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Kirein Franck, Head Of Research - Imug Investment Research - Germany
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ESG Reporting – Does it make a difference ?
Kirein Franck
Triple bottom lime investing conference 2006
Paris, November 10th, 2006
imug Beratungsgesellschaftfür sozial-ökologische InnovationenBrühlstraße 1130169 Hannover
Fon: +49.511.12196-19Fax: +49.511.12196-95Email: franck@imug.dewww: ethisches-investment.de
Content
1. ESG reporting today
2. New key public policy initiatives
3. Investors‘ alliances
4. ESG reporting and performance
5. Perspectives
Continuous rise of reports on ESG topics
ESG Reporting
How does public policy respond?Overview on key new initiatives
Legislation based on EC accounts modernisation directive2003 / 51
UNCTAD Guidance on Corporate Responsibility Indicators
Governement-linked pension funds establish SRI strategies (France, Belgium, Norway..)
Public policy
UK – Operating and Financial Review OFR
Responding to EC accounts modernisation directive 2003/51 Currently under construction A balanced and comprehensive analysis of the development,
performance and position of the business The OFR will describe principal risks and uncertainties, which
are likely to affect the business’ future development, performance and position
It will use appropriate financial and other key performance indicators
And it will include detailed environmental, employee, social and community matters and policies
Public policy – modernisation directive
UK – Operating and Financial Review OFR
Study of Black Sun (UK) on current reporting performance of 23 FTSE companies
Public policy – modernisation directive
Germany – Handelsgesetzbuch (Commercial Code)
Responding to EC accounts modernisation directive 2003/51 Legislation is completed (§315) The annual report has to contain a „balanced and
comprehensive analysis of the development and the position of the considated group“
It will use appropriate financial and other key performance indicators
And it needs to include non-financial key performance indicators like information on environmental and employee matters as far as they are relevant to the understanding of the business’ development or its position”.
Public policy – modernisation directive
UNCTAD Guidance on Corporate Responsibility Indicators in Annual Reports
Pursued by the UNCTAD Intergovernmental Working Group of Experts on Standards of Accounting and Reporting (ISAR)
Comprised of 217 experts in 72 countries
Ongoing process, recent meetings in October 2006
Giving recommendations to governements and regulators in developing economies + companies operating there
Aiming at attracting investors through greater transparency
Public policy – UNCTAD (UN Conference on Trade and Development)
UNCTAD focus
Two key point on the agenda of ISAR
Practical implementation of IFRS standards globally
Corporate responsibility
Annual review papers make explicit mention of ESG Reporting(Review of International Accounting Issues, Corporate Governance Disclosure, Corporate Responsibility)
Reporting should focus on impact at national level (rather than compiling aggregated data).
Areas for which indicators are recommended include eco-efficiency, corporate governance, human rights, corruption, health and Safety, labour practices
Public policy – UNCTAD (UN Conference on Trade and Development)
Norwegian Governement Pension Fund
One of the largest pension funds globally with 180 bio. €
Has set up ist Council of Ethics which did exclude 19 companies from its portfolio so far (including Wal Mart)
Regular reviews take place based on information and analysis and reporting provided by EIRIS
Criteria include systematic violation of human rights and severe environmental damage
Public policy – Pension fund strategy
Further interesting cases
Denmark: Law on environmental reporting (2002) France: New Economic Regulations (2001) require reporting on
environmental and social issues from 700 listed companies Throughout Europe: Pension funds are required to report on
SEE criteria (B, F, DE, ES, SE, UK) South Africa: King Report (2002) on Corporate Governance
mandates directors of companies listed on the Johannesburg Stock Exchange to undertake Social and Ethical Accounting, Auditing and Reporting exercisess
Public policy
Who is asking for more ESG reporting?
Investors lobbying on more ESG disclosure
Investor Statement on Climate Change will influence and encourage governments, engage with
companies, develop tools to assess risks
Major US institutional Investors press S&P 500 for better disclosure and reporting in accordance with GRI
UN Principles for Responsible Investment „We will seek appropriate disclosure on ESG issues by the entities
in which we invest“
Carbon Disclosure Project Covering 2100 companies in 2006, support letters from Angela
Merkel and Tony Blair
Investors’ alliances
Effects
Stock quoted companies are reporting (more than privately held companies), because investors keep asking for it
Governments respond to the investors‘ demand by various initiatives mainly aiming at transparency
Companies which are reporting on ESG issues are more likely to be involved in ESG related activities
Reports are the key source of information on companies‘ practices
Does this mean public disclosure is leading to a better ESG performance ?
Investors’ alliances
How does public disclosure affect performance ?
Stock quoted companies do report more, but reporting alone does not improve performance
Performance is improved if and when somebody is monitoring it systematically
Investors regularly monitor stock quoted companies
-> see next chart for improvements on environmental performance for ESG reporters and non-reporters
ESG Reporting and Performance
Environmental performance improvement
ESG Reporting and Performance
Environmental Performance Global Comparison 2003-2006*
0
200
400
600
800
High impact - nodata/no
improvement
Med impact - nodata/no
improvement
Low impact - nodata/no
improvement
minorimprovement
significantimprovement
majorimprovement
2006 - all countries 2003 - all countries
Companies reporting on ESG issues improve over time.
(Data from the Ethical Portfolio Manager Database, EIRIS)
ESG reporting will make a difference
1. There is growing demand for analysis and assessment of ESG reporting results
Problems are comparability of data, strategic integration of ESG issues, credibility of content availability of assessments
2. Public policy initiatives will focus on increasing transparency
As a consequence it will be important for investors and public interest groups interested in disclosure to be transparent on performance on ESG issues
Perspectives
ESG reporting will make a difference
3. Based on market demand and emerging public policies ESG reporting will continue to improve both on scope and quality
There is a clear link between reporting and performing and ESG issues.
While it is a great challenge to report adequately on ESG issues, reporting formats will be diverse and independent assessments will make reporting and performance comparable.
Perspectives
Kontakt
imug GmbHKirein Franck
Brühlstraße 1130169 Hannover
Fon: +49.511.12196-19Fax: +49.511.12196-95Email: franck@imug.dewww.imug.de www.ethisches-investment.de
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