To Tell The Truth: Combining Corporate Financial and Sustainability Reporting on a Global Scale

1. To Tell The Truth:Combining Corporate Financial and Sustainability Reporting on a Global Scale Robert Kinloch Massie Senior Fellow Initiative for Responsible Investment Hauser Center for Nonprofit Organizations March 8, 2011 © Bob Massie 2011

2. Outline“web page presentation” • Brief history of environmental and sustainability reporting • Movement towards integrated reporting • Current status of international work • Relevance to work of IRI • Implications and Discussion Bob Massie 2011

3. History of Sustainability Reporting • Social investment - alcohol, gambling, weapons • 1960s-1980s: rise of anti-apartheid movement • 1970s: creation of ICCR, 240 religious groups with investments filing hundreds of shareholder resolutions in partnership with NYCERS, etc • Also: social investment firms, especially in NY and Boston Bob Massie 2011

4. Growth of Environmental Investment Movement 1989: Ceres, driven in part by Exxon Valdez accident Disclosure a key component – gradual development of disclosure document, backed by shareholder resolutions 1997: Proliferation of environmental reporting schemes what does everyone want? Answer: GAAP for Sustainability Bob Massie 2011

5. Creation of Global Reporting Initiative (GRI) • Started in formally in 1998. International, cross-sector steering committee • Focused on sustainability (defined as “environmental, social, and economic” dimensions) • From exposure draft in 1999 to permanent institution in 2001 • Most recent revision: 2006 “G3” guidelines Bob Massie 2011

6. Additional developments • 2003 – G2 Guidelines • 2006 – G3 Guidelines • Sector Supplements • International presence: Europe, Brazil, China, India, etc. • 2011: G4 plus time for integrated reporting www.globalreporting.org Bob Massie 2011

7. Financial Accounting: Problems in Brief • Developed for industrial world; backwards-looking • Investors, analysts, and stakeholders want better info • No disclosure on strategy, innovation, people, customer loyalty • Climate change, water scarcity; evolving public policy and regulatory issues • Analysts confused about GRI to strategy (though Bloomberg) Bob Massie 2011

8. Movement towards Integrated Reporting • Convergence of many different ideas, including: • “value reporting” (PWC) • “balanced scorecard” (Kaplan) • “ecological footprint” (Wackernagel) • intangible assets • “ESG” (environment, social, governance) • comparability, key performance indicators (KPIs) Bob Massie 2011

9. Spurred by Different Parties • International accounting firms and societies • European union and specific governments • United Nations: Global Compact, Millennium Development Goals, PRI • Investor discussions: US, UK, Brazil, South Africa, Scandinavia, etc. • Prince of Wales Accounting for Sustainability + GRI = International Integrated Reporting Committee (IIRC) Bob Massie 2011

10. Is the problem that finance does not achieve sustainability goals? “I was concerned that organizations’ accounts and annual reports were not providing the information we need to tackle the major issues confronting the world economy today. Everything from an increasing global population, to the over-consumption of finite natural resources, from the pollution of land, sea and air, to the cumulative impact of climate change.” Bob Massie 2011

11. …or that sustainability does not serve financial goals? • Material value hidden in “non-financial” information • Example INCR: “under what circumstances and to what degree would your portfolio (or firm) be affected by climate risk?” • Issue of long-term risk and benefit; SEC guidance on climate disclosure • Issue of fiduciary duty; what is the purpose of the firm? Bob Massie 2011

12. Current Status of International Work Goal: “a concise, clear, comprehensive and comparable framework ... structured around the organization’s strategic objectives,.. and integrating both material financial and non-financial information.” International Integrated Reporting Committee www.integratedreporting.org Bob Massie 2011

13. Real Time IIRC Workflow • Goal: Integrated Reporting “Framework” ready for presentation to G20 heads of state and finance ministers under French leadership in Nov • Draft document currently in early pieces • Description of desired end state • Business case for Integrated Reporting • “Proposed elements” (structure) • Working hard to prepare for Steering Committee meeting in NYC in May Bob Massie 2011

14. Relevance to theInitiative for Responsible Investment IRI is committed to: • the analysis of RI in different asset classes • review and innovation on Modern Portfolio Theory (MPT) • the creation of a community of research, education and practice to make practical improvements in the investment world Bob Massie 2011

15. Discussion: Will integrated reporting lead to a new way to understand “capital” and “investment”? • Multiple forms of capital • Financial • Social • Natural • Intellectual • When one form is increased or depleted relative to another, what are the consequences – for the firm, the community, the nation? • Whether one is assessing institutional performance OR place-based performance, what is the truth? Bob Massie 2011