Assess record for 'Disclosure of Non-Financial Information by Companies'

Transcription

1 Page 1 of 5 Assess record for 'Disclosure of Non-Financial Information by Companies' Meta Informations Creation date Last update date User name null Case Number Invitation Ref. Status Background Information For the purpose of analysis of this consultation you want to be identified as - single choice reply- Please specify the user type -single choice reply- N User Investor/investor organisation Name(s) (of respondent and of your organisation / company) -open reply- Ralf Frank Country where your organisation / company is located -single choice reply- DE - Deutschland Please provide the name and location of parent company Your address EFFAS Mainzer Landstrasse 47a DE Frankfurt am Main Germany Your address: -open reply- rf@dvfa.de Short description of the general activity of your organisation / company: The European Federation of Financial Analysts Societies (EFFAS) is a Pan-European grouping of the National Societies of Financial Analysts, bringing together leading experts from all of Europe's Equity and Fixed Income markets. Is your organisation registered in the Interest Representative Register? If your organisation is not registered, you have the opportunity to register here before you submit your contribution. Responses from organisations not registered will be published separately from the registered organisations. -single choice reply- Please specify the Register ID number in the Interest Representative Register -open reply- Can the Commission contact you if further details on the information you submitted is required? -single choice reply- Publication: Do you object to publication of the personal data on the grounds that such publication would harm your legitimate interests? -multiple choices reply- Questionnaire

2 Page 2 of 5 1. How would you consider the current regime of disclosure of non-financial information applicable in your country? - single choice reply- Poor In replying to this question, please provide information on what way current reporting provides useful information, and to what extent it is sufficiently tailored to the circumstances of the company. Please also comment on whether you find non-financial information useful for the decision-making of a compa EFFAS believes that corporate disclosure of non-financial information of European companies is poor as it is mainly regulated at a voluntary level and hence does not offer sufficient comparability to be be meaningful for inclusion in investment or credit lending decisions. Typically, information provided by corporates lacks reference to a standard reporting framework (as is the case e.g. for financial information under IFRS). Consequently, topics and aspects covere d are inconsistent when comparing different companies. Moreover, as there is a considerable degree of flexibility for company information provided in e.g. CSR-reports and other reporting formats is insufficiently quantified and mostly do not link extra-financial aspects to performance aspects. Decision-usefulness of company data for investors and investme intermediaries such as financial analysts rests on relevance, timeliness, comparability and consistency. While Generally Accepted Accounting Principles (GAAPs) such as IFRS or US-GAAP are based on these principles extra-financial informati in its current state of voluntary disclosure very rarely does comply with such principles. The current legislation does neither safeguard that extra-financial corporate information can be integrated into investment decisions nor does it provide a sufficient level of incentives for companies to voluntarily orient towards the well-established GAAP-principle s when disclosing extra-financial information. Investor interest in non-financial information is constantly increasing as a Eurosif study from 2009 shows.* However, due to the aforementioned lack of standardization of non-financial data confidence in such data has not arrived at a level comparable with financial data. --- * The Study can be accessed at: 2. Have you evaluated the effects, and No opinion costs and benefits, of any current corporate disclosure of environmental and social information? -single choice reply- 3. If you think that the current regime of disclosure of non-financial information should be improve how do you suggest that this should be done? EFFAS supports a mandatory regulatory approach to ESG data disclosure for large listed and non-listed companies, with based on precise and thoroughly i.e. detailed 1. principles pertaining to timing of disclosure, reporting vehicles, format integration with other company performance statements e.g. Primary Financial Statements, Management Commentary; rules pertaining to topical areas, issues, aspects to be covered; 3. key performance indicators (KPIs) which are complian with requirements of users of non-financial data and have been gathered through a process including validation**. In addition, EFFAS recommends to the European Commission to: 1. Continue the convening of meetings of stakeholder gro which has been demonstrated as an excellent instrument for exploring policy options as well as forstering dialogue between different stakeholder groups in the ESG Disclosure Workshops hosted by European Commission s DG Enterprise and Industry in 2009 and Create a high-level working group composed of representatives of the major stakeholders within the categories implicitly defined by the EU ESG Disclosure Workshops. This group should contain representatives from the current global initiatives of non-financial reporting standards, such as the Internationa Integrated Reporting Committee (IIRC), UN Global Compact, OECD, ICGN, WICI and GRI, but also European organisations that have developed significant work in the field, such as Eurosif, representing the European SRI community, and EFFAS who voices the European community of financial analysts and investors. --- ** EFFAS and DVFA German Society of Investment Professionals have provided an extensive list of KPIs both at a general and sector-specific level (114 subsectors following the Stoxx Industry Classification Benchmark ICB). Different levels of compliance have been defined i.e entry, mid and high level which allow companies to select a level of disclosure appropriate to the level of maturity of it non-financial disclosure. The document entitled KPIs for ESG 3.0 can be read at 4. In your opinion, should companies be required to disclose the following (check all relevant boxes): -multiple choices reply- The principal business risks and opportunities arising from social and environmental issues, and how they are taken into account in compan strategy. Key information regarding issues such as employee engagement (e.g.: employee training policy, equality and diversity, etc.); customer satisfaction (e.g.: customer loyalty); public perception of the compan (e.g.: stakeholder dialogue); environmental policies (e.g.: energy efficiency, waste reduction); and innovation (e.g.: R&D expenditure).

3 Page 3 of 5 5. In your opinion, for a EU measure on reporting of non-financial information to achieve materiality and comparability it should be based upon (check all relevant boxes): -multiple choices reply- 5a) In case you consider that Key Performance Indicators (KPIs) would be useful, would you think that they should be (check all relevant boxes): -multiple choices reply- Principles Key Performance Indicators (KPIs) Other General for all economic sectors Sector specific 5b) Please indicate which indicators you would consider to be the most relevant for all economic sectors: - open reply- To 5a) EFFAS beliefs that that should be a minimum number of general KPIs for all sectors and a series of sector specific KPIs. Our aforementioned standard KPIs for ESG 3.0 follows exactly this approach and provides an instant instrument companies to invest in-oriented nonfinancial reporting. KPIs for ESG 3.0 contains aspects and KPIs to be reported which were defined with a focus on corporate risk and also corporate opportunities. All aspects and KPIs contained in the EFF A standard were validated in a due process with users in Europe i.e. investment professionals so that EFFAS KPIs can be considered as both relevant and material. Rather than aiming for an exhaustive list of KPIs for all potential aspects stakeholders require companies to disclose we would want to seek an entry-level into nonfinancial reporting which aims for a wide universe of companies which all applied the same standards instead of high granular data. In other words we are looking for a process which through time helps to build up a consistent pool of data. To 5b) EFFAS recommends that the Commission follow industry classification schemes used in banking, credit lending and investing such as e.g. Stoxx Industry Classification Benchmark (ICB)***. The classification scheme should be sufficiently granular to both capture specific aspects of an industry group and yet allow for clustering and aggregation of specific industries. Ideally, the classification scheme would be identical with those instruments in use in the banking, credit lending, and investment industries. EFFAS have applied the ICB for the specific reason that this instrument was designed to help build indices an asset management products.**** --- *** The sector classification scheme can be read at: **** Work available at : Other, please specify: -open reply- To 5. Please see our answers on question 3. We would like to point out that from our perspective only the combination principles, rules and KPIs will safeguard that extra-financial information can and will be used for investment decisions. 6. In your opinion, what should be the process to identify relevant principles and/or indicators (whether general or sector-specific)? In replying to this question, please comment on whether the Commission should endorse or make reference to any existing international frameworks (or a part of them), such as Global Reporting Initiati (GRI), UN Global Compact, the OECD Guidelines, ISO 26000, or other frameworks; or whether companie should be required to select relevant indicators together with their investors and other stakeholders an to disclose information according to such indicators, depending on the use that different stakeholders would make of such information. EFFAS applied a strict validation process for the identification of KPIs in KPIs for ESG 3.0. However, EFFAS also acknowledge that nonfinancial disclosure frameworks typically need to cater for the needs of many stakeholders. It is important to point out that the EFFAS KPIs for ESG has been designed for users in financial markets. While we believe t our standard can and will also satisfy the needs of other stakeholders, albeit partially, we would recommend that the Commission create high-level group which would work on defining a framework for the identification of KPIs for several stakeholder groups. Organizations and initiatives which have relevant work on nonfinancials KPIs are e.g. - Internation a Corporate Governance Network (ICGN) on principle-based non-financial reporting; - The Global Reporting Initiative - the non-financial corporate disclosure guidelines; - OECD on the Guidelines for Multinational Companies; - UN Global Compa regarding the ten principles in the areas of human rights, labour, the environment and anti-corruption. - EFFAS ESG Commission and DVFA 7. In your opinion, should companies be required to disclose the steps they take to fulfill the corporate responsibility to respect human rights? -single choice reply- 8. In your opinion, should companies be required to disclose the risks they face

4 Page 4 of 5 and the policies they have in the field of corruption and bribery? -single choice reply- 9. In your opinion, what companies should be required to disclose nonfinancial information (check only one box)? -single choice reply- 10. In your opinion, should institutional investors be subject to specific or additional disclosure requirements, for example to disclose whether and how they take into account environmental and social issues in their investment decisions? -single choice reply- Medium-sized & Large companies (listed and non-listed) In replying to this question, please provide information on which issues seem to be the most relevant an why; and which institutional investors should be subject to such an obligation. To 9. EFFAS considers that the scope of mandatory nonfinancial reporting should be applied primarily to medium-sized large companies, both listed and non- listed. We would like to point out that stock listed companies do not read presen the majority of companies in Europe. As is typical for stock listed companies they have to comply with certain transparency regulations and a well-defined process for disclosing company performance data. However, given the curr market situation, especially the price-increase in credit lending companies are confronted with, all over Europe current there is a strong increase of small and midsize companies issuing corporate bonds. As an asset class corporate bonds are ubiquitous in investment portfolios. From our perspective there is no reason why companies issuing corporate bonds sho not comply to the same standard as those companies being stock listed. Additionally, in the last five years we have observed that large sized companies and multinationals are to an increasing extent demanding that suppliers comply wi their governance, human rights, environmental and social policies. Typically, suppliers have to respond to questionnaire similar to those in use by sustainability rating agencies. A mandatory, but in dimension appropriate entry-level into nonfinancial reporting will especially help small to midsized companies in business with large corporations to manage th fulfillment of disclosure requirements vis-à-vis their large clients. To 10. EFFAS believes that investors should be requir to disclose how nonfinancial information published by companies is used for investment decisions. 11. In your opinion, should European policy promote the concept of "integrated reporting"? Integrated reporting refers to a report that integrates the company's key financial and non-financial information to show the relationship between financial and non-financial performance (environmental, social, and governance). -single choice reply- In replying to this question, please indicate the advantages and disadvantages of an integrated report, well as possible specific costs of integrated reporting. EFFAS strongly supports the concept of integrated reporting which we consider as one of the most important concept for the inclusion of nonfinancials in investment decisions, rating, and commercial lending. Jointly with other European initiatives we have expressed this view in the March 2010 European Combined Reporting Alliance position paper.***** Th position paper was submitted jointly by Eurosif, EFFAS, the European Laboratory: Valuing non-financial performance, th Prince s Accounting for Sustainability Project, Railpen, and WICI Europe. EFFAS is also involved in the International Integrated Reporting Committee (IIRC) which has been set up to create a global framework for integrated reporting. Members to IIRC include both standardsetters from the domain of financial reporting and nonfinancial reporting such as IASB, FASB (US-GAAP), Accounting for Sustainability, GRI, FEE, EFFAS and others. EFFAS has been a Founding member of WICI, the world's business reporting network, aiming at developing a more comprehensive business reporting framework as well as new measures of a company's business performance specified for issues of human and intellectual capital. EF would also like to point out that while the work of IIRC may be considered pivotal to the creation of a new corporate reporting regime results to be expected from IIRC will not solve the issue of the inclusion of nonfinancial data reflecting

5 Page 5 of 5 risks into investment decisions. Here, EFFAS is dedicated to the ongoing process of informing and training the individua members of EFFAS member societies on how to integrate ESG, Intellectual Capital aspects and other important nonfinancial data into investment analysis and decision-making. --- ***** Position paper available at: In your opinion, should disclosed nonfinancial information be audited by external auditors? -single choice reply- In replying to this question please provide any evidence you may have regarding costs of auditing nonfinancial information, as well as your views on other possible forms of independent reviews besides external auditing. EFFAS considers external evaluation and auditing of disclosed nonfinancial information as a conditio sine qua non for th inclusion of this information into investment analysis and decision-making. In most markets financial reports have to mandatorily undergo the process of external auditing. The process of auditing which leads to the SIPC Clint definition o an audit opinion is typically considered by investment professionals as the proof of the integrity and compliance of companies with financial reporting standards. We consider an equivalent process essential for the integration of nonfinancial information into investment decisions. We would also like to point out that regulation on Management Commentary as has been established in some markets e.g. in Germany under the directive DRS15 of the German financi accounting standard setter DRSC already contains prescriptions on nonfinancial aspects to be disclosed as part of the annual report of the company. As annual reports in Germany have to receive auditing nonfinancial data already are subject to the auditing process. 13. If you have relevant documents you want to share with us, please attach them here. -multiple choices reply- PRINT EXPORT RECORD