Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI

Transcription

1 Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI 1

2 SASB and Sustainability Reporting FIONA ORTIZ, WALGREENS BOOTS ALLIANCE BOB HIRTH, SASB BOARD MEMBER APRIL 1, 2019 Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI 2

3 Agenda Sustainability and ESG Reporting SASB Industry-based Standards Case Study: Walgreens Boots Alliance Wrap-up and Q&A Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI 3

4 Objectives To provide participants with an overview of Sustainability, the SASB, the types of sustainability reporting being made by Chicago-based companies, and the role that internal audit can play in this reporting and related internal controls Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI 4

5 Sustainability is more than just the Climate

6 Legal Advice Be aware that sustainability has become a major, mainstream governance topic that encompasses a wide range of issues, including a company s long-term durability as a successful enterprise, climate change and other environmental risks and impacts, systemic financial stability, management of human capital, labor standards, resource management, and consumer and product safety, and consider how your company presents itself with respect to these matters. (Wachtell Lipton, July 2018) 4/5/2019

7 Why Might This Matter from a Business Perspective? There is growing evidence that suggests that ESG factors, when integrated into investment analysis and portfolio construction, may offer investors potential long-term performance advantages. ESG has become shorthand for investment methodologies that embrace ESG or sustainability factors as a means of helping to identify companies with superior business models. ESG factors offer portfolio managers added insight into the quality of a company's management, culture, risk profile and other characteristics. Source: Pax World Investments 4/5/2019

8 What is the Environmental, Social and Governance (ESG) Criteria The Environmental, Social And Governance (ESG) Criteria is a set of standards for a company s operations that socially conscious investors use to screen investments. Environmental criteria looks at how a company performs as a steward of the natural environment. Social criteria examines how a company manages relationships with its employees, suppliers, customers and the communities where it operates. Governance deals with a company s leadership, executive pay, audits and internal controls, and shareholder rights. Source: Investopedia 8 6/13/2017 SASB

9 ESG Trends Investors are moving from purely exclusionary to integrated ESG strategies Investment strategies will be increasingly powered by multiple sources of ESG data Growing demand to understand ESG performance of the portfolio against desired objectives will drive the need for enhanced reporting Climate solutions will evolve to include adaptation alongside mitigation Mainstreaming of ESG will drive investments in talent and infrastructure Source: IR Magazine, January 2019

10 ESG Out Performs

11 The Global Sustainability Leaders Index (GSLI)

12 The Global Sustainability Leaders Index (GSLI) Companies that manage Environmental, Social and Governance (ESG) issues well can also yield superior risk-adjusted returns. The index is composed of 100 Global Compact signatories selected on the basis of Sustainalytics proprietary ESG Rating, which identifies the top sustainability performers within their respective sectors and regions. To be eligible for the index, companies must have a consistent baseline profitability and meet a set of stringent minimum sustainability criteria.

13 What s Your ESG Score?

14 1. Plastic has become a big problem. 2. Regulations on the business of ESG investing will grow. The Future is Now ESG 3. Climate change is a near-term portfolio threat. 4. A big signal revolution will change how to gather ESG information. 5. Leadership in the Age of Transparency is on notice. Source: ThinkAdvisor

15 Four Excellent Resources

16 Applying enterprise risk management to environmental, social and governance-related risks

17 COSO Framework and Sustainability Leveraging the COSO Internal Control Integrated Framework to Improve Confidence in Sustainability Performance Data 4/5/2019

18 Investor Interest in Sustainability-related Information Resorting to costly and time-intensive means to obtain ESG information SHAREHOLDER PROPOSALS Percent of total proposals filed that are related to social and environmental issues 40% 40% 45% 55% 63% 67% 75% Sources: EY, ; As You Sow, 2015, 2016; ISS Analytics 2017 GLOBAL INSTITUTIONAL INVESTORS 89% Will request sustainability information directly from the company Source: PwC, % More likely to consider ESG information if common standards used 50% Very likely to sponsor or cosponsor a shareholder proposal 18 4/5/2019 SASB

19 ESG Factors Can Influence Long-Term Risk and Returns Changing nature of valuations requires broader information set to understand risk Intangibles, such as intellectual capital, brand value, customer loyalty are increasing components of corporate valuations Investors are exposed to risks from relatively infrequent, but high impact ESG-related events (e.g. safety incidents, ethics scandals, natural resource shortages) Source: Ocean Tomo, Ocean Tomo s Intangible Asset Market Value Study, September ESG factors can give forward looking insight into performance and risk 19 4/5/2019 SASB

20 The Mismatch between Corporates and Investors on ESG Reporting Translating the work of enterprise on sustainability into the language of investors needed

21 Internal Audit Involvement Based upon a thorough review by NIKE s internal audit function, considerable progress has been made to NIKE s sustainability data processes over the past several fiscal years, including but not limited to: a performance management data system overhaul, development of standard operating procedures, and an improved data governance model. The review also identified opportunities to further improve systems and controls around sustainability reporting. NIKE will continue to evolve and address information systems in light of this goal. 4/5/2019

22 The Elephant in the Room If that important to company evaluation and valuation, should the information be subject to some form of management certification and/or some form of third-party verification?

23 SASB Sustainability Accounting Standards Board Independent, non-profit standards-setting organization for ESG information SASB develops industry-specific sustainability accounting standards that help companies manage financially-material ESG issues and disclose performance on them to investors decision-useful in a cost-effective way. 77 industry-specific disclosure standards Used by companies and investors globally 23 4/5/2019 SASB

24 Industries Grouped by Resource Intensity & Sustainability Impacts Sustainable Industry Classification System (SICS ): 77 industries within 11 sectors Consumer Goods Apparel, Accessories & Footwear Appliance Manufacturing Building Products & Furnishings E-Commerce Household & Personal Products Multiline and Specialty Retailers & Distributors Toys & Sporting Goods Extractives & Minerals Processing Coal Operations Construction Materials Iron & Steel Producers Metals & Mining Oil & Gas - Exploration & Production Oil & Gas - Midstream Oil & Gas - Refining & Marketing Oil & Gas Services Financials Asset Management & Custody Activities Commercial Banks Consumer Finance Insurance Investment Banking & Brokerage Mortgage Finance Security & Commodity Exchanges Food & Beverage Agricultural Products Alcoholic Beverages Food Retailers & Distributors Meat, Poultry & Dairy Non-Alcoholic Beverages Processed Foods Restaurants Tobacco Health Care Biotechnology & Pharmaceuticals Drug Retailers Health Care Delivery Health Care Distributors Managed Care Medical Equipment & Supplies Infrastructure Electric Utilities & Power Generators Engineering & Construction Services Gas Utilities & Distributors Home Builders Real Estate Real Estate Services Waste Management Water Utilities & Services Renewable Resources & Alternative Energy Biofuels Forestry Management Fuel Cells & Industrial Batteries Pulp & Paper Products Solar Technology & Project Developers Wind Technology & Project Developers Resource Transformation Aerospace & Defense Chemicals Containers & Packaging Electrical & Electronic Equipment Industrial Machinery & Goods Services Advertising & Marketing Casinos & Gaming Education Hotels & Lodging Leisure Facilities Media & Entertainment Professional & Commercial Services Technology & Communications Electronic Manufacturing Services & Original Design Manufacturing Hardware Internet Media & Services Semiconductors Software & IT Services Telecommunication Services Transportation Air Freight & Logistics Airlines Auto Parts Automobiles Car Rental & Leasing Cruise Lines Marine Transportation Rail Transportation Road Transportation 24 4/5/2019 SASB

25 Designed for Communications to Investors Meet investor needs for comparable, consistent, reliable data Financial Accounting Standards Communications to Investors International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP) govern presentation of the financial statements Integrated Reports Annual Reports Regulatory Filings Other Investor Communications SASB Disclosure Topics and Metrics designed to guide management s discussion and analysis, risk analysis, strategic analysis as appropriate SASB standards are acknowledged by the EU as a framework for use to provide information pursuant to Directive 2014/95/EU on non-financial reporting. 25 4/5/2019 SASB

26 Robust Standards Designed to Provide Decision-Useful Information SASB standards contain industry-specific disclosure topics, metrics, and guidance Accounting metrics for each industry-specific disclosure topic Technical protocol for compiling data Activity metrics for normalization 26 4/5/2019 SASB

27 Complementary Efforts GRI Target sustainability information to specific audiences for specific purposes; SASB focuses on financial materiality for investors Relevant Information All environmental, social, and governance topics of interest to a wide range of stakeholders Sustainability Report Broadest Range of Stakeholders *Some companies include a SASB index to their GRI reports, for ease of investor use Financially Material Data Sustainability factors reasonably likely to affect the financial condition or operating performance of a company Investor Communications Investors* 27 4/5/2019 SASB

28 Institutional Investor Support for Improved ESG Disclosure SASB s Investor Advisory Group includes investors with over $26 trillion in assets The SASB Investor Advisory Group (IAG) comprises leading asset owners and asset managers who recognize the need for consistent, comparable and reliable disclosure of material, decision-useful ESG information. 28 4/5/2019 SASB

29 Increasing Signs of Corporate Adoption Regulatory Filings Other reporting vehicles (e.g. annual, reports, and sustainability reports, etc.) 29 4/5/2019 SASB

30 The Fundamentals of Sustainability Accounting Credential FSA Credential increases understanding of the link between sustainability and value 700 have signed up for Level I 200+ have passed Level I & II hours of study time per exam 80% pass Level I; 65% pass Level II Level I Principles How sustainability information can be financially material The implications for companies and investors Level II Practices How to gain an enhanced understanding of a company s performance and value from material sustainability information 30 4/5/2019 SASB

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32 Our Approach to Corporate Social Responsibility February 12, Walgreens Boots Alliance, Inc. All rights reserved.

33 Forward-Looking Statements All statements in this presentation that are not historical, including goals for and projections of future results, the expected execution and effect of our Corporate Social Responsibility strategies and initiatives and the amounts and timing of their expected impact, constitute forward-looking statements that are based on current societal, market, competitive and regulatory expectations. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, which could cause actual results to vary materially. These statements speak only as of the date they are made and, except to the extent required by the law, Walgreens Boots Alliance undertakes no obligation to update publicly any forward-looking statement included in this report, whether as a result of new information, future events, changes in assumptions or otherwise. Please see Walgreens Boots Alliance s latest Form 10-K and subsequent SEC filings for a discussion of risk factors as they relate to forward-looking statements Walgreens Boots Alliance, Inc. All rights reserved.

34 2019 Walgreens Boots Alliance, Inc. All rights reserved. Three Success Stories Coming Together The first global pharmacy-led, health and wellbeing enterprise Two iconic retail pharmacy brands and a leading international pharmaceutical wholesaler 34

35 2019 Walgreens Boots Alliance, Inc. All rights reserved. About Us *All figures are as of August 31, 2018, including equity method investments, using publicly available information for AmerisourceBergen. 35

36 2019 Walgreens Boots Alliance, Inc. All rights reserved. Our Vision Be the first choice for pharmacy, wellbeing and beauty caring for people and communities around the world Our Purpose We help people across the world lead healthier and happier lives Our Values Care Trust Innovation Partnership Dedication 36

37 2019 Walgreens Boots Alliance, Inc. All rights reserved. Why CSR is important to WBA WBA is a Force for Good Company With 415,000 employees and operations in 25 countries, WBA has an incredible reach and opportunity to support the health and wellbeing of millions of people around the world. We ve been caring for customers fro more than 100 years. Our Purpose is to Help People Live Healthier, Happier Lives Our purpose is our DNA. It drives how we operate as a business and it informs our CSR strategy, which is built around healthcare, reflecting the nature of our business. Our stakeholders tell us that healthcare access and healthcare education are areas where we can have the most impact and contribute the greatest benefit. We are committed to making society healthier and more vibrant. Our long-term CSR programs focus on societal issues where we know we can make a lasting impact. These focus areas are grounded in insights from our stakeholders and we regularly assess what we re doing to make sure we are driving sustainable change. Our employees around the world have helped us raise millions to support cancer research and support programs. We developed a kiosk program to eliminate unused or damaged medications to reduce the risk of opioid abuse. We are making our stores and distribution centers more environmentally sustainable. Together with our employees, we are reducing our carbon footprint and waste, and installing energy efficiencies. 37

38 2019 Walgreens Boots Alliance, Inc. All rights reserved. Why CSR is important to WBA We believe in the power of business to drive positive change in the world Business can and does tremendous good in the world. We believe that we can drive business results while benefiting society. We focus on initiatives that contribute to our profit, generate enthusiasm among employees and customers and positively contribute to society. We are committed to integrity and transparency. We regularly consult with stakeholders to make sure our CSR priorities are aligned with their expectations, and we are committed to transparency and accountability. We publish an annual report showing how we are progressing on our CSR efforts. We believe collaboration leads to sustainable change. We believe the important issues of our day must be solved through collaboration. We partner with expert organizations in long-term relationships to have the greatest impact. 38

39 Pharmacy is in a unique position to improve community health and wellbeing. We have a special mission; it s our opportunity to change the world for the better. WBA Co-Chief Operating Officer Ornella Barra 2019 Walgreens Boots Alliance, Inc. All rights reserved.

40 2019 Walgreens Boots Alliance, Inc. All rights reserved. We Have Four Key Areas of Focus To be a responsible neighbor To protect it for future generations To do business fairly and with integrity To treat our people with dignity and respect 40

41 What we report GRI Standards 2019 Walgreens Boots Alliance, Inc. All rights reserved.

42 2019 Walgreens Boots Alliance, Inc. All rights reserved. Report content aimed at multiple stakeholder groups: raters, rankers, sustainability community, investors, employees, consumers, non-profits, CSR partners, media Executive messages Strategy, grounded in materiality, stakeholder engagement Disclosures on GRI material topics GRI Content Index Data Environment Charitable giving Workplace/Diversity and Inclusion Narrative and case studies 42

43 2019 Walgreens Boots Alliance, Inc. All rights reserved. Our Materiality Assessment Walgreens Boots Alliance CSR Materiality Results 43

44 2019 Walgreens Boots Alliance, Inc. All rights reserved. Mapping of CSR Material Topics We define our material topics - the moderate and higher priority issues on the matrix - and map them to the corresponding Global Reporting Initiative (GRI) Topic Specific Standards, which are included in our 2018 CSR report, and to the UN SDGs. We have plans to develop a set of performance measures to track our progress against the topics not mapped directly to a GRI Topic Specific Standard. 44

45 2019 Walgreens Boots Alliance, Inc. All rights reserved. GRI Reporting Principles 45

46 2019 Walgreens Boots Alliance, Inc. All rights reserved. GRI Disclosures 46

47 Gathering the data Gathering the disclosure information 2019 Walgreens Boots Alliance, Inc. All rights reserved.

48 2019 Walgreens Boots Alliance, Inc. All rights reserved. Gathering ESG data at WBA Part 1 Systems Cognos TM1 system, enterprise planning software with enhanced reporting, analysis and web functionality final report of CSR data comes from here All WBA entities use the system to report CSR data 2x/year Processes Still many manual process using Excel, which is ultimately input into Cognos Fully documented process; work closely with vendors who supply data to ensure accuracy and explain YoY variances 48

49 2019 Walgreens Boots Alliance, Inc. All rights reserved. Gathering ESG data at WBA Part 1 Internal verification by FP&A Full review process from the business, divisions and group Corporate finance documents and controls FP&A team manages the reporting process, where the data is treated with the same controls as some of our financial and other non-financial data Why internal audit is not involved Having the finance function involved at group and business level, it means there is some independence between those who own the data and those who report and review it 49

50 Objective and Third Party Assurance 2019 Walgreens Boots Alliance, Inc. All rights reserved.

51 2019 Walgreens Boots Alliance, Inc. All rights reserved. Third party assurance by Deloitte Limited Assurance Independent Accountants Review Report Specified indicators GRI Specified indicators 51

52 Next steps for WBA 2019 Walgreens Boots Alliance, Inc. All rights reserved.

53 2019 Walgreens Boots Alliance, Inc. All rights reserved. Next steps Additional data points More complete disclosures more fully meeting GRI requirements Developing our own Standards for some topics that don t map to GRI and will report on those new KPIs Wider assurance covering the new KPIs Looking at SASB some barriers in our sector 53

54 2019 Walgreens Boots Alliance, Inc. All rights reserved.

55 It s More than Just the Climate 4/5/2019

56 Making Progress Today, of the 250 largest companies in the world, 90 per cent of them are reporting sustainability performance; Reporting policies have been introduced now in 45 countries and regions 35 of those being stock exchanges. When you shine a light on something, you tend to improve it. By simply measuring something and putting it in the public domain, you have an incentive to get better; it s the transformative power of transparency. Tim Mohin CEO, Global Reporting Initiative

57 Disclosure Helps When we disclose we learn When we learn we change When we change we make progress When we make progress we adapt When we adapt we survive and we thrive

58 Some Questions What Sustainability information do you report currently? How is that information developed and controlled? Is there a need for any review and validation/attestation? Is there additional information that should be reported? How does your reporting compare to SASB/GRI standards? Can the display of the information be improved? Are you reporting boilerplate or metrics? How can you improve in your contribution to our future?

59 Questions and Answers Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI

60 Thank you for your time and attention! IIA CHAPTER CHICAGO 59 TH ANNUAL SEMINAR Institute of Internal Auditors 2019 CONNECT WITH THE IIA CHICAGO #IIACHI