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8/3/2019 2012 FinCom Session 5
1/27
Reporting and financialcommunication - 5Skema - MSc Finance - 2012
p!r convaincre vos pa"enairemessage dentreprise
8/3/2019 2012 FinCom Session 5
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Skema 2012 - Reporting & Financial Communication - Session 5
p!r convaincre vos pa"enaire
Agenda
Corporate Social Responsibilityand extra-financial communication
1. History of CSR and SRI
2. CSR Communication : key issues and current evolutions
3. Case study
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History of CSR and SRI
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Skema 2012 - Reporting & Financial Communication - Session 5
p!r convaincre vos pa"enaire
Sustainable development
Sustainable development emerges as a concept in the 1970s and 1980s
Principle: to ensure that the conditions of our current economic development
will not affect and endanger the capacity for future generations to satisfy their
own needs
Consequence : how can we evaluate the impact of our economic decisions
and make them sustainable
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Skema 2012 - Reporting & Financial Communication - Session 5
p!r convaincre vos pa"enaire
Sustainable developmenthas led to corporate responsibility
Corporations have a responsibilitytoward their environment andtoward every bodies impacted bytheir economic development
\ their shareholders
\ their employees and relatives,the territories where they live
\ their clients and end-consumers
\ their providers, subcontractors and anyentity involved in the production process
\ their natural environment, considering itwill be passed on to the futuregenerations
Corporations will thus have to definenew criteria :
\ when they have to evaluate theirstrategic choices and measure theirefficiency
\ profitability is not enough
\ but it is still required
The measurement wil define theperformance
But what shall be measured ?
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Skema 2012 - Reporting & Financial Communication - Session 5
p!r convaincre vos pa"enaire
Shareholders activism
From the 1920s some categories ofshareholders have been looking forinvestments that meet their moralprinciples
\ religious corporations, foundations
\ exclusion investment process:no weapons, pornography, tobacco
From the 1970, in the US :shareholders activism
\ Shareholders claim for their rights and teirwill to influence strategic decisions made
by the management
\ Shareholders activists may have somevery diverse motivations
\ Some are very famous for they have thestrategic choices of the managementand organised their replacement in orderto increase the value for shareholders
1980s: financial de-regulation andstrong development of financialmarkets
1990s : corporate governance
\ How to actually control the topmanagement when minority shareholdershave no means ?
\ A set of principles for a good corporategovernance have progressively emerged
200s: shareholders democracy
\ How to guarantee that the managementactually behaves and acts in the longterm interest of all shareholders
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p!r convaincre vos pa"enaire
Focus : principal-agent problem
Shareholders (the principal) hire a top executive manager (the agent)
They expect him/her to behave and to make decision in order to preserveand develop their own interest
But they actually cannot be sure this is actually the case
\ How to control the agent
\ How to pay the agent in a way that he/she has a incentive in behaving the expected way
7
Asymm
etric
informa
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8/3/2019 2012 FinCom Session 5
8/27Skema 2012 - Reporting & Financial Communication - Session 5
p!r convaincre vos pa"enaire
Shared board membership in the CAC 4015 April 2010
8Articlecomplet
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And this led to Socially Responsible Investment
Starting point: Socially responsiblecompanies should be moreprofitable in the long-term
Consequence: asset managershave launched investment vehicles
dedicated to this purpose
Main problem: which selection andperformance criteria are useful tobase investment decisions on ?
Principles for Responsible Investment\ Initiative launched in 2005 by the UN
\ End of 2011 :915 institutions , $30 trillions AUM
6 principles
We will incorporate ESG issues intoinvestment analysis and decision-makingprocesses.
We will be active owners and incorporateESG issues into our ownership policies and
practices. We will seek appropriate disclosure on
ESG issues by the entities in which weinvest.
We will promote acceptance andimplementation of the Principles within theinvestment industry.
We will work together to enhance oureffectiveness in implementing thePrinciples.
6 We will each report on our activities andprogress towards implementing thePrinciples.
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Video Eurosif Mainstreaming Responsible Investmenthttp://youtu.be/9hWGII8bsq8
Video Eurosif Engagement in practicehttp://youtu.be/mOOeDN5cG6A
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http://youtu.be/mOOeDN5cG6Ahttp://youtu.be/mOOeDN5cG6Ahttp://youtu.be/9hWGII8bsq8http://youtu.be/9hWGII8bsq88/3/2019 2012 FinCom Session 5
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SRI and mainstream
SRI: still a niche market
\ estimated 3-5% of total AUM
\ expected to reach 10%
3 main fund strategies
\ exclusion\ best-in-class
\ thematical
Principles for Responsible Investment:widely disseminated amongmainstream AM
\ all major AM institutions have signed
\ and accepted to report on these issues
Orientation:no matter how good you are in ESG,you shall report on it
\ companies which do not provide therequired information will be excluded fromthe scope of investment
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0
1500
3000
4500
6000
2002 (EU 8) 2005 (EU 9) 2009 (EU 14)
Growth of SRI European Markets 2001-2009
Billion
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CSR Communication:
key issues and current evolution
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First regulations
In France, Law NRE in 2002 :requirement to disclose information on social en environmental data in theManagement report
But the information content is not specified
\ Initially a confused period when companies filled information with little coherence
\ The disclosure requirement induces a risk:what is the legal liability for the management and for the company?
\ how does the company adapt to new environmental regulations ?
\ Communication induces public exposure: environmental activists compare corporatecommunication with the actual behaviour of companies: NGOs Unions
European Regulation :Prospectus Directive in 2005
\ information on social & environmental impact
\ information on risks, actual or potential litigation, specifically environmental litigation
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Fast growth of SRI funds
Fast growth of SRI funds
\ 70 billions end-2010 (20 billions in 2007)
\ Several AM strategies are emerging
global SRI funds
thematic funds: renewable energies,
cleantech... Integrating ESG principles in their selection
process
\ Those funds need tools to select andbenchmark their investments
Specialised rating agencies(ex. Vigeo in 2002)
\ agencies provide raings to their clientsinvestors
\ ey can also directly rate companies on avoluntary basis
\ each rating agency has their own criteriaand methods
Global SRI index
\ Dow Jones Sustainability Index World
\ ASPI Eurozone (Advanced Sustainability
Index)
\ FTSE4Good Index
\ Euronext FAS IAS : actionnariat salari
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0%
10%
20%
30%
2000 2011 2020
As a % of otal AuM
Fonds ISR Intgration ESG
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International initiatives
Global Compact launched by theUN
\ companies join the program on avoluntary basis and comply with 10fundamental principles
Global Reporting Initiative :\ an international working group dedicated
to set up a corpus of standards andindicators in order to evaluate the ESGperformance
Interactions with the communication
on internal control procedures andrisk management
Some major companies activelysupport those initiatives
\ they develop a strategic communicationon CSR
\ they deploy dedicatedEnvironmental Information systems and
Environmental management systems
\ They disclose a detailed information ontheir actions, achievements and possibleimprovements
\ They tend to mutualise and standardisebest practisesex. mass retail and social audits
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A brand new field of communication
The need to comply with communication requirements has been the first stateof awareness about sustainable development for many companies
IR and financial communication teams may be decisive in companies settingup of a sustainable development policy
Which perfectly illustrates how financial markets can represent a positiveconstraint
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the picture is a varied one
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Strategic line
Element of
performanceassessment
Communicationand image
Compliant with legalrequirements
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Communication requirements
Communication material
\ As a minimum : on section in the Management report and the Reference Document
\ As a maximum : dedicated Sustainable Development Report
may reach one hundred pages
may come with an abstract
some reports are certified, totally or partially, by external auditors
Communication schedule: yearly basis
\ Sustainable development indicators are not disclosed on a quarterly basis
\ In many cases, these is no real analysis of those indicators,sometimes because companies lack of historical basis for comparison
\ No indication that ESG performance may be used as a measurement for internalperformance and incentive
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Environmental Indicators
Consumption of natural resources : water, oil, electricity, % of renewableenergy
Emission of contaminating products : greenhouse gases, waste (toxic,common), paper, plastics
Actions for decreasing the environmental footprint : energy savings, wastereovery, recycling, production of renewable energy, offset mechanism forCO2
Indirect Impacts : impact of the products and services offered
Education policies : clients, employees, suppliers, local communities
Biodiversity conservation.
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Social indicators
Headcount, age structure, hierarchical structure
Promotion of diversity : parity in total and at management level, disabled,minorities
Compensation policy: wage scale, promotion, social benefits
Employment : recruitment, turnover, training, relationship with localcommunities, with education
Health & safety : Accidents at work,risk prevention
Welfare : psychosocial risks, social dialogue
Ethics : Ethics Charter, Purchasing policy, fight against corruption
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Certification of ESg reporting
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Environment and social Rating
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The current development of SRI
Video Eurosif 2010 European Studyhttp://www.eurosif.org/media/videos/item/320-2010-european-sri-study-video
Video Eurosif Study on HNWI & Sustainable Investmenthttp://youtu.be/KET58-kAyUo
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http://youtu.be/KET58-kAyUohttp://youtu.be/KET58-kAyUohttp://www.eurosif.org/media/videos/item/320-2010-european-sri-study-videohttp://www.eurosif.org/media/videos/item/320-2010-european-sri-study-video8/3/2019 2012 FinCom Session 5
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Case study
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A company from emerging markets : Fibria
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A worldwide company: LOreal
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Major changes still to come
Grenelle de lEnvironnement : A newManagement report on ESG principles isrequired
\ Inspired from the Report in CorporateGovernance and Internal control
\ Representing a commitment toward
shareholders\ And the guarantee that those matters will be
included is the corporate strategy at thehighest level
Certification of environmental andsocial reporting
\ Standardisation of reporting practises
\ Adaptation of IT systems
\ Difficulties in defining the referential and thebodies in charge of certification
Interaction with other trends
\ CO2 certificate market: what is the financialimpact for companies?
\ Increasing tensions on the price of naturalressources
\ labour shortage in some industries
\ green business : investment allocation
European Directive being prepared
One key question remains:how to integrate ESG in the valuation ?