ESG Reporting – Does it make a difference ? Kirein Franck Triple bottom lime investing conference 2006 Paris, November 10t...
Content <ul><li>ESG reporting today </li></ul><ul><li>New key public policy initiatives </li></ul><ul><li>Investors‘ allia...
Continuous rise of reports on ESG topics ESG Reporting
How does public policy respond? Overview on key new initiatives <ul><li>Legislation based on EC accounts modernisation dir...
UK – Operating and Financial Review OFR <ul><li>Responding to EC accounts modernisation directive 2003/51 </li></ul><ul><l...
UK – Operating and Financial Review OFR Study of Black Sun (UK) on current reporting performance of 23 FTSE companies  Pub...
Germany – Handelsgesetzbuch (Commercial Code) <ul><li>Responding to EC accounts modernisation directive 2003/51 </li></ul>...
UNCTAD Guidance on Corporate Responsibility Indicators in Annual Reports <ul><li>Pursued by the UNCTAD Intergovernmental W...
UNCTAD focus <ul><li>Two key point on the agenda of ISAR </li></ul><ul><ul><li>Practical implementation of IFRS standards ...
Norwegian Governement Pension Fund <ul><li>One of the largest pension funds globally with 180 bio. € </li></ul><ul><li>Has...
Further interesting cases <ul><li>Denmark: Law on environmental reporting (2002) </li></ul><ul><li>France: New Economic Re...
Investors lobbying on more ESG disclosure <ul><li>Investor Statement on Climate Change </li></ul><ul><ul><li>will  influen...
Effects <ul><li>Stock quoted companies are reporting (more than privately held  companies), because investors keep asking ...
How does public disclosure affect performance ? <ul><li>Stock quoted companies do report more, but reporting alone does no...
Environmental performance improvement ESG Reporting and Performance Companies reporting on ESG issues improve over time. (...
ESG reporting will make a difference  <ul><li>There is growing demand for analysis and assessment of ESG reporting results...
ESG reporting will make a difference  <ul><li>Based on market demand and emerging public policies  ESG reporting will cont...
Kontakt imug GmbH Kirein Franck Brühlstraße 11 30169 Hannover Fon: +49.511.12196-19 Fax:  +49.511.12196-95 Email: franck@i...
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ESG Reporting – Does it make a difference?

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Kirein Franck, Head Of Research - Imug Investment Research - Germany

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ESG Reporting – Does it make a difference?

  1. 1. ESG Reporting – Does it make a difference ? Kirein Franck Triple bottom lime investing conference 2006 Paris, November 10th, 2006 imug Beratungsgesellschaft für sozial-ökologische Innovationen Brühlstraße 11 30169 Hannover Fon: +49.511.12196-19 Fax: +49.511.12196-95 Email: franck@imug.de www: ethisches-investment.de                                                        
  2. 2. Content <ul><li>ESG reporting today </li></ul><ul><li>New key public policy initiatives </li></ul><ul><li>Investors‘ alliances </li></ul><ul><li>ESG reporting and performance </li></ul><ul><li>Perspectives </li></ul>
  3. 3. Continuous rise of reports on ESG topics ESG Reporting
  4. 4. How does public policy respond? Overview on key new initiatives <ul><li>Legislation based on EC accounts modernisation directive 2003 / 51 </li></ul><ul><li>UNCTAD Guidance on Corporate Responsibility Indicators </li></ul><ul><li>Governement-linked pension funds establish SRI strategies (France, Belgium, Norway..) </li></ul>Public policy
  5. 5. UK – Operating and Financial Review OFR <ul><li>Responding to EC accounts modernisation directive 2003/51 </li></ul><ul><li>Currently under construction </li></ul><ul><li>A balanced and comprehensive analysis of the development, performance and position of the business </li></ul><ul><li>The OFR will describe principal risks and uncertainties, which are likely to affect the business’ future development, performance and position </li></ul><ul><li>It will use appropriate financial and other key performance indicators </li></ul><ul><li>And it will include detailed environmental, employee, social and community matters and policies </li></ul>Public policy – modernisation directive
  6. 6. UK – Operating and Financial Review OFR Study of Black Sun (UK) on current reporting performance of 23 FTSE companies Public policy – modernisation directive
  7. 7. Germany – Handelsgesetzbuch (Commercial Code) <ul><li>Responding to EC accounts modernisation directive 2003/51 </li></ul><ul><li>Legislation is completed (§315) </li></ul><ul><li>The annual report has to contain a „balanced and comprehensive analysis of the development and the position of the considated group“ </li></ul><ul><li>It will use appropriate financial and other key performance indicators </li></ul><ul><li>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”. </li></ul>Public policy – modernisation directive
  8. 8. UNCTAD Guidance on Corporate Responsibility Indicators in Annual Reports <ul><li>Pursued by the UNCTAD Intergovernmental Working Group of Experts on Standards of Accounting and Reporting (ISAR) </li></ul><ul><li>Comprised of 217 experts in 72 countries </li></ul><ul><li>Ongoing process, recent meetings in October 2006 </li></ul><ul><li>Giving recommendations to governements and regulators in developing economies + companies operating there </li></ul><ul><li>Aiming at attracting investors through greater transparency </li></ul>Public policy – UNCTAD (UN Conference on Trade and Development)
  9. 9. UNCTAD focus <ul><li>Two key point on the agenda of ISAR </li></ul><ul><ul><li>Practical implementation of IFRS standards globally </li></ul></ul><ul><ul><li>Corporate responsibility </li></ul></ul><ul><li>Annual review papers make explicit mention of ESG Reporting (Review of International Accounting Issues, Corporate Governance Disclosure, Corporate Responsibility) </li></ul><ul><li>Reporting should focus on impact at national level (rather than compiling aggregated data). </li></ul><ul><li>Areas for which indicators are recommended include eco-efficiency, corporate governance, human rights, corruption, health and Safety, labour practices </li></ul>Public policy – UNCTAD (UN Conference on Trade and Development)
  10. 10. Norwegian Governement Pension Fund <ul><li>One of the largest pension funds globally with 180 bio. € </li></ul><ul><li>Has set up ist Council of Ethics which did exclude 19 companies from its portfolio so far (including Wal Mart) </li></ul><ul><li>Regular reviews take place based on information and analysis and reporting provided by EIRIS </li></ul><ul><li>Criteria include systematic violation of human rights and severe environmental damage </li></ul>Public policy – Pension fund strategy
  11. 11. Further interesting cases <ul><li>Denmark: Law on environmental reporting (2002) </li></ul><ul><li>France: New Economic Regulations (2001) require reporting on environmental and social issues from 700 listed companies </li></ul><ul><li>Throughout Europe: Pension funds are required to report on SEE criteria (B, F, DE, ES, SE, UK) </li></ul><ul><li>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 </li></ul>Public policy Who is asking for more ESG reporting?
  12. 12. Investors lobbying on more ESG disclosure <ul><li>Investor Statement on Climate Change </li></ul><ul><ul><li>will influence and encourage governments , engage with companies, develop tools to assess risks </li></ul></ul><ul><li>Major US institutional Investors press S&P 500 for better disclosure and reporting in accordance with GRI </li></ul><ul><li>UN Principles for Responsible Investment </li></ul><ul><ul><li>„ We will seek appropriate disclosure on ESG issues by the entities in which we invest“ </li></ul></ul><ul><li>Carbon Disclosure Project </li></ul><ul><ul><li>Covering 2100 companies in 2006, support letters from Angela Merkel and Tony Blair </li></ul></ul>Investors’ alliances
  13. 13. Effects <ul><li>Stock quoted companies are reporting (more than privately held companies), because investors keep asking for it </li></ul><ul><li>Governments respond to the investors‘ demand by various initiatives mainly aiming at transparency </li></ul><ul><li>Companies which are reporting on ESG issues are more likely to be involved in ESG related activities </li></ul><ul><li>Reports are the key source of information on companies‘ practices </li></ul>Does this mean public disclosure is leading to a better ESG performance ? Investors’ alliances
  14. 14. How does public disclosure affect performance ? <ul><li>Stock quoted companies do report more, but reporting alone does not improve performance </li></ul><ul><li>Performance is improved if and when somebody is monitoring it systematically </li></ul><ul><li>Investors regularly monitor stock quoted companies </li></ul><ul><li>-> see next chart for improvements on environmental performance for ESG reporters and non-reporters </li></ul>ESG Reporting and Performance
  15. 15. Environmental performance improvement ESG Reporting and Performance Companies reporting on ESG issues improve over time. (Data from the Ethical Portfolio Manager Database, EIRIS)
  16. 16. ESG reporting will make a difference <ul><li>There is growing demand for analysis and assessment of ESG reporting results </li></ul><ul><ul><li>Problems are comparability of data, strategic integration of ESG issues, credibility of content availability of assessments </li></ul></ul><ul><li>Public policy initiatives will focus on increasing transparency </li></ul><ul><ul><li>As a consequence it will be important for investors and public interest groups interested in disclosure to be transparent on performance on ESG issues </li></ul></ul>Perspectives
  17. 17. ESG reporting will make a difference <ul><li>Based on market demand and emerging public policies ESG reporting will continue to improve both on scope and quality </li></ul><ul><ul><li>There is a clear link between reporting and performing and ESG issues. </li></ul></ul><ul><ul><li>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. </li></ul></ul>Perspectives
  18. 18. Kontakt imug GmbH Kirein Franck Brühlstraße 11 30169 Hannover Fon: +49.511.12196-19 Fax: +49.511.12196-95 Email: franck@imug.de www.imug.de www.ethisches-investment.de

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