@GRIAusConf_The Players – understanding integrated reporting with investors & accountants - Ann Byrne

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  • Reporting for investors – the need for disclosure The Australian Council of Superannuation Investors (ACSI) represents 39 superannuation funds who manage about $350 billion of the retirement savings of their members. ACSI’s membership base is diverse, representing funds ranging from very large to relatively small, and with both active and passive investment styles and different levels of internal resourcing of the ESG investment function. Our members are long term investors. Our vision is to achieve, genuine, measurable and permanent improvements in the ESG performance of entities in which our members invest, and in the ESG practices of our members and their investment advisers and managers. ACSI works across the ASX 200 to increase ESG performance. This covers passive mandates. For active mandates we work to ensure that all risks are assessed in stock selection . In 2009 ACSI joined with IFSA now the Financial Services Council to review an apparent lack of integration of ESG matters in mainstream investment management. and identified that a lack of disclosure by many companies of information that can meaningfully contribute to integration of ESG factors into investment decision making and review processes. Today I will firstly discuss the sustainability reporting performance of the ASX 200 and secondly give detail on the base level of data that investment analysts require to make stock selection decisions. One could say why not assess the total index – well the ASX 200 makes up about 85% of the All Ordinaries index by market capitalisation.
  • Early in 2008 ACSI began a 5 year research plan to benchmark the sustainability reporting practices of firstly the ASX 100 and then from 20009 the ASX 200 with the principal objective of being able to measure the market’s actual practice and progress over time. The research does not just look at disclosure but also performance measurement. So if a company was saying that they did something, how did they check that it had been achieved and how that was check reported? It is important to note that the research does not attempt a qualitative assessment of the substance of the reporting, but rather a quantitative analysis of the extent or amount of sustainability performance data provided by each company. There are 5 categories – no reporting and basic do not require much quantitative analysis. Let us now look at the performance over time.
  • At any level means basic onwards. Of the ASX 100 companies 3 report nothing. Of the ASX 101 – 200 – 32 report nothing. Now let us look at the performance by level.
  • In 2012 – 36 companies that report nothing64 that are at a basic level54 developing10 enhanced and 36 at best practise100 companies that think it OK not to be attuned to the needs of their investors.
  • If we look at the segments
  • As we are at a GRI conference. In 2011 ACSI and the FSC published an ESG Guide for Australian companies – it was sent to all the no reporting and basic reporting companies. Is available on both the FSC and ACSI websites. The Guide outlines the essential information and data that investors such as fund managers and superannuation funds require to accurately price, analyse and manage ESG risks. Bringing together the relevant requirements from a range of world-class reporting standards, the Guide outlines what ESG information should be disclosed, how it should be reported and why it is necessary to investors.  The Guide will help those companies that do not report their ESG risks to begin the process while showing others how to streamline or simplify their reporting, including by eliminating immaterial information.
  • The following factors should be taken into consideration when applying this reporting Guide:The format of reporting is at the discretion of the company;Any reporting should be easy to locate within a company’s communications;Reporting should be simple and easily navigated (for example, through the use of an index directing the reader to specific information);Any online reporting should be easily searchable;Companies are not expected to produce a standalone sustainability report – reporting on sustainability in the annual report is acceptable. In many cases this is preferable; Companies are encouraged to consider what ESG reporting, disclosures and communications may be relevant in terms analyst briefings, annual general meetings and other interactions with investors;Where appropriate companies should use the metrics identified against each indicator in the Guide in order to ensure consistency and comparability within and across companies;Companies should use their judgment when applying the guide in order to ensure the reporting remains relevant to their specific situation;The Guide does not intend to cover every performance criteria that would be found in other reporting standards, and should be considered a minimum level of ESG reporting. ESG reporting beyond the scope of the Guide is encouraged;Reporting on sustainability should be released at or around the time that the annual report is released; andWe strongly encourage companies to announce the release of their sustainability report to the ASX.
  • Having established what is material and therefore what should be reported, companies then need to consider how to report, and to what degree of detail.  Some general principles apply on how information should be reported: Data quality and, consistencyInvestors value good quality, accurate, relevant data over volumes of marketing material thereforeData should be comparable and consistently reported with any changes to the methodologies behind data compilation clearly explained; andData Comparisons As part of the stock analysis process investors compare past performance against expected short, medium and long term expectations therefore Comparisons should be made against relevant data, which should include the company’s past performance, strategic objectives and targets; peers and industry statistics and standards;Future performance objectives in relation to the ESG metrics should be clearly stated, ideally include specific performance targets, and be consistent with the overall strategy;Timeframes should align with the type of issue or metric and its likely time horizon;Thought should be given to reporting a range of possible data outcomes and associated probabilities where a future single target or metric may not be appropriate;Where possible, the financial impacts of ESG issues or of meeting or not meeting targets should be reported;Information to support relative comparisons may be sourced from authoritative research and forecasts, national and international policy targets. Where possible comparison data should consider location specific data; andReport time series data rather than isolated items for the period reported. As many ESG issues evolve over longer time horizons, as much historical data as possible should be reported. For example, a trend in improved safety may take some years to become evident in reported figures; as such a 5 year plus time frame for reporting would be more appropriate than just the prior 12 months.   Commentary and ExplanationInvestors prefer companies to tell their own story and so Reporting should include performance information and reasons for significant variances from expectations, both positive and negative;Risks to meeting targets should be articulated where possible;Where financial impacts cannot be effectively quantified, inclusion of a description of the material issue and facts is appropriate; andIn setting targets and objectives, key assumptions and aspects of the reporting methodologies should be reported.
  • Reporting PracticesBoundaries – geographic, corporate and temporal Materiality
  • Thank you - look forward to a new era of reporting – useful for investors.

Transcript

  • 1. The Players – understandingintegrated reporting withinvestors & accountants..Chair: Leontien Plugge, Deputy Director Regional Networks, Global Reporting InitiativeAnn Byrne, Chief Executive Officer, Australian Council of Superannuation InvestorsBill Hartnett, Head of Sustainability, Local Government SuperRoger Simnett, Professor of Accounting and Associate Dean (Research), AustralianSchool of Business, University of New South Wales; Working Group Member, IIRC
  • 2. Reporting for InvestorsAnn Byrne, Chief Executive OfficerAustralian Council of Superannuation Investors
  • 3. Sustainability Reporting Levels The five levels of sustainability reporting are defined as: No reporting The company does not report on sustainability in any form. Basic The company reports on sustainability to a limited extent. For example, the company might provide some basic information and statistics on health and safety. There is no significant consideration of sustainability risks. Developing The company shows an increased level of reporting and disclosure of the company’s actual performance against sustainability risks. This might be through a dedicated section on the website, a dedicated section of the annual report, or a standalone sustainability report. Generally, the company should cover a range of sustainability risks, including environmental, economic and social. Enhanced The company shows an increased level of reporting and disclosure against sustainability risks and also makes reference to the GRI (or is guided by the GRI to some extent). Generally the company should cover all sustainability risks, including environmental, economic and social, as well as taking into account the GRI. Best practice The company reports on sustainability performance according to the GRI, meaning the reporting is structured to the GRI G3 Guidelines. This includes reporting to a GRI index and having declared an application level. The reporting could be either internally or externally verified.Note: it is not necessary for a company to produce a standalone sustainability report in order to achieve Best Practice.
  • 4. Sustainability Reporting Performance: ASX200Companies Reporting on Sustainability (at any level) 2008 - 2012
  • 5. Sustainability Reporting Performance: ASX200Source: Sustainability Reporting Practices of the S&P/ASX 200, ACSI, 2012 (data to be verified)
  • 6. Sustainability Reporting Performance: 2011 ASX50 ASX100 ASX200 (ex.100) 3% 5% 18% 4% 31% 28% 32% 24%52% 26% 6% 4% 32% 35%
  • 7. GRI Application Levels: ASX200
  • 8. ESG Reporting Guide for AustralianCompanies
  • 9. Materiality Plus• Data quality and consistency• Data comparisons• Commentary and explanation
  • 10. Application of the Guide• Environmental – Climate change – Environmental management systems and compliance – Efficiency (waste, water, energy) – Other environmental issues (e.g. toxics, biodiversity) etc• Social – Workplaces H&S – Human capital management – Corporate conduct (e.g. bribery and corruption) – Stakeholder management/license to operate.• Corporate Governance – Corporate Governance