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Oversight of sustainability reporting in the airpor ts &

the role of the Internal Auditor

Panos Valantassis, CBM, FCCA, CISA

Manager, Internal Audit - Athens International Airport S.A.

Board’s Secretary – Hellenic Institute of Internal Auditors

1. Sustainability Reporting at Airports2. What’s in it for Internal Auditors3. The Case in Point4. The Direction to the Future

Topics

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1. Sustainability Reporting at Airports

Response Received?

Sustainability from an Airport Perspective

The airports’ multi-dimensional stakeholder interfaces lead to environmental and social challenges.

An integrated approach ensures that all issues are accounted for (noise, air, water, biodiversity, local, local communities, aviation safety, passenger service quality, operational

readiness).

It is in the airports’ best interest to plan and act responsibly. The airports’ shareholders, creditors and insurers care about the airports’ sustainability.

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Response Received?

The GRI Airports Sector Supplement

Sector specific reporting guidance integrated in the GRI G3 Guidelines for the Airports

Developed by a multi-stakeholder geographically diverse working group

Response Received?

Airport Carbon Accreditation

A number of airports participate in AirportsCouncil International (ACI) initiative to commitfor the reduction of carbon emissions fromtheir operations,

�with the ultimate goal of becoming carbonneutral and�are assessed in this respect and recognizedas Airport Carbon Accredited.

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Integrated Reporting at Munich Airport

Why integrated (combined) reporting:�to provide the airport’s stakeholders in a singledocument with �transparent and comprehensive coverage of the Airport Group’s

�Business, �Environmental,�Social and �Societal performance

Integrated Reporting at Munich Airport (cont’ed)

The Report scope has been defined by:On one hand by: �The sustainability matrix, �Sustainability program and �progress on delivering sustainability targets

On the other hand by�the information on the company’s business performance and financial situation

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Integrated Reporting at Munich Airport (cont’ed)

Report Focus:�The expansion of the airport vs.� The efforts undertaken

� to protect the environment and combat climate change,� to advance and retain employees, and � to engage with its local communities and wider surrounding region.

Report complies with: A+ GRI application level

Integrated Reporting at Swedish Airports

The integrated report includes:�Annual (Financial) Report�Corporate Governance Report�Sustainability Report

Report complies with: C+ GRIapplication level

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2. What’s in it for Internal AuditorsHot topics for Internal Auditors

�Auditing

�Facilitating - Combined Assurance

�Consulting – Awareness/Change Agent

The triple role the Internal Auditor can play

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� Separate audits of each element of sustainability such community investment, environment, ethics, health, safety, security etc

� Audits of sustainability programs related to each significant stakeholder group

� Audits of internal controls of sustainability activities within each department

� Audits of consistency, accuracy and completeness of public disclosures

� Audits of third parties contractual compliance

Sustainability related internal audits

Hot topics for internal auditors

� Is the Internal Audit engaged with sustainability?

�Does the Internal Audit, as part of its “Change Agent” role, track several hot topics that may have a significant impact on its work?

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Hot topics – Corporate Citizenship

� Does the organization acts and is seen to be a responsible corporate citizen?

� Does the organization develop strategies and policies to guide its activities, to fall in line with the actions of good corporate citizenship?

� Is the organization run ethically?� Does the Board cultivates and promotes and ethical

corporate culture?� Does the organization has effective

communication with its stakeholders?

Hot topics – Sustainability

� Where is the organization on the change curve with respect to sustainability programs?

� Is sustainability reporting built on specific standards (i.e. GRI guidelines) that focus on substance over form, transparency, materiality, relevance, comparability etc.?

� Is sustainable reporting and disclosure a formalized, regular process independently assured?

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Hot topics – Environment

� How effectively is the organization dealing with the climate change?

� How effectively is the company meeting its legal obligations to report to stakeholders on environmental issues?

� How well does the organization understands the specific ways in which environmental issues manifest themselves in its industry or sector?

� What assurance does the organization have that its environmental strategy is not operating in a silo, dislocated from the organization’s other objectives?

3. The Case in Point

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The Questions

The following questions need to be answered by the Chief Audit Executive:

1. Does the AC has an oversight role in the Sustainability Reporting?

2. Do other Airports engage the AC in the Sustainability Reporting?

3. Why Internal Audit raises all these issues?

Does the AC has an oversight role in the Sustainability Reporting?

1. This depends on the jurisdiction� For instance King III prescribes that the

AC should oversee the stakeholder reporting

2. Yet, sustainability is within the three areas that may require more immediate consideration by the ACs as per a recent ACI/KPMG survey

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Ok! But what the other airports do?In particular what the other European

airports do?

Response Received?

To make a quick research in internet to locate� Airports in Europe� and outside Europe

� That have CSR reporting� or sustainability, or integrated reporting

� And the CSR reporting oversight lies by the Audit Committee� or by a Supervisory Board

The Challenge?

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The quick “research” results:

[1] Financial + Sustainability Annual Report[2] Consisting of Non-Executive Directors (NEDs)[3] Referred to in many companies as “Sustainability Reporting”[4] Indirectly by reviewing specific aspects of Risk Management such as Environmental, Occupational H&S, Aviation H&S, Security issues[5] Financial + Governance + Sustainability Annual Report[6] Consisting of Non-Executive Directors

Organization Type of Report Oversight role

1. Munich Airport - Germany Integrated Report (1) Supervisory Board (2)

2. Copenhagen Airport – Denmark Social Responsibility (3) Audit Committee (4)

3. Fraport - Germany Social Responsibility Management

4. Aeroports de Paris Social Responsibility Management

5. Schiphol Integrated Report Audit Committee

6. Swedavia – Sweden Integrated Report (5) Board of Directors (6)

7. Airports’ Company - South Africa Integrated Report Audit Committee

8. Edmonton airports – Canada Annual Report Board of Directors (6)

9. Greater Toronto Airports’ Authority Social Responsibility Board of Directors (6)-TBC

10. Athens International Airport Social Responsibility Audit Committee

Conclusions from the quick “research” pt. I:

There are two (2) different levels of “oversight” e.g.“Strategic-Operational” by a “specialized” CR Committee“Reporting Oversight” by the Audit Committee and/or the Supervisory Board

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Conclusions from the quick “research” pt. II:

The oversight responsibility of the sustainability reporting,

whether as a standalone or integrated report,

in a “bunch” of European airports,

lies by either the Audit Committee or the Supervisory Board!

The Catalyst:

N.V. LUCHTHAVEN SCHIPHOL

The Rules Governing the Audit Committee provide in par. 3 that its responsibilities shall include:

Supervising the submission of annual non-financial information by the company including Corporate Responsibility information

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What about Athens International Airport :

The Audit Committee Charter provides that amongst its duties and responsibilities is to:� Fulfill an oversight role regarding AIA’s

Corporate Social Responsibility reporting.� Review agreements, independence and quality

of advisors engaged by Management to provide assurance on CSR reporting.

But why Internal Audit raises all this issues?

The work of the Internal Auditors is vital for the Sustainability of an organization in:

� Supporting Management in developing the relevant mindset and processes for its development and reporting.

� Educating Audit Committee members and other internal stakeholders in understanding the risks and perils behind developing Sustainability reporting in the absence of a clear mindset (awareness agent)

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But why Internal Audit raises all this issues(cont’ed)?

Internal Auditing can play a central role in combined assurance too:

� By understanding the various ways in which sustainability information is being assured and

� By help establishing a combined assurance approach and reporting to the Audit Committee the combined assurance map.

Hint for the new definition for Internal Auditing

Consultation was underway regarding the definition of the internal audit profession. Watch out for these two words:

�Sustainability�Combined Assurance

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4. The Direction to the future

A view towards the future

�The milieu in which companies operate is changing completely. Companies now face the:�Sustainability�Combined Assurance

�Natural capital in not unlimited and the planet cannot absorb waste on an unlimited basis

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A view towards the future (cont’ued)

�That means that organizations will have to consider financial, human, environmental, social and technological concerns when setting their strategy

�Else, they are going to fall behind

�with the widest possible understanding of risk

�As non-financial issues become increasingly important to an organization’s success, there will be a growing need for independentInternal Auditing services,

�focused on strategic issues, �engaged at the highest levels of the

organization and

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� Summary of Report on Governance for South Africa –2009 (King III) – King Committee on Governance –SAICA

� Equipped for Governance – Neil Baker – Internal Auditor magazine, February 2010

� Environmental Sustainability – The Head of Internal Audit’s responsibility –Protiviti

� IPPF – Practice Guide - Evaluating CSR / Sustainable Development – The IIA, February 2010

� Ernst & Young (2011) “Environmental & Risk Reporting”, ViewPoints for the Audit Committee Leadership Summit – Issue 17

Back-up Slides

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GRI has developed a system that entails three

application levels for sustainability reporting.

The level achieved depends on how many of

the indicators listed by GRI are met.•The plus sign ”+” indicates that the sustainability report was

examined by an independent auditor who submitted an

auditor’s review report.

GRI rating system for sustainability reporting

A level: All profile disclosures (1.1–4.17) together with information about

the sustainability management approach for each core indicator are to be

reported. Every core indicator and sector indicator are to be reported, or

else the reason why they were not reported should be given.

GRI rating system for sustainability reporting

B level: All profile disclosures (1.1–4.17) along with information about the

sustainability management approach for each core indicator are to be

reported. At least 20 performance indicators, with at least one from each

area: economic (EC), environmental (EN), labour conditions (LA), human

rights (HR), social responsibility (SO) and product responsibility (PR), are also

to be reported.

C level: A selection of profile disclosures (1.1–4.17) are reported along with

at least 10 performance indicators, with at least one from each area:

economic, environmental and social impact.

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Determine emissions sources within the operational boundary of the airport company. Calculate the annual carbon emissions.Compile a carbon footprint report . Engage an independent third-party to verify the carbon footprint report.

All of the above plus: Provide evidence of effective carbon management procedures . Show that reduction targets have been achieved.All of the above plus:Widen the scope of carbon footprint to include third party emissions .Engage third parties at and around the airport.

Response Received?All of the above plus:Offset remaining emissions to achieve carbon neutral operations for all emissions over which the airport has control.

Airport Carbon Accreditation (details)