Using the SDGs to unlock shareholder value

BNP Paribas organizes inaugural Sustainable Future Forum in Singapore

It was a star-studded affair. To emphasize the bank’s recognition of the importance of the United Nations’ Sustainable Development Goals, BNP Paribas organized a one-day conference in Singapore on October 27. Keynote speakers included Ms Cherie Blair, CBE, Founder of the Cherie Blair Foundation for Women and tennis legend Chris Evert. (The forum coincided with the BNP sponsored WTA Finals Singapore tournament.)

The main theme of the event was the need for private sector capital to finance the USD 5-7 trillion required annually to reach the SDG’s ambitious targets. The importance of green bonds in this context was emphasized by Dr. Yanick Glemarec, Assistant Secretary General of UN Women. The bonds’ lower cost of capital and longer tenure makes them ideal for financing projects that defy the still prevailing logic of short-term returns on investments.

The event was particularly effective at emphasizing that significant work still needs to be done to achieve SDG 5: Gender equality and empowerment of all women and girls. Referencing the World Economic Forum’s new Release of the World Economic Forum’s ‘The Global Gender Gap Report’ 2016, Ms. Blair stated it is “simply unacceptable” that it will be another 170 years before women can participate equally in the economy.

Pointing to a growing body of studies by, among others, McKinsey and the World Economic Forum that have proven how gender diversity of boards “makes for better decisions” and stronger companies, she called for corporate leaders to have at least 30% women on their boards[1]. Addressing institutional investors and their need for better returns, she suggested they demand better than today’s “pale, male and stale” boards.

Elliott Harris, Assistant Secretary General , United Nations Environment Programme reinforced and broadened the event’s scope when he stated that “anyone who wants to make money in the next 10-15 years has to take sustainability issues into consideration”.

A message that was driven home further by Pep Canadell, Global Carbon Project and Tessa Tennant at SynTao: At 2015 rates of emissions, the global carbon budget for staying below 1.5°C will be used up in only 4 years. Meanwhile, the gap between corporate commitments to date and CO2 reductions required to meet even just a 2°C goal is still more than 3Gt annually.

In return, the resulting climate change will be having a significant negative impact on those same corporations. Andreas Schaffer, Avalerion Capital presented on the findings of a joint study by Avalerion and BNP Paribas that basically leaves companies (and by extension investors) with a simple choice: Accept higher regulatory impact through appropriate pricing of carbon now and collectively avoid the worst impacts of climate change, or save in the short term and see a much larger decline in profits by 2025 with a corresponding decline in share values.

Moving on to commodities, a panel of experts including the World Bank, Lendlease and the United Nations Environment Program discussed how the financial sector has an important role to play in making sustainability viable. Examples included longer tenure financing for farmers to transform their models to sustainable models such as agroforestry, as well as public private partnerships enabling consumers to make sustainable choices by absorbing the premium that is often required to produce agricultural commodities sustainably.

Overall, the forum successfully demonstrated two main points:

  • The Sustainability Development Goals can only be successful if significant private sector capital is mobilized.
  • The required funds are available and investment mechanisms exist to ensure they get used sustainably.

On a side-note, it was good to see that for once event logistics were in sync with its topic: Instead of paper brochures, a rack with QR coded browsing copies allowed delegates to get their copies electronically and reusable glass bottles with tap water were provided on the tables in the conference room.

We hope that BNP will consider making this an annual event and we are looking forward to the next Sustainable Future Forum.

[1] For a demonstration of how deeply the idea of male dominated boards is rooted in our society, Ms. Blair suggested searching for images on Google using the term “CEO“. In our test, there are indeed only two results depicting female CEOs in the first 40 images returned – and one of them is ‘CEO Barbie’.

Release of the World Economic Forum’s ‘The Global Gender Gap Report’ 2016

The Global Gender Gap

The World Economic Forum’s latest report on the Global Gender Gap was released on 26th October 2016, featuring a host of new insights into the state of gender equality across the world. The report has been released annually since 2006 with the aim “to create global awareness of the challenges posed by gender gap and the opportunities created by reducing them.”[1] Covering over 144 countries, the report utilises over a decade’s worth of data to paint a rich picture of the divides between men and women. The report focuses on four key areas deemed to be most important to the gender divide:

  • Health and survival – outcomes on life expectancy and sex ratio
  • Educational attainment – access to basic and higher level education
  • Economic participation and opportunity – equality of salaries, participation levels and access to high-skilled employment
  • Political empowerment – representation in decision-making institutions

 

By assessing these four areas, the index measures gender equality and a helps to determine a country’s progress over time. Ultimately, the report aims to develop a clear picture of how countries are dividing resources and opportunities between men and women, regardless of the relative levels of these resources.

 

The main observations from the 2016 report on the 4 key areas can be summarised as follows:

  • Educational attainment – the gender gap in this area has closed to 95%, meaning an increase of nearly 1% since 2015 and its highest recorded value. The World Economic Forum predicts that that educational parity can be achieved within just 10 years.
  • Health and survival – this area has also improved in 2016, with the gap closing to 96%. It has been impossible to predict when this gap might fully close.
  • Economic participation – the economic gap has widened last year and now only 59% of the gap is closed. The Forum forecasts that equality in this area will not be achieved until 2196.
  • Political empowerment – this area is showing a slow but steady improvement. Although the cap is only 23% closed at the moment, it has narrowed by 9% in the last decade. It is predicted that this will be fully closed before the end of the century.

The report also reveals a number of other important trends. Women around the world are currently earning around half of what men earn despite the fact they are working longer hours. Women’s participation in the labour force is also currently only at 54% (against 81% for men); this is linked to the recognition that only 4 countries are recorded as having an equal number of male and female legislators, senior officials and managers. Nevertheless, the gaps in gender equality are improving slowly but surely each year. With current trends, the Forum predicts that the overall global gender gap can be closed in 83 years across the 107 countries covered since its inception.

 

And for Singapore? In their 2016 report Singapore ranks at #55 in the global ranking and #5 in the East Asia and the Pacific table. The weakest areas stand out as educational attainment, health & survival and political empowerment, with Singapore not ranking higher than 95 globally in each of these areas. Yet in terms of economic participation and opportunity, Singapore stands strongly at #17. Singapore boasts some of the highest levels of wage equality measured by the Forum. However, the results point to a general separation of women in both the educational and political spheres, and a remarkably low female-to-male birth ratio (0.935) compared to global averages. Meanwhile, the wider Asia region has shown the fastest global rate of change and gap reduction, with a closing of the gender gap in the region projected within 46 years.

 

For more information and insight, The Global Gender Gap Report can be accessed here: https://www.weforum.org/reports/the-global-gender-gap-report-2016/

[1] The Global Gender Gap Report 2016 pg. 3 – http://www3.weforum.org/docs/GGGR16/WEF_Global_Gender_Gap_Report_2016.pdf

Credible. Simple. Sustainability Reporting.

Let these four words live and breathe together.

 

“From complexity comes stress, anxiety and frustration – even rage – followed by apathy and exit. But you do not have to be a victim any more.”

Edward de Bono, Philosopher

 

Companies are increasingly looking at planning their Sustainability Reporting to comply with SGX Sustainability Reporting Guidelines. Many are integrating sustainability risk management into the business.

Such work, coupled with the process of preparing a Report, can help meet investor analysts’ needs, showcase the forward looking approach of management and improve access to finance. The work you put in will also help preserve your license to operate, save costs, attract and retain talent, create innovation and lead to new markets. A bunch of companies recently shared their views on this at a free Paia breakfast briefing.

But what if your customers and investors are expecting a response to sustainability and you don’t have one?

You need to get started.

  1. First, list who your stakeholders are. These are people and groups who, (i) are affected by your organisation, and (ii) who affect you. Decide how you wish to engage with them, if you’re not already (eg customers and suppliers will likely be sharing views on certain issues already).
  2. Then list ESG issues – Environmental, Social and Governance risks and opportunities. Keep it a deliberately long list. Even if your business is a holdings company for example there will be ESG issues to consider.
  3. Then, with the help of a small specialist advisory firm, use a couple of processes and techniques to filter out what matters; and then develop a sustainability report on it.

Wider sustainability risks may be new to your commercial and governance teams. If so, a credible approach to dealing with them is to understand what matters, and to whom. There are hundreds of risks, many with perhaps only marginal relevance to you. A credible approach uses tried and tested techniques (eg, materiality). The stakeholder list is used in such work.

“Credible” need not mean complex. Having seen various approaches to sustainability management and reporting over the last 20 years, we at Paia want companies to embrace sustainability as part of doing business, but in a straight forward manner. “Simple” means clarity, understanding, engagement. Depth and reach can come later. And government, regulatory, investment and other institutional stakeholders encourage baby-steps first, to encourage uptake.

To make sure life remains simple you will need to plan. So, as we said in June, you will benefit from an early start on tasks such as issues prioritisation, resourcing, policy development, content management, design etc. As I write it’s September: this is ‘Kick-off’ month for most. Don’t leave it to the 11th hour!

Some of you may be wary of targets and how to use them in sustainability management practice. If, for example, you’re listed on SGX then take heart: SGX rules allow targets to be qualitative. So that allows for simplicity. At first. As part of a phased approach to corporate sustainability programmes and reporting you’d be wise to talk with your stakeholders on what targets and KPIs would be appropriate. Paia is experienced in this.

Keep it simple, feasible, manageable. Plan it, lay the foundations, set targets, ensure an efficient project, make sure the output is credible and benefits your business.

 

Alex Nichols

Sept 2016

 

Start my next Sustainability Report now??

We thought hard before posting this – it sounds a bit like shameless business development when we advise businesses to start reporting early. And 10 months early, too?!

But, allow me to forge ahead!

The dust has barely settled on the last report and it’s time to begin planning the next. Why?

  1. Engage your colleagues. Starting early will reduce the headaches from colleagues claiming they were not aware of what was expected of them. Data and information collection is a big part of the Content Management stages of a Sustainability Report.

    A big enemy in the Reporting battlefield is uncooperative colleagues. Just when you thought that data was secured and on its way, the contact over in HR says the new Enterprise Management Software sprang a leak and they need to re-do it.

    Just when you thought you could talk about that supply chain initiative as a core part of a section in your report, the legal team pipe up that it’s embargoed for a legal reason.

    If you align with the Annual Report calendar then you will be pleased if your timeline is relaxed, rather than squeezed. If you get squeezed later in the project then your families and consultants will be affected too! Best avoided!

    Keeping the internal network alive is a real boon to reporting. Better cooperation, better content.

  1. Enough time to do materiality. Most reporters are by now bruised by the ‘materiality stick’ wielded by consultants around the world. It’s not without good reason though. Applying this core principle of reporting is vital to an effective Report delivered in line with target audience expectations.

    Don’t forget all you SGX listed companies in Singapore: you will need to explain how you came up with the list of relevant issues to talk about in your Report.

  1. Save costs. I would say that wouldn’t I!? Well, the logical outcome from doing materiality well is normally a shorter report. That saves resources internally – who wants to waste time organising data for a report when it’s not relevant? You may still collect it internally because you’re managing the issue internally – but it may not be sufficiently ‘material’ to be covered in the sustainability report.

    Being organised in what you want to achieve with the report, what content you expect, how many words it will be etc., will mean clarity in resourcing. Failing to plan is planning to fail (my old lecturer used to say).

  1. Content management. Again, sequentially and logically, once you know the key relevant subjects (or ‘topics’ in new GRI-speak) you will want to talk to the colleagues you have communicated with (see above).

    Check who is on maternity leave, or on holiday. See if any staffing changes are on the horizon. What about assets – any changes to think about in terms of company structure or operational assets?

    As scrutiny increases of supply chain management practices, you may need to think through how to collect management approach information on slightly newer issues of interest.

  1. Sort imagery. A report with a staid and tired look using repeated photography will lose credibility. Readers are human and they like to be inspired to open your report when the alternative is catching up with the latest fast cars on YouTube or kiddy bargains on Ebay.

    So, by embarking early you can knock off a few of those slightly fiddly design tasks. Check in with marketing and communications colleagues about any new developments in branding at your company.

    Sorting the design early will mean your Report will work harder for you – you will feel enamoured by it and want to take it with you wherever you go. The romance will blossom and you will feel that you and your Report will go far!

Ok, good luck, and you know where we are if you need any help!

Putting gender on the agenda for sustainability reporting: some thoughts

By Supriti Bezbaruah.

Gender equality is not just the right thing to do, it also makes good business sense: gender diversity improves the performance of organisations. For example, a study by McKinsey & Company in 2013 found that companies with higher representation of women on executive committees had 47 percent higher return on equity (ROE) on average.

One of the first steps towards gender equality should be gender reporting, for companies to get a clear picture of where they currently stand. Even for well-meaning companies, gender reporting uncovers unconscious biases in operating practices. Companies increasingly recognise the need for gender reporting, but they struggle to convert this into practice. The main challenge companies face in producing meaningful gender reports is deciding what, and how much, to report.
At present, all companies following the Global Reporting Initiative’s (GRI) G4 guidelines should report the total workforce and total number of employees by gender (G4-10). Other than this, only those gender-related indicators that are most material (or most relevant) to the company need to be reported. The gender composition of the workforce provides only a partial picture of gender equality, so companies should also consider including the following indicators and information:

Ratio of basic salary and remuneration of women to men by employment category, by significant locations of operations (G4-LA13): since many countries, including Singapore, India and China have ratified the International Labour Organization’s (ILO) Equal Remuneration Convention, 1951 (no 100).
Composition of governance bodies and breakdown of employees per employee category by gender (G4-38 and G4-LA12): to indicate whether women are adequately represented at all levels of the company, and are not just clustered at the junior levels.
Total number and rates of new employee hires and employee turnover by gender (G4-LA1): to demonstrate the company’s commitment to recruiting women; and to assess if women drop out of the workforce in greater numbers than men as they face pressures to balance family with work.
Details about parental leave, including number of employees who took parental leave, and the number who returned to work after parental leave ended, by gender (G4-LA3)
Details of company provision of flexi-work arrangements: to display the employer’s commitment to enable employees to balance work and family commitments.
Average hours of training per year per employee, by gender (G4-LA9): as lack of adequate training can prevent women entering senior management levels.
Gender equality issues can also extend beyond the workplace. For instance, for electronics manufacturing companies or financial companies with call centres located in developing countries, the majority of workers at the end of their supply chain are usually women. Companies are encouraged to report on how they promote gender equality in their supply chains, for example, through incorporating gender criteria into their procurement policies.

In presenting this information, companies, especially multinational companies (MNCs) must consider the impact of the context, sectoral and cultural in which they operate. It may be helpful for companies to supplement the numerical indicators with some explanatory context. For example, to explain the gender distribution of their employees, Marquard and Bahls note that the oil and energy sector is male-dominated. To take another example, a company in Japan may have few female employees, because of strong traditional views on women, reflected in the low female participation in the labour force in general. Similarly, in India, research shows that the under-representation of women in sales positions in banking was less due to discriminatory conduct by the bank, but because family constraints on travel and long hours prevented women from taking up such positions. Cultural expectations to prioritise family over career can also be used to explain the under-representation of women in senior management positions in Asia.

But, culture should not be used as an excuse for companies to avoid addressing gender issues in the workplace. As the world becomes increasingly globalised, companies can, through actively endorsing gender equality, change mindsets and challenge biases. Consistent and comprehensive gender reporting will serve as a continual reminder of the progress that still needs to be made.
This article provides a review of the basic elements of gender reporting. In the next article, we will discuss ways in which companies can manage unconscious bias in the workplace.

Gender reporting: a checklist for companies
• Assess how gender may be relevant for each material aspect identified: even if gender is not explicitly mentioned, is there any way by which the company’s policy affects men and women differently, as employees, clients, suppliers or consumers? For example, a real estate company that includes occupational health and safety among its material issues may focus on issues such as work-related injuries and fatalities. However, if the gender aspect is included, work-related safety will also include issues such as: are the factory/construction grounds adequately well-lit at night for female employees or visitors to safely walk around? Are there separate female and male toilets? Another example is when a marketing company may be advertising its products, it needs to consider how this influences its consumers. Does the advertising and marketing consider how women are portrayed? Is this done in a culturally sensitive manner?

• Analyse the context in which the company operates: Is the sector male or female dominated? Are there local cultural biases that hamper women’s career advancement?

• Identify how the company is complying with gender-related national and international legislation: Does the country in which the company operates have legislation on parental leave or discrimination? What international conventions have been ratified by the country in which the company is based?

• For multi-country operations, decide how to report performance: does the company want to provide overall global data on gender, or a breakdown by region/country?

• Make a list of the agreements the company has signed, for example, the Women’s Empowerment Principles, or the Employer’s Pledge for the Tripartite Alliance for Fair & Progressive Employment Practices (TAFEP) in Singapore: what are the obligations under these agreements?

Note: Some of these guidelines are based on the following report: UN Women and UN Global Compact. 2014. Women’s Empowerment Principles: Reporting on Progress. Available online at: http://weprinciples.org/files/attachments/WEPs_Reporting_Guidance_G4_Sept2014pdf.pdf

What is the difference between Sustainability Reporting & Integrated Reporting?

With the recent Singapore Exchange (SGX) consultation on its proposed “comply or explain” regulation to Sustainability Reporting, and an increasing number of companies locally producing Sustainability Reports, we felt there’s a need to clarify the difference between Sustainability Reporting and Integrated Reporting.

Sustainability Reporting is about communicating the organisation’s approach to managing its key environmental and social issues.  It is about communicating publicly how the company assesses which environmental and social issues are most significant to the company (“materiality”), how these issues are managed and how the company is performing against each of these key issues (performance data).  At Paia, we approach these issues as business risks, and opportunities.  Climate change, talent retention and employee diversity, for example, can pose both risks and opportunities for companies, so it is about communicating how the organisation is identifying and managing these risks and opportunities.

Integrated reporting is one step further – about communicating, how the company manages its long term value creation by taking an integrated approach to both traditional risks and these wider sustainability risks. Instead of reporting on financial performance and sustainability performance separately, or even within the same AR, Integrated Reporting intends to show how the company integrates environmental & social thinking into its business.

So for example, an integrated report goes beyond financial, employee, environmental and social data, to also demonstrate how the company integrates these broader risks and opportunities into its long term strategy, into its risk management, into operating policies and procedures, and what the trade offs between these issues are.

This means Integrated reporting pulls together information that sits in separate reporting strands to explain how the firm creates value. In the Singapore context, these reporting strands will include the i) Corporate Governance Statement, ii) Operating and Financial Review, iii) Financial Statements and more recently, iv) Sustainability Reporting.

“Sustainability reporting relates to one important aspect of a company’s performance, without which an integrated report would be incomplete.”

– Ian Ball, International Integrated Reporting Council (IIRC) Board member & Principal Advisor and ex-CEO of International Federation of Accountants (IFAC)

In Singapore, and the region, it is often the sustainability reporting which is the weakest link to integrated reporting.  Many companies in this region are only just beginning to develop their sustainability reporting practices.

So should companies just leapfrog to Integrated Reporting, and bypass Sustainability Reporting?  Companies don’t necessarially need to publish sustainability reports, but they do need to put in place the sustainability fundamentals, for which GRI provides clear guidance.  Paia’s experience of having worked with over 25 companies in Southeast Asia on both their sustainability and/or integrated reporting programmes, has taught us that it is fundamental for companies starting out in their reporting journeys to firstly identify what their key environmental and social risks and opportunities are, create management programmes to manage these risks and maximise the opportunities and develop KPIs to track environmental and social performance.  These are the fundamentals of sustainability reporting.

It takes time

To embed these systems takes a couple of years.  It takes time for companies to really grasp the business benefits of sustainability and develop appropriate systems to manage these risks in a way that is appropriate for the individual company.  It is only then that companies are ready to embrace integrated thinking and integrated reporting in a meaningful way.

We are a great supporter of integrated thinking; that has always been our approach.  We’ve had the please of working closely with many clients to integrate environmental and social risks into their ERMs, business strategy, policies, procedures and contract agreements, and this experience has taught us that it takes time to achieve this integration, as it requires some level of change management – for example to include environmental and social risks within business investment decisions.

Conclusion: get the sustainability part right first

Sustainability reporting tends to be the part of Integrated Reporting that Southeast Asian companies are weakest one, hence we recommend companies take time to embed sustainability, before proceeding to Integrated Reporting.

 

Carrie Johnson

Director

Paia Consulting Pte Ltd

 

21 May 2015

What Accountants need to know about Integrated Reporting: An Asian Perspective

Paia presented a paper on Integrated Reporting at GRI Regional Conference held in Melbourne on 26-28 March 2012.

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