The FINANCIAL — Human rights is firmly on the agenda as a global business issue. A clear majority of CR reports now acknowledge the issue of human rights: around three quarters of the N100 (73 percent) and nine out of ten (90 percent) in the G250, according to KPMG survey results.
However, the lack of a public human rights policy at many companies suggests there is still work to do, and only a minority of businesses are yet prepared to align themselves publicly with the UN Guiding Principles on Business & Human Rights.
Linking carbon targets to the global climate goal
A solid majority of reports from the world’s largest companies (G250) now disclose targets to cut their carbon emissions: the percentage in 2017 stands at 67%.
Yet, most of these firms do not relate their own targets to the climate goals being set by national governments, regional authorities or the UN, such as The Paris Agreement which commits countries to limit global warming to well below 2°C.
Reporting integration is the new normal and “non- financial” is the new financial
There was a time when corporate responsibility information was considered strictly “non-financial” and not relevant to include in annual financial reports. The corporate responsibility report as we know it today was born from those beliefs. But times are changing.
As KPMG survey shows, more than three quarters of the world’s largest 250 companies now include at least some “non-financial” information in their annual financial reports. And where the largest firms lead, others inevitably follow. We can also see that some countries appear to be enthusiastically adopting the concept of integrated financial and “non-financial” reporting, in many cases nudged along by regulation or stock exchange guidelines.
Furthermore, the conventional lines between “financial” and “non-financial” are not only beginning to blur, but in some examples are breaking down completely. It’s important to note that the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) apply to the disclosure of climate risk in annual financial reports not in corporate responsibility reports.
Companies will be expected to be transparent not only about their own performance on these topics, but also about the financial risks and opportunities they face from them and the likely effects on the business’s value creation in both the short and long term.
Traditional corporate responsibility reporting has focused on reporting statistics such as how many cubic meters of water a company has saved, how many tons of carbon it has reduced or how many employees it has sent on training programs. Such statistics increasingly lack real meaning without information on context and impact. The future of corporate responsibility reporting is all about communicating impact, not statistics.
Financial stakeholders – including investors, lenders and insurers – need to know what impacts your business is having on society and the environment, and how this could impact your business performance in the future. They want to see that you understand these impacts and to understand what your business response is. For example, is your company taking action that reduces risks, unlocks opportunities or builds capacity for future value creation?
In the responsible investment space, impact investing is a growth area that will increase pressure on companies to disclose their impacts on society in a measurable and comparable way.
The UN’s Sustainable Development Goals (SDGs) are fueling demands for impact data. As this survey highlights, simply linking corporate responsibility activity thematically to the SDGs is not enough. People want to know how companies are contributing to achieving the goals and what the actual impact of those positive contributions is. Similarly, they want to know how company activities are exacerbating the challenges the SDGs seek to solve, and what that negative impact is in real terms. It is not just civil society and NGOs that want this information, we are seeing a number of large institutional investors exploring how they can align their investment approaches with the SDGs. Such investment strategies will inevitably require impact disclosure from business.
The trend for large companies to include CR information in their annual financial reports continues to grow.
The vast majority (78 percent) of the world’s top companies (G250) now do this, indicating that they believe CR data is relevant for their investors. The practice has shown remarkable growth in recent years: in KPMG’s 2011 survey only a minority 44 percent of G250 companies included CR data in their annual reports.
Among the N100, the underlying trend is also one of growth, with the rate of companies including CR data in their annual reports up to 60 percent in 2017.
There has been a particularly significant increase in the number of US N100 companies integrating CR information into their financial reporting – 81 of the top 100 US companies now do this compared with only 30 just two years ago in 2015. (For more on this trend see page 23).
Taiwan, France, South Africa, US and Canada lead the world
There are five countries where a majority of the top 100 companies already acknowledge climate change as a financial risk in their annual financial reports. They are: Taiwan (88 companies), France (76 companies), South Africa (61 companies), US (53 companies) and Canada (52 companies).
Taiwan: the Taiwanese Stock Exchange (TWSE) listing requirements and newly introduced Stewardship Principles for Institutional Investors have likely contributed to the high rates in Taiwan.
France: a 2015 amendment to the Energy Transition for Green Growth law has required investors to disclose how they integrate climate considerations into their investment policies, their climate-related financial risk, the greenhouse gas (GHG) implications of their investments and how they contribute to meeting French and international climate objectives. This has likely had a knock-on effect on the number of French companies acknowledging climate risk in their financial reporting.
South Africa: climate change impacts have been high on the business agenda as severe droughts have affected the country in recent years. The South African government is also consulting on introducing a carbon tax as part of its response to The Paris Agreement, which – if passed – is expected to impact companies in the Mining, Utilities and Chemicals sectors in particular.
Canada: many of Canada’s largest companies operate in climate impacted sectors such as Oil & Gas, Mining and Forestry & Paper. Also, many of the country’s largest pension funds have lent their support to the TCFD recommendations.
US: US Securities & Exchange Commission (SEC) regulation requires disclosure related to climate change in SEC filings. US corporate culture is also focused on efficient management and avoidance of risk in order to prevent charges of negligence and potential litigation. Some of the US’s largest investors