© Bob Massie 2011

To Tell The Truth:Combining Corporate Financial and

Sustainability Reporting on a Global Scale

Robert Kinloch MassieSenior Fellow

Initiative for Responsible InvestmentHauser Center for Nonprofit Organizations

March 8, 2011

Bob Massie 2011

Outline“web page presentation”

1. Brief history of environmental and sustainability reporting

2. Movement towards integrated reporting3. Current status of international work4. Relevance to work of IRI5. Implications and Discussion

Bob Massie 2011

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

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

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

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

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

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

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

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

…or that sustainability does not serve financial goals?

• Material value hidden in “non-financial” informationo 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

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

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 pieceso Description of desired end stateo Business case for Integrated Reportingo “Proposed elements” (structure)

• Working hard to prepare for Steering Committee meeting in NYC in May

Bob Massie 2011

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

Discussion: Will integrated reporting lead to a new way to

understand “capital” and “investment”?

• Multiple forms of capitalo Financialo Socialo Natural o 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?