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

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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- Eugenia Unanyants-Jackson Governance & Sustainable Investment F&C Investments Country where your organisation / UK - United Kingdom company is located -single choice reply- Please provide the name and location of parent company Your address Exchange House Primrose Street London EC2A 2NY Your address: -open reply- eugenia.jackson@fandc.com Short description of the general activity of your organisation / company: F&C Investments (F&C) is a London-based global asset management firm with institutional and retail clients collectively representing over 164 billion of assets*. We manage funds on behalf of insurance companies, institutional investors, pension funds and private individuals. Through our Responsible Engagement Overlay service (reo ), we have also been mandated to engage and/or vote on behalf of a number of insurers, pension funds and banks whose money is managed by other parties. * As at 30 September 2010, F&C Management directly managed billion in assets. In addition, F&C has been mandated to vote and/or engage in dialogue on behalf of over 20 investment institutions whose assets total 56.7 billion. These institutions are identified in our quarterly reo reports: Is your organisation registered in the Interest Representative Register? No 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- 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

2 Page 2 of 5 grounds that such publication would harm your legitimate interests? -multiple Questionnaire 1. How would you consider the current regime of disclosure of nonfinancial information applicable in your country? -single choice reply- Sufficient 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 company. The UK company disclosure of non-financial information has improved significantly over the last few years. However, the quality of non-financial reporting produced by companies also varies significantly. In our experience, the improvements are more pronounced in annual disclosures of larger and medium-sized companies (especially those whose activities are subject to a higher level of shareholder and stakeholder scrutiny) and less so in the disclosures of smaller issuers. As an investor, we use non-financial information in the company reports to gain an understanding of the company s business, its market position, strategy, performance, prospects, and how the board and management deal with risks that are both immediate and specific to these, as well as those that are of a broader, more systemic nature. We also use non-financial reporting to inform our voting decisions and engagement with companies, including on environmental, social and governance issues. 2. Have you evaluated the effects, No and costs and benefits, of any current corporate disclosure of environmental and social information? -single choice reply- As explained in more detail under questions 4 and 6, we expect companies to disclose non-financial information that is material and relevant to the company s long-term business performance. Due to its relevance and materiality, we expect management to collect and consider such information whether or not it is reported to investors. Therefore, we would expect the costs associated with fuller disclosure to be modest, while any costs associated with upgrading the quality of inadequate internal information systems would be justified and desirable. 3. If you think that the current regime of disclosure of non-financial information should be improved, how do you suggest that this should be done? F&C supports a mandatory requirement for companies to disclose non-financial information that is material and relevant to their long-term business performance, and would welcome language encouraging the active consideration of ESG risk factors in making such assessments and disclosures. This could be done through the amendment of the Fourth Company Law Directive on annual accounts. The mandatory disclosure requirement, however, should not be overly prescriptive as regards the content of non-financial disclosures. We believe that companies should be allowed flexibility to report in a manner that they consider appropriate for the size and complexity of their business and consistent with their statutory reporting requirements as well as the needs and expectations of their investors and non-financial stakeholders. The main purpose of non-financial disclosures should be to assist investors in assessing the strategy adopted by the company and the potential for this strategy to succeed over the long term. We would especially like to emphasise the need for forward-looking reporting to avoid being boiler-plate if it is genuinely to deliver meaningful improvements. Furthermore, investors should be able to challenge the company information if it not sufficiently robust or does not serve the aforementioned purpose. A requirement to disclose material non-financial information to investors should apply to all companies. Many small and medium-sized companies operate in high-impact sectors and/or emerging markets, which can expose them to significant non-financial risks. Investment in such companies carries higher risk and investors would benefit significantly from better disclosure. However, we do believe that non-financial reporting should be proportionate to the size and complexity of the business, and that the application of the principle of relevance and materiality over both the short and long term would help to avoid an unjustified increase in the reporting burden for companies. 4. In your opinion, should companies be required to disclose the following (check all relevant boxes): -multiple Whether or not they have a CSR policy, and if they do, how they implement that policy and what the results have been The principal business risks and opportunities arising from social and environmental issues, and how they are taken into account in

3 Page 3 of 5 company 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 company (e.g.: stakeholder dialogue); environmental policies (e.g.: energy efficiency, waste reduction); and innovation (e.g.: R&D expenditure). From an investor s perspective, the key to high-quality non-financial reporting is the long-term materiality of the issues that are included in the company reports. At the moment, many companies produce long backwardlooking reports about their corporate social responsibility (CSR) activities instead of providing forward-looking strategic information about key environmental and social issues affecting their business. To be useful for investors, the issues covered in company reports should be relevant and material to the company s performance over both the near and long term; it should be clear how they are integrated into corporate strategy. Companies should distil strategic goals and objectives, the drivers of, and main challenges to, performance, and key risks and opportunities (current and potential) for inclusion in the non-financial report, thus making it more focused and tailored to the needs of investors. One area of particular challenge, but of increasingly recognised value to investors in the wake of the global financial crisis is an assessment of the broader risks and value drivers (including those related to social and environmental factors) that could affect not only the integrity of the business in particular, but of the industry sector, and indeed economic system in which it operates more broadly. A discussion of secular trends in regulation, customer demand and public opinion and how this is expected to drive business performance should therefore be an important component of the company reports. The information on environmental matters (including both the impact of the company on the environment and of environmental factors on the business), on employees, and on social and community issues can be a very important and useful part of the company report, but only to the extent that these issues are material to the company s business, performance and implementation of its strategies, as considered in both the near and long term. We note that materiality depends on time-horizon; it is, therefore, important that the company provide an explanation of how the board defines what is material for the company and what the company s forwardlooking time horizon is. This has particular relevance to the assessment of unconventional risk factors such environmental and social ones whose materiality may be evidenced over longer time horizons. F&C expects companies to report KPIs for all material financial and non-financial matters, including disclosure of actual performance against these KPIs for the year under review as well as targets set for the following year and beyond. Some companies already report very well on this, but unfortunately they are small in number. Companies should be able to manage the depth and comprehensiveness of disclosure on specific ESG risk factors on the basis of the materiality of these factors and the specific information requirements of their investors and non-financial stakeholders. We believe that companies should aim to make their reports to investors shorter, more meaningful and user-friendly by removing boiler-plate statements and ideally using the company s website to provide additional disclosure that may be of interest to a broader spectrum of company stakeholders. 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 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) General for all economic sectors Sector specific 5b) Please indicate which indicators you would consider to be the most relevant for all economic sectors: Please see Question 6 for a detailed explanation of our position on Key Performance Indicators (KPIs). We consider that indicators related to ethical business conduct, including anti-corruption; the management of conflicts of interest; and the existence, governance, board oversight and results dissemination of whistleblower protection systems to be relevant for all economic sectors. 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 Initiative (GRI), UN Global Compact, the OECD Guidelines, ISO 26000, or other frameworks; or whether companies should be required to select relevant indicators together with their investors and other stakeholders and to disclose information according to such indicators, depending on

4 Page 4 of 5 the use that different stakeholders would make of such information. F&C believes that a EU measure on reporting of non-financial information should be predominantly principlesbased, so as to maximise flexibility for companies to report in a manner that they consider appropriate for the size and complexity of their business as well as the needs and expectations of their investors and other stakeholders. It would also allow best practice to flourish by encouraging companies to tailor their reporting to the specific circumstances that affect their business, and to follow a course of continuous improvement rather than one of compliance. However, we do recognise the positive contribution that some degree of regulatory compulsion can make, particularly in instances when the dominant standard of corporate reporting fails to keep pace with the expectations of investors and the broader stakeholder base. For this reason, we would encourage the Commission to consider the introduction of selected KPIs (e.g. covering management of risks related to EHS, GHG emissions, water, public health impacts, biodiversity, supply chains, human rights, etc), appropriately targeted to relevant sectors and geographical exposure, with a view to establishing a floor or minimum level of acceptable practice above which companies are encouraged to report in line with good and best practice while applying the principle of relevance and materiality. In view of the existence of a number of international frameworks in the field of social and environmental disclosure, we would suggest that the European Commission use the established body of thinking to identify high-level principles and KPIs. We would like to draw the Commission s attention to the ICGN Guidance on Non-financial Business Reporting, which, in our opinion, offers clear and well-balanced guidance for non-financial reporting from a shareowner and investor perspective. In order to avoid duplication of pre-existing work in this area and maximise the credibility and acceptance of the standards to be developed we suggest that: (i) The European Commission s DG Internal Market and Services identify high-level principles and KPIs on the basis of existing frameworks (i.e. ICGN, GRI, UNCG, OECD Guidelines, ISO 26000, etc); (ii) The proposed principles/kpis be subject to investor/stakeholder consultation (a series of informal workshops and face-to-face meetings with different stakeholder groups could be held alongside the consultation process to enable better understanding by Commission staff of the perspectives of different stakeholders); (iii) The feedback from the consultation be used to finalise such principles. 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- While respect and protection of human rights is a responsibility of all businesses, we would expect detailed disclosure of steps taken to prevent breaches of human rights by companies that may be vulnerable to risks related to human rights abuse due to the nature or geography of their operations or other company-specific factors. Our view therefore is that such disclosure should be required for companies that are genuinely exposed to such risks, but not imposed across the board, as this would result in statements of limited value. 8. In your opinion, should companies be required to disclose the risks they face and the policies they have in the field of corruption and bribery? -single choice reply- Disclosure on bribery and corruption, including policies, systems and procedures employed to ensure ethical corporate behaviour is a key issue that is often missing from reports of European companies. The risk arising from companies failure to implement adequate and effective anti-corruption measures has increased significantly over the past few years. This makes reporting on the steps taken by the board and management to assess corruption risk and establish adequate processes and procedures for compliance with anti-corruption legislation in the countries that the company has business links with an essential element of the non-financial reporting. Moreover, all companies should be subject to a requirement to report on the existence, governance and results generated by their whistleblower protection system. 9. In your opinion, what companies All listed & non-listed companies (Small, Medium & Large) 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-

5 Page 5 of 5 In replying to this question, please provide information on which issues seem to be the most relevant and why; and which institutional investors should be subject to such an obligation. While it would be impractical for institutional investors to disclose such information in respect of all individual investee companies, we agree that institutional investors should disclose their policy on and overall approach to identifying material ESG issues and factoring them into investment decisions as a part of a standard business process. We believe that institutional investors should also be encouraged to disclose their approach to voting and engagement with investee companies as well as their voting record. 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, as well as possible specific costs of integrated reporting. F&C is supportive of the work undertaken by the International Integrated Reporting Committee and would welcome the promotion of the concept of integrated reporting at the EU level. We would also urge the Commission, in an environment of escalating carbon prices, to pay special attention to the need for developing a formal carbon accounting methodology that would capture the performance of affiliated companies in consolidated company accounts. 12. In your opinion, should disclosed No non-financial 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 non-financial information, as well as your views on other possible forms of independent reviews besides external auditing. It is considered to be best practice to seek an independent assurance statement for those areas of non-financial disclosure that are not audited/verified by the external auditor. We note that an increasing number of companies exposed to material environmental and social risks seek independent verification of the environmental and social data provided in their annual and/or sustainability reports. While we do not believe that there should be a legal requirement for all companies to have non-financial information audited or independently verified, we would encourage the Commission to consider a best practice recommendation for companies to seek independent verification of non-financial information where non-financial risks are material. 13. If you have relevant documents you want to share with us, please attach them here. (optional) -multiple PRINT EXPORT RECORD