures arising from its operations in Sudan. Today, dozens more companies active in Sudan are at risk due to a national divestment campaign.

In order to assess exposure to global security risk, investors require a comprehensive list of U.S. and foreign companies with business activities in terrorist-sponsoring states. CSAG's one-of-a-kind Global Security Risk Monitor online database provides such a resource. CSAG believes it is critical for subscribers to have accurate, verifiable data regarding the specific nature of those activities in order to properly evaluate the associated risks. Importantly, company profiles are presented in an impartial, data-oriented manner, with no editorializing by CSAG researchers.

CSAG undertakes a multi-layered research process and sources all of the information found in the Monitor. We likewise undertake an expansive corporate communication process that allows companies profiled in the product to review CSAG's report prior to publication and comment, challenge or clarify our findings. (See "Global Security Risk Monitor" page) .

 

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