integrating climate change information into mainstream corporate reports, eu specific

@CDSBGlobal

Patrick(Crawford(

Corporate(Engagement(

CDSB(

Lois(Guthrie(

Execu3ve(Director(CDSB(

Jane(Thostrup8Jagd(

Director,(Control(Compliance(officer(A.P.(Moller=Maersk(

Group(

Aissata(Touré(

PwC((Germany)(

Thursday(17th(October(2013

Ilaria(Miller(

Head(of(Corporate(Governance(UK(Dept.(of(

Business,(Innova3on(and(Skills(

Jonny(McCaig(

Senior(Consultant,(Sustainability(Radley(Yeldar(

Francois(Passant(

Execu3ve(Director(Eurosif(

Integra3ng(Climate(Change(Informa3on(

into(Mainstream(Corporate(Reports(

EU Proposals on Non-financial and on Country by Country Reporting

ILARIA MILLER

CORPORATE GOVERNANCE

3

The Action Plan •  Published December 2012, following of 18 months of

consultation, and is the latest comprehensive review of this policy area.

•  Seeks to modernise and enhance the current company law framework to today�s society and changing economic environment.

•  The Plan�s intention is not to set out a long-term agenda; instead to put forward a series of initiatives that can be completed within 2 years.

•  One of the main areas of action identified: Enhancing transparency between companies and investors: around board diversity and risk management and improving corporate governance reporting

4

Non-Financial Reporting (NFR) Proposal •  The EU Commission defines Corporate and Social

Responsibility (CSR) as: �the responsibility of enterprises for their impact on society�

•  Aim: ensure a higher level of transparency around social and environmental issues.

•  The proposal has two main aims: –  improve consistency and comparability of non-financial

information; and –  increase the diversity of boards.

5

EU NFR: New Requirements •  All large companies would be required to report on:

–  Environmental –  Social and employee-related –  Respect for human rights and –  Anti-corruption and bribery matters

•  And describe the company�s policies on these issues, results of these policies and management of related risks.

•  Large (listed only) companies would also be required to describe their diversity policy, objectives and results of this policy, implementation

6

EU NFR: �Comply or Explain� approach •  In an effort to harmonise member states� existing

approaches, the proposal has adopted a �comply or explain� model.

•  When not providing required information or policies, companies must explain why.

•  Rationale is to ensure a flexible, non-intrusive approach, by leaving companies the choice on whether or not to adopt a specific policy.

•  The draft implicitly �mandates� an action however the potential burden may be minimum.

7

Country-by-Country Reporting on Tax

•  The EU have just tabled a proposal to extend CBCR on tax to all sectors

•  Application of CBCR reporting model has already been agreed at EU level in extractive and banking sectors.

•  Further work on CBCR is being carried out under the G8, in an effort to globalise the solution: no publication, but reporting directly to tax authorities.

•  The OECD will produce a framework: a standardised template will reduce administrative burdens on business.

8

Next steps •  The Proposals is currently being discussed at European

Council level. The additional CBCR proposal has generated controversy which could hinder a smooth process

•  The EP JURI Committee will provide a report in early November

•  Should the Directive be adopted within the current EP term, we do not envisage implementation in the UK before Spring 2016

@CDSBGlobal www.cdsb.net 9

Integra3ng(Climate(Change(Informa3on(into(Mainstream(Corporate(Reports(

Thursday(17th(October(2013(–(CDSB(Europe(Webinar

Patrick(Crawford(

Corporate(Engagement(

@CDSBGlobal www.cdsb.net 10

Financial(statements(capture(less(than(20%(of(corporate(risks((source:(Eurosif,(IIRC)(

Increasing(ESG(reporAng(requirements(–(UK,(EU?(

Increasing(requirement(to(integrate(ESG(informa3on(with(financial(repor3ng(

Increasing(impact(of(climate(change(on(decisions(and(ac3ons(by(management,(investors(&(other(stakeholders(

Connec3ng(Non=Financial(and(Financial(Informa3on(

@CDSBGlobal www.cdsb.net 11

The$integra+on$of$climate$change1related$informa+on$into$mainstream$corporate$repor+ng.$

Objec3ve(

((When?(January(2007:(Launched(at(World(Economic(Forum,(Davos,(managed(as(a(special(project(of(CDP(

Climate(change(informa3on(in(CDP(

disclosure(

(CDSB’s(

Framework(

Annual(Report(

((Members(•  Main(accountants,(

ACCA,(ICAEW(…(•  GHG(NGOs(e.g.(GHG(

management(ins3tute,(Carbon(Tracker,(TCR(

•  Investors,(e.g.(Investor(Group(on(Climate(Change,(Ceres(

•  Business,(e.g.((WBCSD,(BT,(WEF(

Standardize(climate(change=related(repor3ng(for(fair(and(transparent(markets(

((Why?(

The(need(for(CDSB’s(Repor3ng(Framework(

@CDSBGlobal www.cdsb.net 12

CDSB’s(ReporAng(Framework(

(•(Complements(the(CDP(process(

•(Communicates(management’s(assessment(of(climate(change(in(annual(reports(

•((Connects(Financial(and(non=financial(informa3on;((harmonizing(with(exis3ng(accoun3ng(and(na3onal(standards(

•(Conformance(with(the(Framework(prepares(companies(for(compliance(with(current(and(proposed(regula3ons(

•(Download(CDSB’s(Repor3ng(Framework(and(Guidance(from(www.cdsb.net/Framework(

CDSB’s(Repor3ng(Framework(

@CDSBGlobal www.cdsb.net 13

Communicating Climate Change “Reporting from the principle of communication rather than compliance.“ Hermes EOS Investors

CDSB’s(Repor3ng(Framework(in(Prac3ce(

@CDSBGlobal www.cdsb.net 14

A(stepping(stone(to(producing(integrated(reports((

CDP(InformaAon(

request(

CDSB(Guidance(CDSB’s(ReporAng(

Framework(

THE(DATA( THE(LENS( THE(HELP( VISIBILITY(

Mainstream(

Report(

CDSB’s(Repor3ng(Framework(in(Prac3ce(

CDSB’s(Framework(used(in(ADDITION(to(the(CDP(disclosure(

@CDSBGlobal www.cdsb.net 15

CDSB’s(Repor3ng(Framework(in(Prac3ce

CDSB’s(Framework(provides(guidance(on(essenAal(topics:(

•  Executive statement (2.8, 4.6)

•  Boundaries (2.20, 4.23-4.27)

•  Materiality (2.8-2.10, 4.6)

•  Connecting with business performance (2.41, 4.6-4.8)

•  Future outlook (2.16, 4.14–4.15)

@CDSBGlobal www.cdsb.net 16

PuTng(it(into(pracAce(

(

1.(DeterminaAon:(

Decide(what(to(report((2.(PreparaAon:(

Gather(clear,(consistent,(complete(Informa3on((3.(PresentaAon:(

Ensure(disclosure(is(clear((4.(Review:(

Check(accuracy(and(ensure(relevance(

CDSB’s(Repor3ng(Framework(in(Prac3ce(

@CDSBGlobal www.cdsb.net 17

CDSB’s(ReporAng(Framework(

(•(Complements(the(CDP(process(

•(Communicates(management’s(assessment(of(climate(change(in(annual(reports(

•((Connects(Financial(and(non=financial(informa3on;((harmonizing(with(exis3ng(accoun3ng(and(na3onal(standards(

•(Conformance(with(the(Framework(prepares(companies(for(compliance(with(current(and(proposed(regula3ons(

•(Download(CDSB’s(Repor3ng(Framework(and(Guidance(from(www.cdsb.net/Framework(

CDSB’s(Repor3ng(Framework(

October 2013

How to ensure the quality of non-financial data in a group?

Insert department name via ‘View/Header and Footer…’

•  Reuse the financial logic and tools

• Datatypes – and demands for documentation locally

•  Demands for the HQ

• How to make financial and non-financial people co-work?

Slide no. 19 Group Accounting October 2013

Insert department name via ‘View/Header and Footer…’ Slide no. 20 Group Accounting

Advantages of using financial logic, when working with non-financial data

•  Re-use IFRS as far as possible – both on boundaries and consolidation – that provides comparable data between financial and non-financial data

•  Re-use the financial consolidation system – it is as good as free - and there is no implementation time – at worst a bit of training to new users. No Excel!!!

•  Re-use the reporting process – it is already known by the organisation

•  Better cooperation between financial and non-financial staff •  In all fairness, non-financial staff are not very accustomed to dealing with

concepts such as: evidence, controls, monitoring, SOPs, consolidation-trees etc. •  Financial employees are not so good at telling the story behind the numbers.

October 2013

Insert department name via ‘View/Header and Footer…’ Slide no. 21 Group Accounting

Re-using financial toolbox means?

•  Sustainability GAAP – define reporting responsibilities, boundaries, consolidation methodology, choice of submission-system, indicators/KPIs, conversion standards, deadlines etc.

•  Remember – collect data in its purest form, with the least amount of local calculation-demands; e.g. CO2e-source consumptions/combustions – not in CO2e-units. This way you eliminate a big local error-risk of wrong conversion-calculations

•  Upload sheets

•  Explanation sheets

•  Quality assurance tools on Business Unit and Group level

•  EuroSox control inventories, which are presented to the Audit Committee

•  Demands for sign off on data, explanations, and control environment from reporting units

October 2013

Insert department name via ‘View/Header and Footer…’ Slide no. 22 Group Accounting

Data types and demands for the documentation locally

October 2013

2 data types: Documentable and probable data Please ensure to define the data types in the accounting policies in the report – courtesy of the reader, who are to use these data in his analysis

Definitions and examples: Documentable data: For example: CO2e, energy, FTEs segregated by genders and management-layers, employee turnover, LTIs, exposure hours own employees, fatalities, donations and all governance data Probable data: For example: water, waste, exposure hours contracted staff

Requirements for documentation: Documentable data: ISA 500 The documentation is from external sources, effectively controlled, it is direct evidence - no inferences, in writing, and original Probable data: To the extent ISA 500 evidences exist - use that Data must always be defendable, so assumptions of the probable data must be made in writing and shall be verified by the reviewer.

Insert department name via ‘View/Header and Footer…’ Slide no. 23 Group Accounting

Demands for the HQ

•  Software Selection - NOTE: Excel is NOT a consolidation tool. It is no-go •  Maintain GAAP – no local rules are allowed in group-reporting •  HQ must on top of the local control environments make sanity-check of data. To a

large extent comparison of financial and non-financial notes is very useful, e.g.: •  FTEs from financial reporting can be re-used. If there are FTEs in an entity, then there must be

at least electricity, water and waste. There may also be heating of a kind - but it depends on geography

•  Cost data for CO2 sources (diesel, electricity , oil etc.) should be compared with consumption volumes per entity per activity – this can also ensure units are right

•  Electricity and district heating should be obtained per country. If the country-choice deviates strongly from the home country of the entity – get an explanation

•  If the entity owns/leases machines and/or transportation equipment etc., then there must also be CO2 source consumption.

•  The reporting unit must explain themselves if reporting deviates, when making these simple logical tests

•  Make sure all line-by-line consolidated entities, that report financially, also report non-financially (subsidiaries and joint operations – also non-operated entities) – if not, you will get non-financial data with no financial context => then the non-financial data explains nothing about anything

•  Make sure all submit explanation sheets => much easier and more robust explanations can be developed at Group

•  Make sure the reporting unit get sign off from local CEO and CFO on data and explanations.

October 2013

Insert department name via ‘View/Header and Footer…’ Slide no. 24 Group Accounting

How to make non-financial and financial people co-work?

•  Apart from the obvious ”tone at the top”

•  For instance consider the following: •  Establish teams in each reporting unit consisting of both financial and non-financial

people.

•  Highlight and praise the different abilities – together we become better •  Non-financial people find and document the data – and the financial people control

and submit the data in the consolidation system to Group •  They could co-work to establish sound explanations for development in data •  They could co-work to define and implement controls

•  Establish workshops where both financial and non-financial people participate •  Discuss defintions, appropriate controls & evidences, tools, and developments in

new requirements for new reporting etc. – and not the least share best practice

October 2013

Insert department name via ‘View/Header and Footer…’

Questions?

• Thank you for the attention

•  Contact: jane.thostrup.jagd@maersk.com

Director, Control Compliance Officer

Slide no. 25 Group Accounting October 2013

Challenges on the way towards integrated reporting 17 October 2013

www.pwc.de

PwC

The <IR> Consultation Draft Definition

<IR> is a process that results in communication by an organization, most visibly a periodic integrated report, about value creation over time. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term

Source: Consultation Draft of the International <IR> Framework (16 April 2013), p.8

Slide 27 October 2013 Integrated Reporting

PwC

Integrated reporting and the integrated report Alternative pathways and what we see in practice

Annual Report CR Report

Limited inclusion

CR-Chapter

Ann

ual R

epor

t CR

Report

Combination

Primary Report

CR C

ompl

ianc

e

Integrated Report

Integration in Annual Report

Integrated Report

Fin. Statem

ents and N

otes A

nnua

l and

Inte

grat

ed

Rep

ort

Fin. Statem

ents and N

otes

Embedding

Web

site

MI

Integrated Reporting

Investors Integrated

Report

Online

Sust

aina

bilit

y O

ther

key

st

akeh

olde

rs

Slide 28 October 2013 Integrated Reporting

PwC

Number of pieces=40

Big picture Close-up pictures

(partial connectivity) without big picture

Pieces of information without connectivity

Number of pieces=40

Number of pieces=40

Joining the dots: Connectivity and moving away from silo reporting are key – Same volume, different insight

Slide 29 October 2013 Integrated Reporting

Observation on status quo: Many companies are taking their first steps towards integrated reporting. Stand-alone sections of reporting often provide excellent communication, but opportunities to connect this information to other areas in the report, in particular segment reporting, are often missed.

PwC

Challenge: Getting the systems right to gather the right information in the right quality

Challenges from the perspective of the IIRC Pilot Programme Participants •  on-going need to enhance systems •  synchronising and integrating systems BENEFITS •  data quality, rigor applied to non-financial data

Source: IIRC survey of pilot companies – year one

Slide 30 October 2013 Integrated Reporting

PwC

How can companies get there?

Strategic alignment of financial and non-financial

reporting

Fully integrated reporting with integrated external

assurance

Reporting maturity

Time

Identify material

issues

Obtain integrated external assurance

Develop and embed integrated strategy

Implement integrated business

reporting Assess baseline and determine ambition

Current state

Future vision

1

2

3

4

5

Develop data collection, management-level reporting systems and processes as well as external communications

blueprints

Assess controls and information gaps and obtain assurance over

all material disclosures

Slide 31 October 2013 Integrated Reporting

PwC

Implement integrated business reporting – Illustrative example how to integrate non-financials into standard reporting

Reduction of CO2 emissions in

production and products

Energy efficiency Social standards in

the supply chain

Analysis of external factors

Analysis of stakeholder expectations

Analysis of internal factors

KPIs Measure Relevance Reporting cycle Processes/Systems Responsible Financial KPIs Revenue per supplier € … Non-financial KPIs Share of suppliers with eco-certification CO2 per m2 freight t/m2

Total CO2 emissions t Energy use per m2 storage kWh/m2

Energy from renewables kWh

32 22. April 2013 Entwicklungen im Controlling von Non-Financials

PwC

PwC

Obtain integrated external assurance – How to establish an appropriate control environment for non-financial data

Effectiveness and Efficiency of Operations

Reliability of Reporting

Compliance with Laws and Regulations

Idea: Extension of the COSO-model, which is widely used for documentation, analysis and design of the internal control systems, to material non-financial reporting information and systems:

Seite 33 15. Mai 2012 „Integrated Reporting“ in der Praxis

PwC

Key steps and challenges on the way towards integrated reporting in line with the <IR> framework

Key for integration of non-financials into mainstream corporate reporting: Improvement of quality !  Alignment with financial reporting processes /systems for monitoring, steering

and timely reporting of material non-financials over all organisational levels !  Implementation of robust processes and controls and/or integration of material

non-financial information into existing internal control framework

Key challenges on the way to <IR>: •  Complexity of many non-financial aspects, lack of measurability, etc. •  Much broader scope of the <IR> framework:

!  Reporting on all material capitals (inputs, outputs, outcomes) !  Reporting beyond organisational boundaries (i.e. beyond scope of

consolidation for financial reporting)

Slide 34 October 2013 Integrated Reporting

Thank you for your attention!

© 2013 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. Alle Rechte vorbehalten. „PwC“ bezeichnet in diesem Dokument die PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, die eine Mitgliedsgesellschaft der PricewaterhouseCoopers International Limited (PwCIL) ist. Jede der Mitgliedsgesellschaften der PwCIL ist eine rechtlich selbstständige Gesellschaft.

Aissata Touré Senior Manager PwC Germany Sustainability and Integrated Reporting T: +49 211 981 4941 M: +49 160 97876907 aissata.toure@de.pwc.com

©Radley Yeldar Ltd 1

Learning from the leaders Effective communication on climate change Jonny McCaig, Radley Yeldar 17 October 2013 Say hello via Twitter @radleyyeldar

©Radley Yeldar Ltd 2

A bit about RY

We help the world’s bravest, brightest and best fulfil their potential

Strategy Identity Culture Performance Communications

©Radley Yeldar Ltd 3

What does good look like? The six C’s of effective climate disclosure

1. Clear

2. Credible 3. Committed 4. Compelling

5. Collaborative

6. Connected

©Radley Yeldar Ltd 4

Learning from the leaders Radley Yeldar’s research sample

European constituents from the Global 100

56

CDLI companies 10

DJSI sector leaders 7

©Radley Yeldar Ltd 5

Learning from the leaders Europe’s leading reporters1

Top 10 1 Unilever 2 Nestlé 3 H&M 4 BASF 5 Centrica 6 Ericsson 7 Croda International 8 Neste Oil 9 AlcatelLucent

10 AstraZeneca

1 Sample: European constituents of ‘Global 100’ list, 2013 (http://global100.org/annual-lists/2013-global-100-list.html)

©Radley Yeldar Ltd 6

Who’s doing a good job? Unilever – committed and connected

©Radley Yeldar Ltd 7

Who’s doing a good job? H&M– clear and committed

©Radley Yeldar Ltd 8

Who’s doing a good job? Nestlé – credible and collaborative

©Radley Yeldar Ltd 9

Who’s doing a good job? BASF – compelling and connected

©Radley Yeldar Ltd 10

Who’s doing a good job? Centrica – clear and committed

©Radley Yeldar Ltd 11

Who’s doing a good job? GSK – clear and connected

©Radley Yeldar Ltd 12

1. Keep it simple

2. Join it up

3. Show progress

Learning from the leaders Key takeaways…

©Radley Yeldar Ltd 13

Stay in touch

Contact details: Jonny McCaig j.mccaig@ry.com Radley Yeldar Ltd 24 Charlotte Road London EC2A 3PB T 020 7033 0700 F 020 7033 0800 www.ry.com

CDSB Webinar

Investor Perspectives on Extra-Financial Information

Eurosif October 17, 2013

Demand for Extra-Financial Information Is Growing

- Growth since 2009: 14% - UN-backed Principles for Resp. Invest. (PRI) - Top markets: France, UK, Netherlands

Source: Eurosif

- Growth since 2009: +17% Top countries: UK, Netherlands, Denmark - Spreading to other markets (eg. Southern Europe)

ESG Integration ESG Engagement / Voting

Why Does It Matter To Investors #1 Extra-Financial Information Can Be Material

More and more evidence around the materiality of extra-financial factors o Some academic and empirical evidence of link betw.  “CSR”  

performance, corporate financial performance and cost of capital o Reputational risks

Why Does It Matter To Investors #2 Resource Constraints Need To Be Modelled

A healthy defined benefit pension scheme could become insolvent within 35 years solely as a result of the limitations to growth as modelled, and in the absence of other detrimental influences (such as those experienced over the last 15 years in some western countries). Source: Institute of Actuaries UK, Resource constraints: sharing a finite world, January 2013

© Eurosif 2013

Some LT Investors Are Starting To Realise That Climate Change Will Impact Their Investment Policies

“Investors  should  understand  their  exposure  to  climate  change  risks. And their climate-sensitivity in order to improve the resilience of  the  portfolio.” Source:  Mercer,  though  the  looking  glass,  January  2012”

© Eurosif 2013

European  Investors’  Current  Perceptions  Of  NFR

Current levels of disclosure is sufficient to assess the

financial materiality of non-financial factors

93% disagree

Existing non-financial information published by European companies is linked to CSR policy

69% agree

Existing non-financial information published by European companies is

linked to business strategy and risks

74% disagree

Source: Eurosif / ACCA, Non-financial reporting: what investors expect from public policy reforms, 4 June 2013

European  Investors’  Expectations  Of  NFR

Source: Eurosif / ACCA, Non-financial reporting: what investors expect from public policy reforms, 4 June 2013

92% of respondents agreed non-financial information

should be integrated with financial information.

77% of respondents agreed qualitative statements

are essential to assess the materiality

of non-financial information.

97% of respondents agreed key performance indicators

are essential to assess the materiality of non-financial information

93% of respondents agreed

current non-financial reporting practices

do not provide sufficient comparability

across companies.

Conclusion: NFR Is Key For Investors

• Materiality

• Timeliness

• Comparability (standards / KPIs)

• Forward-looking

• Integrated to Financial results & projections

Eurosif supportive of EC NFR proposal Eurosif supportive of Integrated Reporting concept Eurosif involved in CLEAR Info Project (environm. data, EC Life+)

www.twitter.com/eurosif

francois@eurosif.org

LinkedIn/eurosif http://www.linkedin.com/groups/Eurosif-3290984/about

Contact / Follow Eurosif

@CDSBGlobal @CDSBGlobal

Patrick(Crawford(Corporate(Engagement(

patrick.crawford@cdsb.net(

Tel:(+44((0)(7770(382256(

Skype:(patrickcrawford(

www.cdsb.net(

@CDSBGlobal(

Climate(Disclosure(Standards(Board(

facebook.com/CDSBGlobal(

Subscribe(to(our(newslejer(by(emailing(info@cdsb.net(

Thank(you(