Transcript Click here to the 2015 PowerPoint presentation

Sustainability Data Transparency Index (SDTI)
Glenn Silverman
19th August
2014 IS Responsible Investing Survey
Local
Managers
Global
Managers
Responsible Investing
2014 IS Responsible Investing Survey
IS RI Questionnaire
• Difficult to find reliable and comparable data
• Lack of uniformity of both data and understanding within RI space
• Lack of coherent global standards
• ESG factors separated from more traditional financial analysis
* Comments from survey participants
Responsible Investing
Responsible
Investing Survey
Flagship 2014
eventIS
– Survey
results
Do you think that taking ESG
factors into account enhances
your understanding of the risk
profile of companies?
Do you think that taking ESG factors
into account enhances returns?
28%
18%
72%
Yes
82%
No
Do you think the current ESG tools and
approaches are user-friendly and relevant in
daily portfolio management tasks?
Yes
No
Would you be willing to sacrifice some
performance if you knew it was making
a positive, virtuous impact on the
world?
17%
Yes
83%
No
30%
70%
Yes
No
7th Annual IRAS Research Report Launch Event
Alexander Forbes / Investment Solutions
Michael H. Rea
Integrated Reporting & Assurance Services
[email protected] / 082 788 3966
Who is Michael H Rea?
Managing Partner of Integrated Reporting & Assurance Services…or ‘IRAS’
• Team of only 2 full timers, plus interns and a network of ‘associated practitioners’
• Backed by 16 years’ experience in sustainability reporting and assurance in in 17 countries
• Provider of integrated report authorship, assurance, training and advisory services
• South Africa’s leading assurance provider…in terms of ‘the value proposition’ and
experience
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
The present…present…
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
Towards…
The present…
• Improved economic
& social benefits for
society
• Improved business
governance
• Enhanced labour
relations
• Safer workplaces
• Improvements in
environmental
protection
• Greater societal
expectations on
business
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
Towards…
The present…
• Improved economic
& social benefits for
society
• Improved business
governance
• Enhanced labour
relations
• Safer workplaces
• Improvements in
environmental
protection
• Greater societal
expectations on
business
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
Towards…
The present…
• Improved economic
& social benefits for
society
• Improved business
governance
• Enhanced labour
relations
• Safer workplaces
• Improvements in
environmental
protection
• Greater societal
expectations on
business
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
Our desired future…
What role is IRAS playing?
At the moment we – at IRAS – believe we are effecting a disproportionate amount of
change in the integrated reporting and assurance space…
Towards…
Our desired future…
• A society in which
the impacts and
effects of business
are managed to
enhance the
sustainability
proposition for all…
…in a manner that
won’t compromise
the financial viability
of companies
and/or their
shareholders.
The death of shorttermism!
Today’s game plan…
This is to be an ‘informal discussion’ designed to share what IRAS has learned as –
•
•
A provider of Independent Third Party Assurance (ITPA) over the Environmental, Social and
Governance (ESG) data contained within Integrated Annual Reports (or stand-alone
Sustainability Reports)
The only company that has reviewed the sustainability/ESG reporting of every JSE-listed
company for the past seven years (starting with our 2009 research report)
However, we also expect input from you…representing the following:
•
•
•
•
JSE-listed companies
Consultancies/’Other Reporting Practitioners’
Media
Other interested and affected parties
The following slides are designed to be a conversation guide…but questions and/or arguments
are encouraged…and can be raised at any time!
PLEASE USE YOUR REPORT AS A GUIDE!
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Our 7th Annual Research Report
Our Reporting Theme
The photos used in this
year’s report were taken
by Mike Roy, my first
assurance boss…at PwC,
from 1999 to 2002.
Because Mike rode the
2015 Freedom Challenge
in support of the
Sunflower Fund, a R500
donation has been made
for each photo used in
the report and for the
awards (R10 000)…in
support of the Fund’s
work in maintaining a
bone marrow registry.
Thank you for supporting
this initiative!
Scope, Objectives & Approach
Scope, Objectives & Approach
The purpose of this research is to measure the ‘transparency’ of JSE-listed companies…with
respect to the ESG (Environmental, Social and Governance…or ‘Sustainability’) disclosure
within public documentation, such as:
 Integrated Annual Reports
 Stand-alone Sustainability Reports
 Online supplemental ESG information
Unlike ALL other research in SA, IRAS’ research covers ALL of the JSE-listed companies
(main bourse) and 18 State-Owned Enterprises (SOEs) – excluding those that have de-listed
since 01 January…and/or those that have been deemed “un-S’African” (i.e., where the
primary domicilium is outside SA and/or where reporting is completed outside SA).
In 2015, our final research population was 323 companies (311 in 2014 and 331 in 2013).
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Scope, Objectives & Approach
Our analysis includes 134 ESG indicators (up from 122 last year), including:
8
Standard Disclosures…such as whether or not reports are assured and/or whether
additional reports are generated (e.g., CDP submission)
13 Economic indicators
13
Governance indicators
12
Labour indicators
12 Health & Safety indicators
16
Environmental indicators
10
Corporate Social Investment (CSI)/Socioeconomic Development (SED) indicators
50
Non-scored calculated ratios…used to provide truly comparable measures of
performance (e.g., Carbon Emissions per Person Hour Worked)
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Scope, Objectives & Approach
Scoring is based on a 2-1-0 system…where:
‘OK’ = 2 points = A response where data was easily located and ‘made sense’
‘OI’ =
1 point =
‘Opportunity for Improvement’ = A response where data was
found, but was either difficult to locate, required some level
of interrogation and/or interpretation, or significant effort in
order to find, or was obviously incorrect.
‘NC’ = 0 points = ‘Not Covered’ = Where no data for the indicator could be
found.
‘SDTI Compliance Score’ = (Sum of all indicator-specific scores) / (84 * 2)
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Scope, Objectives & Approach
Our research is conducted by a team of interns…mostly from Canada…with the following
Quality Control procedures in place:
1. As You Go Review…where each indicator response is compared by the reviewer against
our database of historical data for the company under review, and against sector averages,
to identify any possible anomalies that ought to be double-checked.
2. Internal Research Manager Review…where each SDTI Gap Analysis is reviewed by
Jordan, to ensure that there are no obvious errors in the data extracted from company
reports (e.g., incorrect units of measure.
3. Reporting Entity Review…where each SDTI Gap Analysis is sent to the reporting entity
for their own review and/or confirmation that IRAS has not missed data and/or captured
incorrect data.
NOTE: 86 of 323 companies (26.6%) provided feedback on our analysis (up from 50 of
311…or 16.1%...last year)…exceeding our stated goal of 25%.
4. Authorship Review…where all SDTI data is reviewed for reasonability by the research
team during the data consolidation and report authorship process.
Scope, Objectives & Approach
Once the base research is complete – following the closure of our feedback period – all data is
collated into a comprehensive spreadsheet and analysed for trends and anomalies.
All significant anomalies are interrogated internally and/or externally to at least attempt to
avoid uncomfortable errors in what IRAS reports in our annual research publication.
The research report is then compiled to provide a comprehensive review of our findings
relative to each of the 323 companies…for each of 134 SDTI indicators.
Data is presented according to 25 JSE-specific sector designations (including non-listed StateOwned Enterprises, or SOEs)…so as to avoid anyone continuing to accuse IRAS of
comparing “low impact” banks and retailers to “high impact” mining companies.
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
A New Trend (as per our advice)…
Of the 323 companies reviewed, five applied IRAS’ SDTI evaluation criteria to their reporting to
a previously untried level.
Finbond, Illovo Sugar, Metair, Sasol
and Wesizwe Platinum all used our
data template as a supplemental
data report to stakeholders.
All five companies significantly
increased their level of
Sustainability Data Transparency
by providing a supplemental data
table on their website.
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Additional Scope…
Because IRAS is dissatisfied with the quality of high cost services and under-performing awards
systems, we decided to add the following sections to our research report…
1. A comprehensive review of the “Most Material Issues” reported
2. A qualitative analysis of top SDTI reports, based on the following <IR> Framework+ analysis
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Additional Scope…
Because IRAS is dissatisfied with the quality of high cost services and under-performing awards
systems, we decided to add the following sections to our research report…
1. A comprehensive review of the “Most Material Issues” reported
2. A qualitative analysis of top SDTI reports, based on the following <IR> Framework+ analysis
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Scope, Objectives & Approach
The Top 7 criticisms raised by companies during this year’s research process:
1. Our company isn’t interested in this research…and wants to be excluded.
2. This is nothing more than a money-making racket.
3. IRAS makes statements about our company that are defamatory.
4. It’s unfair to assume that companies in non-mining sectors can be measured using a miningbased set of indicators.
5. The SDTI process is dragging reporting back into the pre-GRI G4 and IIRC <IR> Framework dark
ages.
6. We already have the JSE SRI Index and the EY Reporting Awards. Do we really need something
from IRAS?
7. Why should anyone pay attention to one little company’s personal opinions on what
companies ought to report, particularly when we already have frameworks from the GRI and
IIRC?
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Research Scope & Objectives
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Let’s begin with an award…
With a score of 78.57%...they are not only the Top Performer in the Financial Services (Other)
sector…but the ‘Most Improved Overall, having increased their SDTI Score from 25.00% last
year.
The GRI’s downward spiral…
The GRI’s downward spiral…
?
The GRI’s own database of GRI-based reports shows that uptake of the Guidelines has
plateaued, possibly due to the over-complication of what ought to be a simple process
(and/or an inability to demonstrate an effective value proposition for GRI-based reporting).
The GRI’s downward spiral…
South Africa has slipped to 7th
place in the Top 10 GRIbased reporting countries
(for 2014 reports), a high of
5th in 2012.
6th
7th
SA = 75 GRI “Applied”
SA = 89 GRI “Applied”
IRAS continues to criticise
the GRI’s G4 Guidelines
because they ARE reducing
the overall comparability of
reports through reporters’
ability to select from the list
of “Material Aspects” and
the underlying indicators.
We predict a further slide in
GRI uptake.
5th
SA = 126 GRI
6th
SA = 128 GRI
NOTE:
The 2014 graph on p.31 of
the printed report is not
coloured correctly (for SA).
This has been corrected in
the soft copy.
The GRI’s downward spiral…
Problems with the GRI G4 Guidelines…
While the Standard Disclosures continue to be a useful set of indicators – helping companies
ensure that key information about the company is included in reports
46 Material Aspects and 150 indicators is simply ‘too many’ for most companies to worry about
in their reports, and thus most will opt for the ‘Core’ – rather than ‘Comprehensive’ – application
level.
The ability to select from the list of Material Aspects (for the Core application level) will
effectively eliminate any possibility for comparability between companies…even within sectors
– such as Mining – where reporting has matured with the GRI Guidelines over the past 16 years.
The lack of clear guidance on what ought to be included in a response to an indicator – as well as
the limited requirement for quantitative data disclosure – allows companies to produce GRIbased reports that are little more than tick-box success stories predicated on an ability to write
hollow assertions that sound good.
This – and the demise of the JSE’s SRI Index (to be resurrected soon…as the FTSE Russell
Emerging Markets ESG Index) is one of the primary reasons why IRAS scores companies
based on “Data Transparency”!
Our Research Findings
Average sector-specific SDTI scores range from…to…
Three highest: 52.33%
51.96%
50.60%
Metals & Mining – Active Operations
Energy & Natural Resources
Financial Services – Banking
Three lowest:
Financial Services – Investment Holdings
Media & Communications
Real Estate – Holding & Development
26.23%
23.71%
22.40%
* Note the difference between the ‘Financial Services – Banking’ and ‘Financial
Services – Investment Holdings’ sectors…where the customer-centric business
appears to be much more au fait with the need for greater ESG transparency.
Michael H. Rea, Partner, Integrated Reporting & Assurance Services (IRAS)
[email protected]
Distribution of SDTI Scores
Only one company – Sasol – scored above
90%...the first company to do so!
Due to the addition of new – externally requested
indicators (from the investment community) –
the vast majority of scores decreased
significantly between 2014 and 2015.
The average score in 2014 (74 indicators) was
42.0%, whereas the 2015 average is 38.22% (84
indicators).
NOTE: IRAS will be attempting to secure
additional data from companies during a
much more thorough feedback process
for next year’s report.
Distribution of SDTI Scores
Economic (65.7%) and Governance
(62.2%) indicators score best, while
Environment (20.4%), Health & Safety
(21.4%) and CSI/SED (24.2%)
indicators score worst.
NOTE: The drop in average SDTI Score
is due – almost exclusively – to
the new indicators.
Distribution of SDTI Scores
The JSE Top 80 – by market cap – score better (51.2%) than the Top 160 and the All Share (47.1%
and 47.0%, respectively).
The 18 State-Owned Enterprises (SOEs) – to no great surprise – score worse (34.7%) than the JSE
average (38.4%)…including the various holding companies that skew the average significantly.
Distribution of SDTI Scores
The 58 companies obtaining Independent
Third Party Assurance (ITPA) over their
reports tend to score significantly higher
(62.6%) than those not seeking assurance
(32.9%), and the JSE overall
(38.4%)…suggesting that companies that
seek assurance tend to pay much more
attention to comparable quantitative data
within their reports…most possibly because
they are ‘mature reporters’ that have moved
up to seeking assurance.
Interesting Findings – Economic
Interesting Findings – Economic
•
Average Economic Data Transparency Score decreased from 68.3% last year to 65.7% (72.7%
in 2013)…scoring highest across the six sections…moving Governance (62.2%) to second
place.
•
Our calculation of Income Disparity in continues to be – by far – the most contentious of all
issues raised in our prior research…including the following disparity ratios:
•
•
•
•
Income Disparity inclusive of Gains on Shares
Income Disparity exclusive of Gains on Shares
Income Disparity inclusive of remuneration paid to Prescribed Officers…including
Gains on Shares
Income Disparity inclusive of remuneration paid to Prescribed Officers…excluding
Gains on Shares
Income Disparity Ratios
Income Disparity Ratios
Income Disparity Ratios
Income Disparity Ratios
Income Disparity - Question
Does Omnia’s MD pay seem “fair”?
Factoring the R90 million LTIP award over five years, the MD’s R30 million in 2015 is roughly
six times that of the Chemicals sector average Executive Director compensation.
Employee Pay vs Dividends Paid
Interesting Findings – Governance
Interesting Findings – Governance
Averages…
Size = 9.8 Directors
% NED = 69.26%
% Independent = 53.31%
% HDSA = 36.48%
% Female = 18.48%
Interesting Findings – Governance
Interesting Findings – Governance
20.05 Years!
20.51 Years!
22.43 Years!
Interesting Findings – Governance
Interesting Findings – Governance
Interesting Findings – Governance
Interesting Findings – Labour
Interesting Findings – Labour
Very few companies (32) provide Person Hours Worked (PHW) data…while 275 give us enough
data to reasonably calculate a PHW estimate…demonstrating a lack of understanding of the need
to ‘normalise data’ to efficiencies.
Question: What’s the easiest way to reduce your Total Electricity Consumption?
Answer:
Shut the lights off and go home!
Question: Assuming you want to stay in business, how should you measure electricity
consumption improvement?
Answer:
Reduce the volume of electricity consumed per PHW!
Question: Why ‘per PHW’?
Answer:
Because it is highly unlikely that any two companies will produce exactly the same
bouquet of products, and therefore the only truly effective denominator for
comparable efficiency is PHW.
Per ‘units of production’ or ‘m2 of space’ is only useful for internal time-series
comparability, and therefore should not be used for external reporting.
Interesting Findings – Labour
Interesting Findings – Labour
Interesting Findings – H & S
Interesting Findings – H & S
Interesting Findings – H & S
Interesting Findings – H & S
1st
Interesting Findings – H & S
14th
Interesting Findings – Environment
Interesting Findings – Environment
Interesting Findings – Environment
Interesting Findings – Environment
Interesting Findings – CSI/SED
Interesting Findings – CSI/SED
Interesting Findings – CSI/SED
Interesting Findings – CSI/SED
Interesting Findings – Assurance
Interesting Findings – Assurance
For the first time in 4 years,
KPMG has regained top spot
as the assurance provider
with the most
clients…followed by EY,
Deloitte and then IRAS.
(Apologies to EY and Deloitte
for the layout error!)
Interesting Findings – Governance
Materiality Assessment
Materiality Assessment
Top 15 Material Issues Across the JSE
1
Skills Shortages
Ensuring that the company has the appropriate human capital resources for future
operations and expansion. This issue includes succession planning, recruitment,
compensation and training.
La7: Employee Turnover
36.
La9: Total Number of Employees Trained
33.
La10: Rand Value of Training Spend
49.
CSI2: Rand CSI/SED Spend on Education Initiatives
28.
CSI3: Rand CSI/SED Spend on Skills Development
21.
(Calculated) Rand Value of Training Spend Per Person Trained
Top 15 Material Issues Across the JSE
9
Labour Relations
Interacting with unions to prevent industrial action and maintaining mutually beneficial
relationships with employee groups.
Ec3: Total compensation paid to employees
La1: Total number of employees
La2: Total number of contractors
La3: Percentage of employees deemed "HDSA"
La4: Percentage of employees who are women
La5: Percentage of employees "permanent"
La6: Percentage of employees who belong to a trade union
La7: Employee Turnover
La12: Total number of days lost due to industrial action
(Calculated) Percentage of total person days lost due to industrial action
(Calculated) Average compensation per employee
Qualitative Analysis
Qualitative Analysis
Our Personal Favourites
APPENDIX I
Interesting Findings – Governance
APPENDIX II
Interesting Findings – Governance
Your feedback on an email…
A reporting and assurance practitioner sent an email with his response to a client’s query
about the SDTI (supplied when you arrived).
Bear in mind that this gentlemen was trained – by IRAS – as a Certified Sustainability
Assurance Practitioner…refers to himself as an “ESG and corporate reporting
advisor”…and is one of the people whose behaviour has led to IRAS no longer
providing our comprehensive research report for free (i.e., he and his former business
partner were found at a law firm last year using IRAS’ 2013 research, while
purporting to be the authors of IRAS’ research).
What do you make of his comments?
Your feedback on an email…
My response…
In essence, it was along the lines of…“Do your homework before suggesting that companies
shouldn’t pay attention to data!”
In my experience, there is no quicker way to process improvement – be it in Health & Safety and/or
Environmental management…or in effective use of CSI/SED Spend budgets – than by measuring
performance, reporting it transparently, and benchmarking it with the performance of others.
That which is not measured…is not managed!
Our award winners…
Our award winners…
Chemicals
Construction, Materials & Equipment
Electronics & Electrical Equipment
Energy & Natural Resources
Engineering & Support Services
Financial Services – Banking
Financial Services – Insurance & Benefits
Financial Services – Other
Food & Beverages
General Industry
Health & Pharmaceuticals
Info, Communications & Telecoms
Metals & Mining – Active Operations
Metals & Mining – Exploration & Other
Real Estate – REITs & Other
Retail
State-Owned Enterprises
Transportation
Travel, Hotels & Leisure
6
20
10
7
7
7
9
18
17
12
9
9
35
11
28
24
18
8
9
African Oxygen (Afrox)
Group Five
Reunert
Sasol
Howden Africa
Nedbank
Liberty
Finbond
Illovo Sugar
Metair
Aspen Pharmacare
Telkom
Lonmin Platinum
Wesizwe Platinum
Fountainhead Properties
Woolworths
IDC
Santova
Sun International
73.21%
68.45%
70.83%
91.67%
70.83%
73.21%
63.69%
78.57%
86.31%
85.71%
67.26%
61.31%
86.31%
73.81%
56.55%
60.71%
61.31%
76.19%
72.02%
15th
25th
19th
1st
19th
15th
33rd NEW!
7th NEW!
2nd
4th
28th
39th
2nd
14th
51st NEW!
41st NEW!
39th
9th
18th
Parting Notes…
The hard copies of the comprehensive research report will ONLY be available to those companies
attending our launch events (JHB, CT and Durban).
For our “Pay to Play” clients, we have provided soft copies of the following:
•
The high res research report
•
Each company’s sector-specific SDTI Heat Map and Data Table
•
The most important of our Materiality worksheets
•
The most important of our Qualitative Assessment worksheets
For those wanting access to our comprehensive SDTI Toolkit, the Excel files will be made
available (for a fee) by the 15th of September…inclusive of 2013, 2014 and 2015 data.
Our 2016 research process begins on the 2nd of September, with our first quarterly SDTI Database
update due out by the end of October. A few new indicators will be added, and our online SDTI
indicator document will be duly updated.
Also…be advised…our scoring system will be changing for next year…to allow for the scoring
of data that is provided during our feedback process.
THANK YOU FOR PARTICIPATING IN TODAY’S LAUNCH EVENT!!!
Thank You!