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

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1 Page 1 of 5 Assess record for 'Disclosure of n-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- Gianfranco Gianfrate Country where your organisation / company is located -single choice reply- UK - United Kingdom Please provide the name and location of parent company Hermes Fund Managers Limited 1 Portsoken St, London, E1 8HZ Your address Hermes Fund Managers Limited 1 Portsoken St, London, E1 8HZ Your address: -open reply- g.gianfrate@hermes.co.uk Short description of the general activity of your organisation / company: Hermes Equity Ownership Services (EOS) helps institutional share owners around the world to meet their fiduciary responsibilities and become active owners of public and private companies. EOS' team of engagement and voting specialists monitors its clients' investments in companies and intervenes where necessary with the aim of improving performance. EOS' activities are based on the premise that companies with informed and involved shareholders are more likely to effectively manage risk and achieve superior long-term performance than those without. Hermes has the largest stewardship resource of any fund manager in the world. The depth and breadth of this resource reflects our philosophy that ownership activities require an integrated and skilled approach. Intervention at senior management and board director level should be carried out by individuals with the right skills and with credibility. Making realistic and realisable demands of companies, informed by significant hands-on experience of business management and strategy setting is critical to the success of our engagements. Owned by BT Pension Scheme, the UK's largest pension fund, EOS has a strong commonality of interests with the global coalition of investors it represents. Hermes and the BTPS have extensive experience of implementing the United Nations' Principles for Responsible Investment (UNPRI). EOS' Chief Executive, Colin Melvin, chaired the committee that drew up the original principles, and the current chair is a trustee of the BTPS. This insight enables EOS to help clients who wish to become signatories or have already achieved signatory status to meet the challenges of the PRI. 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.

2 Page 2 of 5 -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 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- Yes 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 company. To be clear, the rating ( poor ) reflects our general view as to the EU-wide regime. As an investor active across the continent, we take a view on Europe-wide standards. For the UK specifically, our response would be sufficient. By way of background, Hermes is one of the largest asset managers in the City of London. As part of our Equity Ownership Service (EOS), we also assist institutional investors from the UK, Europe, US, Australia and Canada to act as good owners of the companies in which they invest. As part of our services, we exercise the voting rights for our shareholdings as well as for the shareholdings of our clients (over 2010, we voted at about 3,000 General Meetings in Europe). More importantly, over 2010 we carried out over 330 corporate engagements about ESG issues in various European jurisdictions. Disclosure of non-financial issues is therefore an important tool for us in order to assess the sustainability of companies business models in the long-term. On the basis of our assessment, we are able to exercise the voting rights and to engage with companies with the aim of further engraining ESG elements in their business model, and of pushing companies towards more challenging sustainability targets where appropriate and better risk management. Having said this, we acknowledge that significant differences persist across European jurisdictions in terms of disclosure of non-financial information, but we consider the current regimes rather unsatisfactory even in the most advanced jurisdictions. This is because the quality and quantity of the information provided is very often inadequate against the needs and expectations of responsible investors (we will comment further on this point in next answers). As a consequence, in many instances, we set the improvement itself of the non-financial information disclosure as an objective of our engagements. In fact, we consider that the disclosure of such information, along the measurement and setting of targets in relation to social, ethical, and environmental factors, should be an integral part of corporate strategies and are in the interest of the ultimate long-term owners of the companies. 2. Have you evaluated the effects, Yes and costs and benefits, of any current corporate disclosure of environmental and social information? -single choice reply- In working with companies and third parties we have had many opportunities to assess the costs associated to corporate disclosure of environmental and social information. We reckon that such costs vary in entity and structure across different jurisdictions, depending on the size, industry, geographical scope of the companies and on the complexity and articulation of the businesses involved. However, we have to note that in our experience the benefits associated with a good level of disclosure of such information are greater than the costs because it ensures a fruitful dialogue and interaction with relevant stakeholders, and it attracts long-term responsible investors which are a valuable resource for companies. We also consider that a good external disclosure improves the internal culture and processes fostering the awareness and commitment of employees and directors across functions on these issues. We believe that this is true provided that the disclosure requirements are appropriately set not requiring specific details but requiring the disclosure of those nonfinancial matters which are of most relevance to the company s business model. These matters need to be managed and measured in order to run the business efficiently and effectively so that the additional cost of disclosure is minimized. There is of course a law of diminishing returns here: if the required disclosures are specific and not relevant to the business they amount to an additional unnecessary cost burden on companies and would provide no benefit to shareholders or stakeholders. We would finally like to highlight that a good level of disclosure on social and environmental factors is more a reflection of the level of integration of such

3 Page 3 of 5 issues within the overall corporate strategy than an additional effort/cost that the company should bear. Therefore, in our experience, we note that in companies where environmental and social factors are more integrated in the day-by-day operations the organizational and material cost of gathering and elaborating the related information are actually lower. 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? We consider that the current regime of disclosure of non-financial information should be improved. However, in our opinion, this objective should not be pursued by drafting and enacting new regulations but by setting general principles and by encouraging companies to adhere to them. In fact, we consider that it should be the interaction between companies and stakeholders, and specifically responsible investors, to forge and define the nature, level of granularity, timing and content of the non-financial information disclosed provided rather than a specific regulation that would not be able to capture comprehensively the information needs of the ultimate information users. 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 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). All the issues mentioned could potentially of interest for the ultimate information users. However, we do not support a mandatory framework for the content to be disclosed. On the contrary we would favour a certain degree of flexibility about the content and format of disclosed information. In particular, we consider that the tailoring of the information provided should stem from the interaction, over time, between companies and relevant stakeholders taking into account company characteristics and instances as well as the information needs of the external parties involved. 5. In your opinion, for a EU measure Principles on reporting of non-financial information to achieve materiality and comparability it should be based upon (check all relevant boxes): - multiple 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 the use that different stakeholders would make of such information. As mentioned, we consider that the improvement of non-financial disclosure should not be pursued by drafting and enacting new regulations but by setting general principles and by encouraging companies to adhere to them. We would favour an approach and measures favouring more accountability to shareholders and an open dialogue between companies and owners. While industry-specific or general KPIs may be useful in this process, especially as a tool and benchmark, we doubt that they might exhaust the possible elements and instances the companies might be wanting to communicate and/or that external parties might be wanting to know. We would encourage the EC to endorse general principles without making any references to any existing international frameworks, as we would prefer the companies to be left with a certain degree of flexibility when choosing the frameworks or reporting schemes most suitable to their specific situations. Along this line, we would lend our support to a apply-or-explain approach for non-financial disclosure. While we are supportive of the mentioned international frameworks, we would also like to signal the Carbon Disclosure Project and the Forest Footprint Disclosure Projects as frameworks of growing interest for responsible investors.

4 Page 4 of 5 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- We do not favour a mandatory regime for such information, but we would support an apply-or-explain approach to its disclosure. 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- We do not favour a mandatory regime for such information, but we would support an apply-or-explain approach to its disclosure. 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- 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. We believe that institutional investors should be encouraged, but not obliged, to disclose whether and how they take into account environmental and social issues in their decisions. We think that compliance with such disclosure standards should be on an apply-or-explain basis. In general, we have a positive stance on the recently released UK Stewardship Code and we think that a strong EC endorsed Stewardship Code or EU expectation that each member state develops its own such code - would have at least two beneficial effects: it will best encourage good corporate behaviour, and it will provide the best basis for fund manager accountability to their clients. In fact, the main public policy argument for a strong stewardship code must be that it is necessary to ensure that companies are properly accountable to their owners thereby helping them to drive better performance through more effective governance and sustainable business models. 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. We consider with interest the concept of integrated reporting but we would not favour a mandatory regime for companies to adopt such reporting scheme. We consider that companies should use the most appropriate

5 Page 5 of 5 reporting tools and framework to address the concerns and needs of both the ultimate information users and the companies themselves. Good companies will integrate relevant non-financial matters into their reporting. We believe this is incorporating reporting which we strongly welcome. Integrated reporting implies that nonfinancial factors are of equal status to the financial, which can never be the case. In general, we do not support a mandatory regime for the disclosure of non-financial information. We consider that all the companies, regardless of the nature or size, should be free to decide their own policy on such matters depending on the objectives they want to achieve, and on the stakeholders they want to interact with. 12. In your opinion, should disclosed 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. While we consider positively the auditing of non-financial information released by companies, we would not favour a mandatory audit for such information, as we fear that this process may add organizational and legal burdens for companies. We also consider that a mandatory auditing of this information may lead to a standardization and homogenization of non-financial reporting which may potentially deprive the ultimate readers of data and information of potential interest. We would welcome the auditors delivering their core job with energy and passion, not neglecting this and selling additional services. We welcome the auditors read requirement on all disclosures in the annual report (under standards such as ISA 720), but we believe that the negative assurance approach is appropriate. We would not welcome positive assurance in this area. 13. If you have relevant documents you want to share with us, please attach them here. (optional) -multiple PRINT EXPORT RECORD