The Future of Natural Capital Accounting: Implications of the Natural Capital Business Hub

Samir Menon Tata Consultancy Services @samir_menon
Katie Schmitz Uelitt SASB @kseulitt
Libby Bernick Trucost @LBernick
Thomas Odenwald SAP @todenwald
The Future of Natural Capital Accounting:
Implications of the Natural Capital
Business Hub
#SB14sd

PARTICIPATING COMPANIES
SUPPORTING
ORGANIZATIONS

Sustainability Accounting Standards Board 
Industry-Based Standards to Guide Action and Disclosure on Material
Sustainability Issues  
 
SB14
June, 2014

© 2014 SASB™ CONFIDENTIAL & PROPRIETARY
!
Natural Capital – it IS a Business Issue
!10 6/4/14

0%
25%
50%
75%
100%
1975 1985 1995 2005 2010
Intangible Assets Tangible Assests
Changing Valuations
Source: Ocean Tomo
Components of S&P 500 Market Value
!11 6/4/14

!
An Explosion of Interest
!12 6/4/14
Companies are overburdened
Abundance of
Sustainability
Surveys

!
Macro-Trends
!13 6/4/14
Focusing specifically on US-listed companies, how satisfied are you with the
information currently being provided by these companies on the following topics?
0%
23%
45%
68%
90%
Satisfied Dissatisfied
How risks and
opportunities are
identified and
quantified in
financial terms
Comparability of
sustainability
reporting between
companies in the
same industry
Relevance and
implications of
sustainability risks
issues
How the company
identifies social
and environmental
impacts in its
supply chain
Key performance
indicators related
to each identified
material issue
Sustainability
strategy that is
linked to business
strategy
Internal
governance of
sustainability
issues
Process used to
identify material
sustainability
issues
Source: PwC 
Sustainability Goes Mainstream, May 2014
Investors want better information

Reducing the Noise to Signal Ratio on Sustainability
!14 6/4/14
!
• No standardized way for corporations to communicate sustainability
performance to investors
• Investors can’t benchmark how corporations are managing
sustainability issues
• Significant change in sustainability performance can’t occur without
the rigor of accounting standards

1971: NRDC petition to expand environmental disclosure
SASB is a Necessary Evolution
6/4/14!15
2002: The Sarbanes Oxley Act
United States securities laws promote efficient markets and informed investment
decisions through full and fair disclosure of material issues. In the 40 years since
FASB was created, the need for sustainability accounting standards has arisen.
1934
1973
2012
1929: Stock market crash

!
SASB Solution
!16 6/4/14
Corporation
s
Investors
SASB develops standards to identify and address sustainability topics that that may
constitute material information for companies in a given industry,based on further company-specific analysis.
SASB !
Industry
Standard
Standards improve information and
reduce the burden of disclosure

!
SASB Standards Development Process
Start with 43 broad
issues in 5 categories
Focus on 1 of 80+
industries
Criteria
•• Evidence of interest
•• Evidence of financial
impact
!
Initial Research
Convene industry
experts to provide
structured feedback
Balanced participation
• 1/3 Corporate
• 1/3 Investor
• 1/3 Other
Industry
Working Group Draft standard
published for public
comment
Public comments
reviewed and
summarized for
response
Standards Council
reviews process
Public
Comment
Standard
Issued
!17 6/4/14
SASB’s research process is robust and evidence-based

Materiality Assessment 
SASB’s approach identifies disclosure topics that may constitute material information
Environment | Social Capital | Human Capital  
| Business Model & Innovation | Leadership & Governance
Evidence of Interest
Heat Map using Bloomberg analytics:
!▪ Financial risks
▪ Legal drivers
▪ Industry norms
▪ Stakeholder interest
▪ Industry R & D
Evidence of Financial Impact
Financial value drivers:
!▪ Revenue and Cost
▪ Assets and Liabilities
▪ Cost of Capital
Universe of Sustainability Topics
Industry-specific disclosure topics 
that warrant standards setting
6/4/14!18
Industry Working Group Consensus
Corporations Market Participants Public Interest
Evidence-based Research

!
SASB’s Progress to Date
!19 6/4/14
30% progress releasing
provisional standards
!
!
!
80+ industry-specific
standards will be
published by early 2016
SASB is continuing on a trajectory to
publish standards and promote adoption

!
International Interest in SASB
!20
6/4/14
6/4/14

!
SASB Standards
• Are underpinned by robust research and support
• Helps companies prioritize management of
sustainability-related issues that are value drivers
• Create architecture for the disclosure of material
information in a manner congruent with investor
needs and expectations
• Enable investors to reward improved management
of sustainability issues
!21 6/4/14

!
Support for SASB
!22 6/4/14
SASB has solid support of 
respected leaders in the financial community
Funders
!
Chair
Former Mayor
Michel Bloomberg
!
!
!
Vice Chair
Former SEC Chair
Mary Shapiro
Board of Directors

!
Applying SASB Standards
!23 6/4/14
Understand SASB’s guidelines
Understand data readiness
Understand process readiness
2
3
11
2
3
A few quick ways to take action...
SASB is promoting awareness and
recommends assessing readiness

!
Bloomberg Data – Electrical Equipment Manufacturers
!24 6/4/14
Compared to the
400+ sustainability
indicators
available re
Company X on
Bloomberg,
SASB industry-
specific research
for the electrical
equipment
manufacturing
industry identified
8 issues that drive
or erode value
SASB standards enable companies to prioritize management of
key value-related issues
Sustainability Disclosure Landscape
!
Electrical/Electronics Manufacturing Industry
Disclosure
Count
0
106
213
319
425
General Electric Danaher Rockwell Automation Dover Corp Trimble Navigation
Environmental Social
Governance
*Source: Bloomberg
ESG data drawn from Bloomberg 9 electrical
equipment manufacturers

!
Supply Chain Management
Product Quality & Safety
Product Lifecycle & Innovation
Pollution & Waste Management
Energy Management
Competitive Behavior
0% 25% 50% 75% 100%
No Disclosure Boilerplate Industry-specific
Metrics
GE’s current state of disclosure
10-K Analysis – Electronic Manufacturers
!25 6/4/14
Many companies are well-positioned to improve
disclosures through SASB metrics
The following graph demonstrates an aggregate assessment of how the top ten U.S. domiciled companies, by revenue, in the
Semiconductors industry are currently reporting on SASB Disclosure Topics in the Form 10-K.

!!26 6/4/14
Call to Action – The SASB  
Corporate Roundtable

!!27 6/4/14
Breaking News –  
NASDAQ QMX Joins the SASB Corporate Roundtable

Natural Capital Accounting
Presentation at Sustainable Brands 2014
Libby Bernick, Senior Vice President, North America
June 3, 2014
How are companies valuing natural capital to drive more
sustainable business models, investments, and decisions?

Businesses use Trucost natural capital analytics to price nature’s silent currency

50+ clients have used Trucost datasets and tools to value natural capital
across business operations, supply chains and product portfolios.
Worked with scientific advisory panel to develop a
standardized approach to quantify the natural capital impacts
Wrote the UK Environmental Reporting Guidelines which
identified material environmental costs for company
reporting
Commissioned by UNEP FI & UN PRI to calculate the cost of
global environmental damage for pension funds
2002
2006
2010
2011
Worked with PUMA & parent company Kering to develop
pioneering EP&L statement
2013 Assessed the global natural capital cost of sectors and regions for
the Natural Capital Coalition (TEEB for Business).
2014
Trucost and Natural Capital Valuation
Trucost Environmental
Register
2004
Developed worlds largest database of corporate
environmental and natural capital metrics

The Future of Natural Capital Accounting
1. Standard & pilot testing (2014 & 2105)
2. Education, capacity building, & business case
studies
3. Embed valuation in business operations
and decision-making
4. Tool to measure benefits of strategy or
management practices
(e.g., Circular Economy, Net Positive, Sustainable
agriculture, etc)
ROI
Technology
Cradle to Cradle

© 2014 SAP AG or an SAP affiliate company. All rights reserved.
Driven by Purpose
Help the world run
better 
and improve 
people’s lives.

50% of the world’s packages couriered 
79% of the world’s chocolate production 
77% of the world’s beer production 
86% of the world’s athletic footwear 
20,000,000 people use SAP on the cloud 
1,800,000,000 text messages per day 
85% of the Top 100 most valued brands 
74% of the world’s business
transactions touches an SAP system
SAP Facts

© 2014 SAP AG or an SAP affiliate company. All rights reserved. !3
Thought leader in Integrated Reporting
SAP Integrated Report 2013
published March 21, 2014"
• Alignment with IIRC
framework and GRI G4
standards"
• Integrated thinking"
• Focus on short-, mid-, long-
term value creation"
• Navigation filters
3

Define
Materiality (*)
Risk Identification
&
Prioritisation
Data (**)
Risk
Assessment/
Analysis
(incl. Monetization)
Disclose &
Report
Risk
Treatment&
Mitigation
Holistically manage
economic, social, and
environmental risks and
opportunities
How does Natural Capital play into the processes…

Integrated thinking
"
Establishing connection between
financials and non-financials
central to the report."
"
Example: Since the beginning of
2008, we calculate that energy
efficiency initiatives have
contributed to a cumulative cost
avoidance of €260 million (compared
to a business-as-usual extrapolation)
5

Integrated thinking
"
Establishing connection between
financials and non-financials
central to the report."
"
Example: Per 1 percentage point
gain/loss of employee retention
SAP observes a financial impact
of €60 million. "
6

PwC
SAP Social Valuation
!7
July 2013

PwC
!8
July 2013

SAP Footprint
For more information see www.sustainabilityreport.com/upstream

PwC
!10
July 2013

PwC
!11
July 2013

Thank you!
Thomas.odenwald@sap.com

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Please see http://www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices.
!13

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