Closing the Gap- the impact of ESG disclosure on investment decisions10.05.2011

“Setting standards for sustainability”

Risk assessment/due diligence

Management strategies

Sustainable events management systems

Environmental compliance

Strategic sustainability & CSR advice

Research & training

Introduction

• Shifting global and environmental landscape• Business no longer just turn a profit• Operate responsible, ethical • Also reflected by mainstream institutional

investors beginning to incorporate mainstream

Rise of ESG

• What is Environmental Social Governance (ESG) ?

• Key is managing environmental, social impacts, risks, performance and opportunity

• Growth of sustainability reporting • Examples of ‘intangible indicators’- reputation,

competitive advantage and risk avoidance

Investor led initiatives

• United Nations Environment Programme Finance Initiative (UNEP FI)

• UN PRI• ICGN

Ceres • Extractive Industries Transparency initiative

(EITI) • IFAC• Equator principles

Trends in reporting

• Public reporting improves impact of business activity

• Vehicle greater transparency, accountability, building trust

• Environmental concerns –one factor• Regulation not main driver• Influence of networked world ( twitter,

Linkedin)

Traditional reporting

• Traditional reporting too narrow• New reporting requirements: – Created though law, standards, codes– Developments fragmented– Lack of universal format – Quality of information varied• Reporting landscape cluttered and confused• Evidence existing regulatory disclosures don’t

meet investors needs

Why report ?

• Helps deliver broader business goals • Increasing awareness of supply chain risks • Driven by a variety of reasons• Since 1990s investors started attaching

importance to environmental information

Developments in EU reporting

• New definitions and agenda for CSR• Intends to improve company disclosure or

social and environmental information

Reporting requirements in UK

• UK Companies Act 2006• Climate Change Act • Narrative reporting changes• Key performance indicators

Accounting standards

• Role of International Financial Reporting Standards

• UK Generally Accepted Accounting Principles (GAAP)

• Influenced by strength of regulatory regime • Example IAS Presentation Of Financial

statements

Stock Exchange disclosure rules

• Stock exchanges globally implementing sustainability initiatives

• Stock exchanges France, Denmark, Holland, South Africa require reporting non-financial dimensions

• UK Listing Authority no plans to introduce environmental reporting beyond requirements for Business reviews

•

Integrated reporting

• Companies increasingly combining non-financial aspects into their Annual report and accounts

• IIRC initiative • Aim to support investor needs

How investors use ESG

• Inform risk and return potential• Evaluate management quality• Engage with companies • Develop customized investment products • Assess asset managers

How to close the disclosure gap

• Format standardizations• Comparability • Availability • Timeliness• Reliability • Analysis

What investors must do

• Build knowledge and expertise on ESG • Systematically integrate ESG• Proactively ask companies about management

of material ESG• Use UNEP FI and PRI as platforms for dialogue

Conclusions

• Growth in reporting will continue to drive change

• ESG data more accessible as disclosure increases

• Lot more needs to be done

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