esg reporting - does it make a difference
DESCRIPTION
Stephen Hine, Head of International Relations - EIRIS - United KingdomTRANSCRIPT
© EIRIS
ESG Risk & Research – what do Companies do and what do
investors value?
TBLI ParisStephen HineNovember 2006
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Content
• ESG Risk Management by Companies• Sector specific ESG research• What do investors value – results of a survey
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ESG risk management provides:
• Interface between ESG issues, corporate governance and a company's financial health
• A bridge between ethics and governance• An injection of ESG issues into narrower or
traditional governance concerns• Some insight into whether or not top
management is exercising sufficient oversight / control and adequately discharging its responsibilities?
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ESG Risk Management – Research approach Using ABI Guidelines as starting point Board - regular review, training and pay incentives Risk management system - policy & procedures,
regular assessment, and audit and verification Identification of specific SEE risks - actual disclosure Quantified potential liabilities / opportunities:
provision of specific examples (£)
- each component equally weighted (4 x4pts = 16)
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EIRIS assessmentAssessment grades are assigned to each range
of scores as follows:
0 no evidence of1-4 limited5-8 intermediate9-12 good13-16 advanced
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Data analysis - All World by country
0%
20%
40%
60%
80%
100%
UK (139)
Denmark (13)Netherlands (22)
Norway (8)Finland (10)France (60)
Switzerland (29)Germany (50)
Italy (46)Austria (8)
Greece (12)Ireland (8)Spain (30)
Belgium & Lux (16)
Portugal (8)Sweden (25)Japan (478)
Hong Kong (107)Singapore (49)
New Zealand (21)Australia (114)
Canada (70)Average (1323)
Country
Percentage of companies
Advanced Good Intermediate Limited No Evidence
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Data analysis - major Euro countries
0
5
10
15
20
25
30
35
40
45
No Evidence Limited Intermediate Good Advanced
Assessment grades
Percentage of companies
UK (139)
France (60)
Germany (50)
Italy (46)
Spain (30)
European ave (484)
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Data analysis - Asia
0
10
20
30
40
50
60
70
80
Japan (478) Hong Kong (107) Singapore (49) Asian ave (634)
Country
Percentage of companies
Advanced
Good
Intermediate
Limited
No Evidence
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Data analysis - Australia, NZ & Canada
0
5
10
15
20
25
30
35
40
45
No Evidence Limited Intermediate Good Advanced
Assessment grades
Percentage of companies
Australia (114)
New Zealand (21)
Canada (70)
Average (205)
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Data analysis - All World by sector
0%
20%
40%
60%
80%
100%
Tobacco (6)Mining (19)
Oil & Gas (39)Beverages (22)
Support Services (34)
Telecommunications (41)
Forestry & Paper (14)
Pharmaceuticals & Biotechnology (45)
Life Assurance (19)
Chemicals (59)
Food & Drug Retailers (21)
General Retailers (46)
Media & Entertainment (70)
Utilities (27)
Leisure & Hotels (27)
Electricity (28)
Construction & Bldg Materials (58)
Steel & other metals (29)
Banks (133)
Automobiles & Parts (42)
Elec & Elec Engineering (53)
Insurance (32)
Aerospace & Defence (9)
Personal Care & Household Products (12)
IT Hardware (37)Transport (69)
Household Goods & Textiles (42)
Health (20)
Food Producers & Processors (42)
Diversfied Industrials (29)
Engineering & Machinery (46)
Real Estate (58)
Speciality Finance (57)
Software & Computer Services (38)
Average (1323)
Sector
Percentage of companies
Advanced Good Intermediate Limited No Evidence
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Conclusions
• Evidence of companies in many parts of developed world and in many sectors rising to the challenge
• But overall more poorer performing than higher performing companies – still in its infancy?
• Bigger companies have done more than smaller companies• UK and European companies showing up well with SEE risk
management assessments should be well placed for the implementation of “OFR” and EC Modernisation Directives
• Some evidence suggesting that sectors perceived to have greatest ESG risk exposure (tobacco, mining, utilities) do well, though not uniformly chemicals, health do less well
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ESG Sectoral Research
• What are the salient risks & opportunities?• Need for detailed research – drilling down• Need clear comparable framework• Five assessment grades – no evidence,
limited, intermediate, good, advanced• Absolute assessment grades – is ‘Good’ good
enough?• Engagement with Companies by us and by
clients
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Chemicals - ESG Risks & Opportunities
• REACH – Regulation, Evaluation & Authorisation of Chemicals– Registration of substances ≥ 1 tonne/yr– Over 30,000 chemical substances– Chemicals of ‘very high concern’ may face
restrictions or require substitution
• Other EU Regulation – WEE, ELV etc• Greening Company supply chains
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Management indicators
• 12 chemicals management indicators examined in three broad areas:– Strategy & responsibility– Research & development– Reporting & dialogue
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Management indicators
• Strategy and responsibility – Identification of business risks– Product stewardship principles– Risk assessments – Phase-out of chemicals of concern– Avoiding chemicals of concern in new products– Business-to-business partnerships
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Management indicators
• Research & development – R&D linked to ‘green’ chemicals innovation– Life cycle analysis (LCA) in the design and development of
chemical products
• Reporting & dialogue – Public reporting of chemicals of concern – Disclosure of business risks in Annual Report– Stakeholder dialogue on chemicals– Systems to communicate chemical product risks along the
product value chain
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Assessment approach
• No evidence - no evidence from publicly available company literature of policy or management system
• Limited - some evidence of steps taken to address this issue• Intermediate - evidence of a concerted company response to
the risk and 'real' progress • Good - the company's management system is considered
adequate and sufficient to mitigate the risk to 'acceptable' levels• Advanced - leading practice that may be gaining a competitive
advantage (with stakeholders or society in general)
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0123456789
101112
AkzoNobelICI
Solvay
DainipponInk &
ChemicalsLanxessCiba
SpecialtyChemicalsClariant
Indicators
Reporting & dialogueResearch & developmentStrategy and responsibility
Assessment results
NR NR
NR NR
NR = non-respondent
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Key findings
• 4 out of 7 have systems to identify business risks• 5 out of 7 incorporate safety/sustainability into R&D• 5 out of 7 engage with stakeholders• Only 2 of 7 state a commitment to phase-out
chemicals of concern• Only 1 publicly discloses specific chemicals of concern
produced and/or used
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Other EIRIS ESG reports
• Obesity – most food companies not engaged• Project Finance – Equator Principles are
helping to push banks but some way to go• Pharma & access to medicines – strong
commitments but pricing & lobbying problems• Mobile phones & health – all aware yet lack of
targets/KPIs and emission reduction R&D• Ongoing roll out across all sectors & issues
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Valuing ESG issues - survey
• Cross-section of investors & SRI experts• Financial impact over next 3-5 years• Key sectors (15): Automobiles & parts, Banks,
Chemicals, Construction & materials, Electricity, Food & drug retailers, Food producers, Forestry & paper, water & multi-utilities, Household goods, Leisure goods, Mining, Oil & gas producers, Pharmaceuticals & biotechnology and Travel & leisure
• Brief preliminary findings only – full report soon
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Valuing ESG issues - findings
Average impact across all 15 sectors:
Percent responses
No impact 5.7%
Less than 5% of value 26.1%
5% to 10% of value 29.5%
10% to 25% of value 26.1%
Over 25% of value 12.6%
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Sectors where ESG issues have highest impact
SectorESG issues affecting over 10% of value
Oil & gas producers 65.5%
Electricity 58.6%
Gas, water & multi-utilities 57.1%
Automobiles 55.2%
Mining 51.7%
Food producers 50.0%
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Sectors where ESG issues have least impact:
SectorESG issues affecting less than 5% of value
Leisure goods 69%
Banks 62.1%
Household goods 58.6%
Food & drug retailers 50%
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For further information:Stephen Hine
(Head of International Relations)
EIRIS80-84 BondwayLondon SW8 1SF