Sustainability Governance Survey - ETicaNews · Managerial Committee (about 29%); a dedicated Board of Directors Committee and a Dedicated Managerial Committee (about 25%). Survey

Sustainability Governance Survey

February 2016

© 2016 KPMG Advisory, an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 1

Contents

Governance models2.

Board of Directors3.

Survey overview1.

Sustainability function4.

Sustainability integration5.

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6

10

13

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Survey results6. 14


Survey overviewSurvey methodology

The main goal of the survey is to identify and analyze international bestpractices on sustainability governance. This study does not aim at providingstatistically relevant data (e.g. based on the scope coverage), but athighlighting how best practices are managing the topic and at providinguseful insights on different governance models' benefits and difficulties.

What is the main goal of the survey?

The results presented in the following pages are the main outcomes of theanalysis performed. These includes some data on different governancemodels applied, and the related key elements, as well as some informationon Board of Directors (BoD), sustainability functions and sustainabilityintegration within the company. The document includes only anonymousaggregated information.

How was the present document is structured?

The analysis has been conducted on 28 companies worldwide present.Firstly, a desk analysis of sustainability governance models implemented bythe selected companies was performed to identify governance modelsadopted. Thereafter those companies that agreed to participate wereinterviewed.

How was the survey conducted?


The survey panel includes 28* international companies.

Survey overview Survey panel

ANZ BHP Billiton

Natura Cosmeticos

Aviva Barclays HSBC RBS Unilever

Novo Nordisk

Santander BBVA

Enel Eni Generali Telecom Italia

Allianz

Nedbank

Akzo Nobel

Coca Cola FCA Ford GE Novelis

Credit suisse UBS

BNP Paribas Danone

Legend: Company direct involvement through an interview Analysis of public available information only*One Italian company is not shown in this image as it has requested anonymity

Survey Panel


Governancemodels

Within the most common model (Mixed model -64%), the ones that reoccur the most are those that utilize a combination of:

the supervision by the Board of Directors/its existing Committee(s) and a Dedicated Managerial Committee (about 29%);

a dedicated Board of Directors Committee and a Dedicated Managerial Committee (about 25%).

Survey overview Governance bodies

Type of Governance Model (% of companies - scope: 28 companies)

Dedicated Board of Directors (BoD) Committee (11%) 2

Supervision by the BoD/its existing Committee(s) (14%)

Dedicated Managerial Committee (4%)

Other 3 (7%)

Mixed model 1

(64%)

1 With "Mixed model" we refer to a governance model which includes more than one of the predefined options used to categorize the companies'answers.

2 A BoD Committee is classified as "dedicated" when sustainability topics are included also in its name, including when the Committee also dealswith other topics, such as governance and/or risks.

3 "Other" includes only two cases: one where the responsibility is attributed only to the Group Executive Committee and the other where theresponsibility is held by a body comprised of Board Members, but not a typical BoD Committee.


48%

30%

22%

59%

26%

7%

Survey overview Governance bodies

Dedicated BoD

Committe

Supervision by the entire

BoD

Supervision by existing BoD'sCommittee(s)

Dedicated Managerial Committee

Committee composed by

external experts

Supervision by the Executive Committee/

CEO

Governance bodies responsible for sustainability(companies where the body is present - scope: 27 companies1)

BoD level Other

Governance model

geographicaltrends

• The Dedicated BoDCommittee is mostly used in the UK

• The Supervision by the BoD/its existing Committee(s) frequently reoccurs in Italy.

• All the US selected companies implement a Mixed Model, in which a Dedicated Managerial Committee is present.

• Governance models are usually applied in parent companies only. In the few cases where the model is applied also in some of the controlled entities, it mirrors the structure and composition of the parent company's model.

The diagram represents the number of companies where the specific governance bodies with responsibilities in termsof sustainability are present. When a company has a mixed model, all the governance bodies are counted (e.g. incase of a Dedicated Board of Directors Committee and a Dedicated Managerial Committee, the company isconsidered both in the first and fourth bars of the histogram).

1 One company has been excluded due to the impossibility to categorize its model in the described options.


Governance ModelsDedicated Board of Directors Committee

Working conditions (75%), mainly health & safety Environmental impacts (75%), mainly energy consumption,

climate change and efficient use of resources Community impacts/donations (75%)1

48%

Surveyed companies that have a Dedicated

BoD Committee

Dedicated Board of Directors Committee1

The dedicated BoD Committee is usually in charge of the supervision of the company strategy, performances and reporting on the following sustainability topics2:

Frequency of meetings:Quarterly

About 5 BoD Committee members

On average, the Dedicated BoDCommittee has been in place for 6 years (the first Committee was

set up in 2000)

1 Data refers to companies that have a Dedicated BoD Committee in place, whether or not together with other governance body (mixed model). Scope: 27 companies2 Classification and calculation based on the public available Dedicated BoD Committees' terms of reference – scope 12 companies.

Reputational risks related to social-environmental issues (67%)2

Ethics/integrity (58%) 3 Diversity and inclusion (42%) Supply chain management (42%) 4 Human rights (33%) Customers relationship/sustainable business initiatives (33%) Stakeholder engagement/public policy (33%)5


30%

Surveyed companies where sustainability responsibilities are assigned to the entire

Board of Directors

Supervision by Board of Directors/its existing Committee(s)existing Committee(s)1

Governance model main features:

1 Data refers to the companies where sustainability responsibilities are assigned to the BoD/to existing BoD Committee(s), whether or not together with other governance body (mixed model). Scope: 27 companies

2 Scope: 6 companies3 Scope: 4 companies

Governance ModelsSupervision by the Board of Directors/its existing Committee(s)

BoD responsibilities: main responsibilities assigned to the BoD in terms of sustainability are to approve the sustainability strategy/policies and to monitor the related performances

22%

Surveyed companies where sustainability responsibilities are assigned to the existing

Board of Directors Committee(s)

Type of Committee: when the sustainability responsibility is assigned to existing BoDCommittee(s), usually it is the Corporate Governance or the Risk & Control Committees

Committee' key elements3: on average, the existing Board Committee with responsibilities in terms of sustainability is composed by 4 members that meet 8 times per year

BoD sustainability knowledge2: most part of the companies where sustainability responsibilities are assigned to the BoD provide sustainability training to directors


59%

Surveyed companies where a Dedicated

Managerial Committee is present

Dedicated Managerial Committee1

Managerial Committee main features:

Frequency of meetings:Quarterly

(Range: 1-12 times per year)

About 12 Managerial Committee members

On average it has been in place for 8 years (first Committee was

set up in early 90's )

1 Data refers to the companies that have a dedicated managerial Committee in place, whether or not together with other governance body (mixed model). Scope: 27 companies

Governance ModelsDedicated Managerial Committee

Composition: usually it is composed by top managers representing main Group functions and including some Executive Management representatives (e.g. CEO)

Interaction: the Managerial Committee mainly interacts directly with the sustainability function. The alignmentbetween different functions on sustainability topics and activities is guaranteed by the fact that the committee members represent different company functions and participate in other managerial committees

Responsibility: usually the dedicated Managerial Committee is responsible for the sustainability strategy implementation and the oversee of the related targets performances

Selection: top managers are selected in a way to represent all the different stakeholders


Other governance models1

1 Data refers to the companies that have the specific governance body in place, whether or not together with other governance body (mixed model). Scope: 27 companies

Governance ModelsOther governance model

Surveyed companies where responsibilities in terms of sustainability are assigned to the

Executive Committee/CEO

Surveyed companies where responsibilities in terms of sustainability are assigned to a Committee composed by external experts

Usually the Executive Committee/CEO has the role to link the responsibilities assigned to the BoD and to the sustainability function (e.git/he/she periodically informs the BoD on sustainability progresses)

Committee composition: usually the Committee is made up of independent and independently minded experts (e.g. Presidents/Founders/Directors of international/local NGOs) focused on sustainability topics relevant for the company. The main Committee's responsibility is to provide advice and critical analysis to the company's approach/strategy/ efforts.

Frequency of meetings: on average two times per year

26% 7%


Board of DirectorsKey elements1

96% of Board meetings attendance

5 number of BoD Committees

7 number of Directors that attend more than three Boards in different companies

8 number of Directors with expertise in a sector different to the one where the Group operates

48% of Directors with responsibilities in terms of sustainabilityAbout 13 BoDmembers

2

3

4

5

6

7

1 Data and information provided in this slide are an average of the companies included in the scope. When the company has a two-tiers system, the Management Board was considered2 Scope: 28 companies5 Scope: 27 companies. This data represents the number of members of the BoD Committee responsible for sustainability on total number of BoD members. When the responsibility is

assigned to the entire BoD the percentage is 100%. When there is no responsibility at BoD level the percentage is 0%6 Scope: 17 companies

4 Scope: 27 companies. 3 Scope: 22 companies

7 Scope: 13 companies


Board of DirectorsRemuneration and sustainability training

11 companies provide sustainability training (as part of the induction program and/or through ad hoc training). Usually the sustainability function is directly involved in the sustainability training and often internal and/or external experts are engaged in the activity.

BoD Training on sustainability

10 companies declare to link the CEO and top management remuneration to sustainability performances. Main non financial performances considered are: employee engagement customer satisfaction inclusion in sustainability

indexesCompanies operating in sector with significant social and environmental impacts (e.g. energy) usually consider also emissions and accidents.

Directors' remuneration linked to sustainability performances

Mainly CEO and executive directors have the possibility to obtain variable compensation. 14 companies declare to link the CEO and top management remuneration to long term performances. Non-executive directors are usually not eligible to link remuneration to long term performances and subsequently they do not participate in any incentive plans.

Directors' remuneration linked to long term performances


Sustainability functionKey elements

About 16 people working in the sustainability function

About 70% of heads of the sustainability function are members of somemanagerial committee

About 80% of the respondent companies have functions/referent personsmanaging sustainability in the main controlled legal entities

About 36% of sustainability functions reports directly to the CEO

About 36% reports to executive members Other relevant cases are reporting to the Chairman or to the Marketing

and Communication Division

Sustainability Function

1 Scope: 6 companies2 Scope: 14 companies3 Scope: 10 companies4 Scope: 11 companies

1

2

3

4

2


Sustainability integrationMain barriers and benefits

Main benefitsDifferent companies pointed out the main benefits of integrating sustainability within company processes, also due to the governance model applied. The leading message is that, in general, governance models help increasing theunderstanding of sustainability throughout the Group’s functions and business units. The main benefits listed by the companies in analysis are: a better risk mitigation-monitoring process, revenue growth, cost saving, opportunity catching and, overall, a more resilientorganization.

The processes indicated as the ones where sustainability is more integrated are: RiskManagement, Purchase, Governance, HR and Innovations. Meanwhile the lowest integrationwas detected in the following areas: Commercial, IT and Marketing.

Sustainability Integration

The main barriers, identified by the involved respondents, in integrating sustainability within the company are linked to cultural resistance. Resistance to change is spread in many different organizations and it is slowing down the integration process.Additionally, the lack of uniform definition, perception, and comprehension of what ‘sustainability’ is, makes it more difficult to break this barrier.

Main barriers


Survey resultsTakeaways

Food for thoughtBased on the survey results, it is clear that there is not a single sustainability governance model that can be considered as the best practice.What come to light is that to be more effective, a governance model should assign responsibilities to different hierarchical levels, where all the involved bodies have different and clear roles and responsibilities (e.g. strategy proposal, approval, implementation, monitoring, etc.)

As a result of the analysis, some questions came up:

Would the setting of a monitoring dashboard that is different from the non financial report, represent more effective and synthetic instrument, improving the directors' capability to monitor performances and to take decisions?

Would the implementation of the parent company's governance model also in the main controlled entities increase the sustainability integration within the companies' processes?

A Committee composed by external experts may represent a further stimulus for the companies' continuous improvement?

©2016 KPMG Advisory, an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.

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Sustainability Governance Survey - ETicaNews · Managerial Committee (about 29%); a dedicated Board of Directors Committee and a Dedicated Managerial Committee (about 25%). Survey