trends in sustainability reporting · index, bloomberg’s esg terminal customer ... brazil india...
TRANSCRIPT
What’s in store
1.
Emerging Standards
4.
What’s driving the need
3.
Assurance readiness and assurance
Achieving credible reporting
2.
Developing trends in measurement5.
Page 3 Moving toward credible reporting
Not adopted► May perform some
actions that are sustainable, but does not coordinate or communicate these actions
Early stage► Encourages and
collects environmental or social activities for reporting externally
► Focus on public relations
► Limited or no stakeholder engagement
Middle pack► Operations-focused
sustainability initiative improves efficiency, such as reduced energy consumption
► Sustainability initiative outcome reported publicly via metrics
► Cost savings from initiatives may be documented
► Early relationship with stakeholders
Advanced► Well-developed
materiality process
► Beginning to integratesustainability in business processes
► Sustainability linked to enterprise strategy
► Reporting on key metrics internally as well as externally
► Closely linked financial and non-financial reporting
► Limited assurance covers reported metric data, principles
2015 leaders► Enterprise-wide
sustainability strategy ties to business objectives
► Sustainability engages the value chain to drive business objectives
► Sustainability principles embedded in key areas of business strategy, operations
► Key metrics reported internally and externally, tied to compensation
► Formal controls and processes for metric data management
► Reasonable assurance covers metric data, principles
Leaders 1995 Leaders 2005 Leaders 2015+
What it takes to be a sustainabilityleader in 2015
Page 4 Moving toward credible reporting
Wide variety of stakeholders are asking for increased transparency
Socially
responsible
investment
(SRI) groups
Certifications
Global
reporting
initiative
CDP
Climate
change and
sustainability
lawsuits
increasing
Expectations
for more
sustainable
products
SEC –
disclosure
guidance
FTC – green
guides
Corporate
initiatives
Human
Rights
Watch
EPA – GHG
reporting
Government
NGOs
Investors
Recruiting
and
retention
Industry
associations
(ACC, NAIC,
ICMM,
AAFA)
Employee
engagement
programs
EmployeesSupply chain
and industry
Customers
Communities
Permitting or
expansion
challenges
“license to
operate”
Shareholder
resolutions
Dow Jones
sustainability
index,
Bloomberg’s
ESG terminal
Customer
surveys/
questionnaires
Page 6 Moving toward credible reporting
37 is
A. The age of my oldest child
B. The number of NGO’s that are focused on
carbon
C. The current temperature outside
D. The % of companies that say that their
customers are the primary audience for
their sustainability report
Page 7 Moving toward credible reporting
Who do you perceive to be the most important audiences for your sustainability report?
Rank the top three stakeholder groups in order of importance in driving
your sustainability initiatives:(weighted average)
3%
6%
7%
7%
15%
22%
37%
Suppliers
Analysts
Policymakers
NGOs
Shareholders
Employees
Customers
Source: EY, Six trends in corporate sustainability, 2013
Page 8 Moving toward credible reporting
What’s driving the need for credible reporting?Investors prefer to invest in a transparent enterprise
0
20
40
60
80
100
► Innovation and intellectual capital
► Human capital
► Risk management
► Brand management
► Carbon exposure, etc.
Market value 100%
Book value in % of
market value
Physical and financial assets
Other factors Source: Ocean Tomo (2010), “Ocean Tomo’s Intangible Asset Market Value Study”
Ocean Tomo study – components of S&P 500 market value
17%
32%
68%
80% 81%
83%
68%
32%20% 19%
1975 1985 1995 2005 2009
Page 10 Moving toward credible reporting
33 is
A. The number of companies that file an
integrated report
B. A reasonable water use ratio for a
packaging company
C. Number of global stock exchanges that
require or highly recommend sustainability
reporting
D. % of water to bourbon in a mint julep
Page 11 Moving toward credible reporting
What’s driving the need for credible reporting?Stock exchanges are encouraging or requiring ESG disclosure
To date, the governments or stock exchanges of more than 33 countries have required or encouraged some
level of sustainability reporting:
On 16 April 2013, the European Commission issued a press release that announced proposals for a directive of the
European parliaments and the Council of the European Union that would require large companies to disclose information
on the major economic, environmental and social impacts of their business as part of their annual reporting cycle.
Many indicators suggest that mandatory corporate reporting will be the future in both developed and emerging
economies.
Argentina Germany Mexico
Australia Greece Netherlands
Austria Hungary Norway
Brazil India Saudi Arabia
Canada Indonesia Singapore
China Ireland South Africa
Denmark Italy Spain
Ecuador Japan Sweden
Egypt Korea Turkey
Finland Luxembourg United Kingdom
France Malaysia United States
Page 12 Moving toward credible reporting
Stock exchanges are encouraging or requiring ESG disclosure: INCR proposal
► ESG materiality assessment in
financial disclosure
► ESG issues disclosure
► ESG disclosure index link to GRI
► Exchange monitoring of overall level
of disclosure and quality
► Governance and ethical oversight
► Environmental impact
► Government relations and
political involvement
► Climate change
► Diversity
► Employee relations
► Human rights
► Product and service impact and integrity
► Supply chain and subcontracting
► Communities and community relations
The Investors Network on Climate Risk (INCR) recommended a listing standard on
corporate sustainability disclosure to include:
Source: http://www.ceres.org/investor-network/incrSource:
Page 13 Moving toward credible reporting
Regulatory bodies are driving reportingEU Directive disclosure of non-financial information
Tim
eli
ne
:
AdoptionCompliance
Transposition
Publication EU official Journal Transposition into national law
Companies to start reporting on
2017 CSR activities
EC non-binding
guidelines on reporting
Policy indication on Product
Environmental Footprint (PEF)
EU to release review report
with possible new legislative
proposals
Scope:
► Company/group that is a large
undertaking► Balance sheet exceeds 20 mln EUR or
► Net turnover (revenue) exceeds 40 mln EUR
And…
► Average number of employees
exceeds 500 during the year
And…
► Company is a public interest entity
Content:
► Environmental matters
► Social and employee related matters
► Human rights, anti-corruption and
bribery
► Diversity
► Additional information
Page 14 Moving toward credible reporting
Support for shareholder environmental and social (E+S) proposals by threshold in the past six years
2008 2009 2010 2011 2012 2013
> 30% support 15% 18% 27% 31% 23% 30%
> 20% support 30% 38% 44% 52% 45% 54%
> 10% support 40% 48% 52% 59% 62% 65%
Increasing shareholder proposals focusing on ESG drive reporting
► Proposals focusing on E+S topics account for 60% of shareholder proposals submitted as a broad category compared to 45% in 2013.1
► Three of the top 10 most common shareholder proposal topics in 2014 to date focused on ESG matters: review/report on GHG (#2), issue sustainability report (#4), review/report global labor practices/human rights (#8).
► A growing number of these proposals are reaching the threshold level of 30% support, the level at which many boards take note.
Source: Taking flight: Environmental sustainability proposals gain more attention, Ernst & Young LLP, 2013
1 Other major proposal categories are board-focused, compensation and anti-takeover/strategic proposals.
2014 top E+S proposal topic areas
Page 15 Moving toward credible reporting
ASSET4ESG data
MSCI ESC research
Information is disclosed even without reportingPlethora of sustainability indices
CR Magazine’s 100 best corporate
citizens list
Oekom corporate ratings
BloombergESG data
The global 100 most sustainable corporations in the world
GS SUSTAIN
Vigeo ratings
Climate counts
Good guide
Sustainalytics company
profiles and ratings
Fortune’s most admired
Dow Jones Sustainability Index
(DJSI)
Carbon Disclosure Project (CDP)
FTSE4Good
Page 16 Moving toward credible reporting
Number of customers using ESG data41.5% average annual growth
Information is disclosed even without reportingBloomberg is including ESG information on its terminals
“Bloomberg collects ESG data from
published company material and
integrates it into the Equities,
Bloomberg Industries and Fixed
Income platforms. Bloomberg covers
more than 10,000 companies with ESG
data and more than 16,000 companies
with executive compensation data in 52
countries. ESG data is fully integrated
with all of Bloomberg’s analytics.”
Source: http://www.bloomberg.com/bsustainable/#customers-popup
2012
7,779
2011
5,747
2010
4,704
2009
2,415Unique
users
32%
26%
5%
4%
4%4%
2%
2% 2%
Analyst
Portfolio Manager
Investor Relations
Trader
Risk/Mid/BackOfficeSalesperson
ESG Data Distribution – User Type
2013
9,669
Page 17 Moving toward credible reporting
Information is disclosed even without reportingImpact of social media and proactive response
What is being said about your company and its products?
By who? Why?
Where do your customers go to validate information about you?
Page 19 Moving toward credible reporting
Sustainability reporting standards and frameworks
Many standards are emerging, driving the need for credible reporting, and facilitating the preparation of
this information – most of which focus on reporting information that is “material” to the stakeholders,
including investors.
Standard Description
Sustainability Accounting Standards Board (SASB)
Sector- and industry-specific sustainability disclosure standards for reporting non-financial information, which may be included in mandatory US filings to the SEC
International Integrated Reporting Council (IIRC)
A reporting standard designed to demonstrate the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates
Global Reporting Initiative (GRI) guidelines
Global reporting standard designed to provide organizations guidance on reporting non-financial information to a broad group of stakeholders
CDP (formerly Carbon Disclosure Project)
Investor and customer requests drive reporting on climate, water, supply chain and forest
Other standards/frameworks Accountability AA1000, International Standards Organization 26000, industry-specific standards
Page 20 Moving toward credible reporting
Legend:
Sustainability reporting standards and frameworks
Key differences: geography, stakeholders, scope
Global Reporting Initiative (GRI)
Sustainability Accounting Standards
Board (SASB)
International Integrated Reporting
Council (IIRC)
CDP (formerly Carbon Disclosure
Project)
Stakeholders
Page 21 Moving toward credible reporting
Materiality is the common thread among reporting frameworks
An effective materiality assessment provides a
structured framework to identify the most relevant
aspects balancing stakeholder concerns and business
value drivers.
Sustainability frameworks are
converging on materiality:
Framework Definition
SASB SASB adheres to the US Supreme Court definition
of materiality, defined as “presented a substantial
likelihood that the disclosure of the omitted fact
would have been viewed as having significantly
altered the “total mix” of information made
available.”
GRI G4 Aspects that reflect the organization’s significant
economic, environmental, or social impacts [in
terms of whether they positively or negatively
influence the organization’s ability to deliver its
vision and strategy], and substantially influence
the assessments and decisions of stakeholders
IIRC Aspects that are material to assessing the
organization’s ability to create value [for the
providers of financial capital] in the short, medium,
and long term.
Page 22 Moving toward credible reporting
Example 1:
Materiality can drive strategy and reportingCustomize to meet your company’s needs
Source: Nestle
Example 2:
Source: The Coca-Cola Company
Page 24 Moving toward credible reporting
72 is
A. A reasonable lost days number for a
manufacturing company
B. My age in dog years
C. % of global 50 that have a focus on water
D. % of S&P 500 companies published a
sustainability report in 2013
Page 25 Moving toward credible reporting
Current reporting trends
► 72% of S&P 500 companies published a sustainability
report in 2013, compared with 20% in 2011
► 90% of the world’s largest 250 companies issued a
Corporate Responsibility report, 82% of which refer to the
GRI guidelines
► The number of US companies reporting with GRI
Guidelines has doubled in the past 5 years up to 266
reports in total
► In 2013, approximately 16% of US-based companies
published a third-party assured, GRI-based sustainability
report, as opposed to 10% in 2011
Source: GRI, Trends in External Assurance of Sustainability Reports: Update on the USA, July 2014
Page 27 Moving toward credible reporting
Achieving credible data and reportingKey elements
► Establishing strong governance
► Involvement of board
► Performance-based incentives
► Defining what is material
► Engaging with stakeholders
► Consider business strategy, risks and opportunities
► Determining the appropriate metrics and goals
► Defining suitable criteria
► Leveraging reporting frameworks
► Standardizing data collection
► Formalizing processes and controls
► Obtaining internal and external assurance
► Improving processes and controls
Many leading companies follow this sustainability reporting life cycle to
produce credible data that truly drives business value.
Obtaining
assuranceMateriality
Defining
metricsData collection
Governance Process
improvement
Page 28 Moving toward credible reporting
Achieving credible data and reportingCommon pitfalls
Common pitfall Suggested approach
Reliance on one individual Establish segregation of duties, document processes and controls;
establish data retention protocol to house data in secure location
No documented processes or controls Conduct walk-throughs and document data collection processes in
process flows and standard operating procedures
Making commitments without clearly defining how you will
measure them
Follow SMART framework for goal-setting; define and use
suitable criteria
Deficiencies in the internal control environment Leverage internal audit to review control environment
Data errors (omitted data, duplicate data) Leverage internal audit to conduct review of data accuracy
and completeness
Misrepresentation of information in report Conduct assurance readiness to assess reported data to
underlying data
Inaccurate estimation methodologies applied Follow generally accepted methodologies for estimations
Lack of baselines Where applicable, measure baseline performance to inform
progress over time
Use of unexplained jargon (terms that are not well-known,
introduced, etc.)
Use terms that are objective
Boundaries that are unclear and/or inconsistent with
financial reporting
Define reporting boundary
Undisclosed uncertainties in data Establish and document data uncertainties and basis for
uncertainty level
Obtaining
assuranceMateriality
Defining
metrics
Data
collection
Governance Process
improvement
Page 29 Moving toward credible reporting
Achieving credible data and reportingAssurance readiness
► As you drive toward preparing credible data, consider conducting
assurance readiness to understand the level of assurance and
completeness in the existing data, as well as potential process and
control gaps that are causing material misstatements.
► Inquiry about the nature of significant judgments and estimates made by management
► Inquiry about any uncertainties regarding measurements
► Evaluation of whether assumptions have a reasonable basis
► Walk-through of data collection process
► Site visits
► Tracing information to supporting documents
► Analytical procedures (e.g., year-over-year fluctuations)
Obtaining
assuranceMateriality
Defining
metrics
Data
collection
Governance Process
improvement
Page 30 Moving toward credible reporting
Achieving credible data and reportingExternal assurance
The GRI and the CDP encourage respondents to seek third-party verification or assurance
and provide additional recognition to the companies that do.
Assurance can provide the following value:
► Provide comfort to management
► Avoid the “trust crisis” by building reputational capital
► Prepare for accountability requirements in evolving standards
► Keep pace with your peers
► Mitigate risk
► Obtain higher sustainability ratings or rankings
Page 31 Moving toward credible reporting
Achieving credible data and reportingAssurance levels
High
Moderate
No
Effort/time/cost
Level o
f assu
ran
ce e
xp
ressed
Examinations
Reviews
Assurance-readiness
assessment
Obtaining
assuranceMateriality
Defining
metrics
Data
collection
Governance Process
improvement
Page 32 Moving toward credible reporting
Professional
standards
Consulting standards: AICPA
Standards for Consulting Services
CS 100
Attestation standards for accounting firms:
AICPA AT 101: US country-specific standard
(or ISAE3000 in EU)
Level of
assurance
Assurance-readiness assessment Review Examination
Subject matter
(assertions)
Key performance indicators (data) of the company, or services, products and tools
► Progress against action plans (claims, commitments, goals, objectives, actions, etc.)
► Reporting procedures (GRI’s Discussion on Management Approach, etc.)
► Content (affirmations, other assertions, etc.)
Criteria examples ► Greenhouse gas protocol
► Global reporting guidelines (G3, G3.1 or G4 and appropriate sector supplements)
► Industry standards (e.g., International Council on Mining and Metals)
► Law and application texts
► Policies or internal procedures
► Product or service labels
Work products Findings and
recommendations report (internal)
Assurance report
(conclusion
in a negative form) plus
management letter
Assurance report
(conclusion as a
positive opinion) plus
management letter
Achieving credible data and reportingAssurance levels
Obtaining
assuranceMateriality
Defining
metrics
Data
collection
Governance Process
improvement
Page 33 Moving toward credible reporting
Characteristics of a credible report
► Follows an established framework
► Presents transparent and balanced disclosure
► Offers context-based reporting
► Focuses on material topics
► Aligns with stakeholder expectations and significant impacts
by and to the business
► Shows how goals and commitments significantly influence and drive the
strategy and operations of the business
► Includes content that has been externally assured to build both internal and
external confidence and credibility
A credible report:
Page 35 Moving toward credible reporting
What’s developing in measurement and reporting
► Outcome vs. input or output measures
► More expansive social impact
measurement
► Natural Capital Valuation
► 3BL (triple bottom line) capital allocation
and decision making
Page 36 Moving toward credible reporting
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Page 37 Moving toward credible reporting
Continue the conversation
Chris Hagler
SE Leader, Climate Change and Sustainability
ISSP member and certificate holder
Atlanta, GA
+1 404 817 5799
EY | Assurance | Tax | Transactions | Advisory
About EY
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© 2014 Ernst & Young LLP.
All Rights Reserved.
1403-1213903
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Page 39 Moving toward credible reporting
Sustainability reporting standards SASB sectors and industries
SASB is developing sustainability accounting standards for more than 80 industries in 10
sectors. To date, SASB has started/completed work on 50 industries (61% of SICS)
No. SASB sector IWG start
date
Delta series
event
Public comment
period
Target public
release date
1 Health care November 7, 2012 February 21, 2013 March 1, 2013 July 31, 2013
2 Financials February 1, 2013 April 16, 2013 November 15, 2013 February 25, 2014
3 Technology and
communications*May 7, 2013 July 16, 2013 October 2, 2013 March 18, 2014
4 Non renewable resources August 6, 2013 October 11, 2013 January 14, 2014 June 5, 2014
5 Transportation November 5, 2013 January 30, 2014 April 17, 2014 September 4, 2014
6 Services* February 12, 2014 April 24, 2014 July 16, 2014 December 3, 2014
7 Resource transformation* May 6, 2014 July 16, 2014 October 7, 2014 February 25, 2015
8 Consumption II August 5, 2014 October 16, 2014 January 13, 2015 June 1, 2015
Consumption II October 29, 2014 January 16, 2015 April 8, 2015 August 1, 2015
9 Renewable resources and
alternative energyFebruary 4, 2015 April 15, 2015 July 7, 2015 November 1, 2015
10 Infrastructure June 10, 2015 August 25, 2015 December 1, 2015 April 1, 2016
Page 40 Moving toward credible reporting
Integrated Reporting should
communicate the capabilities of
management to monitor, manage and
communicate the full complexity of
the value-creation process, and how
this contributes to success over time.
Integrated Reporting is targeted to
help investors, and other
stakeholders, understand an
organization’s:
► Past performance
► Current performance
► Future resilience
Breaking down the silos
Past
performance
Current
performance
Environment,
health and
safety
Finance
Public
relations
Operations
Human
resources
Sustainability
Governance
and legal
Internal
audit
Futureresilience
“Integrated reporting
demonstrates the linkages
between an organization’s
strategy, governance and
financial performance and the
social, environmental and
economic context within which it
operates.”
-The International Integrated
Reporting Committee
Sustainability reporting standardsIntegrated reporting links ESG performance to investor value