Integrating Climate Change Information into Mainstream Corporate Reports, EU specific
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New environmental regulations are being discussed in the European Union and there are broader moves towards integrating non-financial with financial reporting for investors and other stakeholders. CDP is working closely with climate data and non-financial reporting experts the Climate Disclosure Standards Board (CDSB), as well as industry experts, to support companies in preparing for these developments. We invite you to join us for a webinar to show how companies can place their climate change information into their annual financial reports – using CDSB’s Reporting Framework. You will hear perspectives from regulators, business, advisers, investors and non-financial reporting experts, as well as CDSB technical staff. Chair: Lois Guthrie – Executive Director, CDSB Regulatory Context: Ilaria Miller – Head of Corporate Governance, UK Department of Business, Innovation and Skills CDSB Framework: Patrick Crawford - Corporate Engagement, CDSB Corporate perspective: Jane Thostrup Jagd – Director, Control Compliance officer, A.P. Moller-Maersk Group Preparation: Aissata Touré – PwC (Germany) Presentation: Jonny McCaig – Radley Yeldar Investor perspective: Francois Passant – Executive Director, Eurosif
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Integrating Climate Change Information into Mainstream Corporate Reports, EU specific
- 2. EU Proposals on Non-financial and on Country by Country Reporting ILARIA MILLER CORPORATE GOVERNANCE
- 3. 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. 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. 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. 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. 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. 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
- 11. The(need(for(CDSB’s(Repor3ng(Framework( Objec3ve( The$integra+on$of$climate$change1related$ informa+on$into$mainstream$corporate$repor+ng.$ ((When?( January(2007:(Launched(at(World(Economic(Forum,( Davos,(managed(as(a(special(project(of(CDP( ((Why?( Standardize(climate(change=related(repor3ng( for(fair(and(transparent(markets( Climate(change( informa3on(in(CDP( disclosure( ( CDSB’s( Framework( ((Members( • Main(accountants,( ACCA,(ICAEW(…( • Investors,(e.g.(Investor( Group(on(Climate( Change,(Ceres( • GHG(NGOs(e.g.(GHG( management(ins3tute,( • Business,(e.g.((WBCSD,( Carbon(Tracker,(TCR( BT,(WEF( @CDSBGlobal www.cdsb.net Annual(Report( 11
- 13. CDSB’s(Repor3ng(Framework(in(Prac3ce( Communicating Climate Change “Reporting from the principle of communication rather than compliance.“ Hermes EOS Investors @CDSBGlobal www.cdsb.net 13
- 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 15
- 18. October 2013 How to ensure the quality of non-financial data in a group?
- 19. • Reuse the financial logic and tools • Datatypes – and demands for documentation locally • Demands for the HQ • How to make financial and nonfinancial people co-work? Slide no. 19 Group Accounting October 2013
- 20. 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. Group Accounting Slide no. 20 October 2013
- 21. 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 CO2eunits. This way you eliminate a big local error-risk of wrong conversioncalculations • 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 Group Accounting Slide no. 21 October 2013
- 22. Data types and demands for the documentation locally 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: Requirements for documentation: Documentable data: For example: CO2e, energy, FTEs segregated by genders and managementlayers, employee turnover, LTIs, exposure hours own employees, fatalities, donations and all governance data Documentable data: ISA 500 The documentation is from external sources, effectively controlled, it is direct evidence - no inferences, in writing, and original Probable data: For example: water, waste, exposure hours contracted staff 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. Group Accounting Slide no. 22 October 2013
- 23. 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 nonfinancial 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. Group Accounting Slide no. 23 October 2013
- 24. 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 Group Accounting Slide no. 24 October 2013
- 25. Questions? • Thank you for the attention • Contact: jane.thostrup.jagd@maersk.com Director, Control Compliance Officer Slide no. 25 Group Accounting October 2013
- 26. www.pwc.de Challenges on the way towards integrated reporting 17 October 2013
- 27. 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 Integrated Reporting PwC October 2013 Slide 27
- 28. Integrated reporting and the integrated report Alternative pathways and what we see in practice Annual and Integrated Report CR Report Annual Report CR Report CRChapter Combination Integrated Reporting PwC Sustainability Integrated Report Website Compliance MI Investors Integration in Annual Report Primary Report Online Integrated Report CR Fin. Statements and Notes Integrated Report Embedding Other key stakeholders Limited inclusion Fin. Statements and Notes Annual Report Integrated Reporting October 2013 Slide 28
- 29. Joining the dots: Connectivity and moving away from silo reporting are key – Same volume, different insight Pieces of information without connectivity Number of pieces=40 Close-up pictures (partial connectivity) without big picture Number of pieces=40 Big picture Number of pieces=40 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. Integrated Reporting PwC October 2013 Slide 29
- 30. Challenge: Getting the systems right to gather the right information in the right quality Source: IIRC survey of pilot companies – year one 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 Integrated Reporting PwC October 2013 Slide 30
- 31. How can companies get there? 5 Reporting maturity Future vision Obtain integrated external assurance Assess controls and information gaps and obtain assurance over all material disclosures 3 Develop and embed integrated strategy 4 Implement integrated business reporting 1 Assess baseline and determine ambition 2 Current state Strategic alignment of financial and non-financial reporting Fully integrated reporting with integrated external assurance Identify material issues Develop data collection, management-level reporting systems and processes as well as external communications blueprints Time Integrated Reporting PwC October 2013 Slide 31
- 32. Implement integrated business reporting – Illustrative example how to integrate non-financials into standard reporting Analysis of external factors Reduction of CO2 emissions in production and products Analysis of stakeholder expectations Analysis of internal factors KPIs Measure Relevance Energy efficiency Reporting cycle Processes/Systems Social standards in the supply chain Responsible Financial KPIs Revenue per supplier € … Non-financial KPIs Share of suppliers with ecocertification CO2 per m2 freight t/m2 Total CO2 emissions Energy use per m2 storage Energy from renewables t kWh/m2 kWh Entwicklungen im Controlling von Non-Financials PwC 22. April 2013 32
- 33. Obtain integrated external assurance – How to establish an appropriate control environment for non-financial data 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: Effectiveness and Efficiency of Operations Reliability of Reporting Compliance with Laws and Regulations „Integrated Reporting“ in der Praxis PwC 15. Mai 2012 Seite 33
- 34. 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) Integrated Reporting PwC October 2013 Slide 34
- 35. Thank you for your attention! Aissata Touré Senior Manager PwC Germany Sustainability and Integrated Reporting T: +49 211 981 4941 M: +49 160 97876907 aissata.toure@de.pwc.com © 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.
- 36. ©Radley Yeldar Ltd Learning from the leaders Effective communication on climate change Jonny McCaig, Radley Yeldar 17 October 2013 Say hello via Twitter @radleyyeldar 1
- 37. ©Radley Yeldar Ltd A bit about RY We help the world’s bravest, brightest and best fulfil their potential Strategy Identity Culture Performance Communications 2
- 38. ©Radley Yeldar Ltd 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 3
- 39. ©Radley Yeldar Ltd Learning from the leaders Radley Yeldar’s research sample 56 European constituents from the Global 100 10 CDLI companies 7 DJSI sector leaders 4
- 40. ©Radley Yeldar Ltd 5 Learning from the leaders Europe’s leading reporters1 Top 10 1 2 3 4 5 6 7 8 9 10 1 Sample: Unilever Nestlé H&M BASF Centrica Ericsson Croda International Neste Oil AlcatelLucent AstraZeneca European constituents of ‘Global 100’ list, 2013 (http://global100.org/annual-lists/2013-global-100-list.html)
- 41. ©Radley Yeldar Ltd Who’s doing a good job? Unilever – committed and connected 6
- 42. ©Radley Yeldar Ltd Who’s doing a good job? H&M– clear and committed 7
- 43. ©Radley Yeldar Ltd Who’s doing a good job? Nestlé – credible and collaborative 8
- 44. ©Radley Yeldar Ltd Who’s doing a good job? BASF – compelling and connected 9
- 45. ©Radley Yeldar Ltd 10 Who’s doing a good job? Centrica – clear and committed
- 46. ©Radley Yeldar Ltd 11 Who’s doing a good job? GSK – clear and connected
- 47. ©Radley Yeldar Ltd 12 Learning from the leaders Key takeaways… 1. Keep it simple 2. Join it up 3. Show progress
- 48. ©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
- 49. CDSB Webinar Investor Perspectives on Extra-Financial Information Eurosif October 17, 2013
- 50. Demand for Extra-Financial Information Is Growing ESG Integration ESG Engagement / Voting - Growth since 2009: 14% - Growth since 2009: +17% - UN-backed Principles for Resp. Invest. (PRI) Top countries: UK, Netherlands, Denmark - Top markets: France, UK, Netherlands - Spreading to other markets (eg. Southern Europe) Source: Eurosif
- 51. 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
- 52. 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
- 53. 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
- 54. European Investors’ Current Perceptions Of NFR Existing non-financial information published by European companies is linked to CSR policy 69% agree Current levels of disclosure is sufficient to assess the financial materiality of nonfinancial factors 93% disagree 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
- 55. European Investors’ Expectations Of NFR 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. 92% of respondents agreed non-financial information should be integrated with financial information. Source: Eurosif / ACCA, Non-financial reporting: what investors expect from public policy reforms, 4 June 2013
- 56. 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+)
- 57. Contact / Follow Eurosif francois@eurosif.org www.twitter.com/eurosif LinkedIn/eurosif http://www.linkedin.com/groups/Eurosif-3290984/about