kpmg Creating Value Through Reporting and Assurance Maria Sillanpää KPMG Sustainability Advisory Services The Copenhagen Centre Conference June Copenhagen

kpmg C C O O R R P P O O R R A A T T I I O O N N S S T T R R A A N N S S N N A A T T I I O O N N A A L L environmental protection How to Maintain ‘Licence to Operate’, Succeed and Continuously Add Value in a Rapidly Changing World globalisation knowledge economy governance advocacy/NGO pressure investor expectations employee expectations non-renewable resources non-renewable resources regulatory changes media scrutiny Why Reporting? human rights/equity

kpmg FTSE 100 Companies Reporting on Social Issues (beyond statutory disclosure) FTSE 100 Companies* by sector: SectorNo. of Companies Resources4 Utilities11 General Industrial12 Consumer Goods11 Services38 Financials & Investment Trusts22 *Only 98 companies included in study Reporting Trends

kpmg The Changing Nature of Reporting Old economy (now)  Focus on financial performance  Narrow OFR  Resistance to corporate governance statements  “Splatter gun” approach to additional reporting New economy (the future) – stakeholder approach  Focus on a broader range of performance measures  Holistic, integrated reports  Financial reports relegated to a “sheet anchor”; prime purpose now custodial

kpmg New Economy Reporting Drivers  Information needs of broad range of stakeholders on corporate impacts and behaviour  An increasing focus on the importance of governance and the ‘triple bottom line’ accountability of the management team; and  A growing awareness amongst analysts and investors that there is a much broader range of drivers of value than those currently reported on

kpmg A Vision for the Future  Widespread reporting of social and environmental performance  Increased integration of corporate reports to give an integrated performance report  Web reporting, probably increasingly taking place in real time  A requirement for attestation of non-financial information  A non-financial reporting standard

kpmg New economy reporting: Rear-view mirror and crystal ball Measurement Standards, Codes, Guidelines Learning Innovation Target setting Continuous improvement  Added value perspective

kpmg “Audits are needed when accountability can no longer be sustained by informal relations of trust alone but must be formalised, made visible and subject to independent validation.” Audit Explosion, M. Power 16 Future Implications? “Only 15 % of British people trust multinationals to be honest and fair.” MORI The debate means companies are reluctant to participate. This implies that there is innate distrust in businesses to report reliably

kpmg “The objective of an assurance engagement is for a professional accountant to evaluate a subject matter (data, systems and processes, behaviour) that is the responsibility of another party using identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter.” IFAC The solution – assurance?

kpmg Traditional financial audit Who?  Single auditor What?  Finance  Data accuracy  Management systems  Report assertions How?  Legally defined standards Emerging ‘sustainability audit’ Who?  Alliances What?  Dimensions of sustainability  Data accuracy  Management systems  Report assertions  Performance  Methodology and scope How?  Many different standards guiding different aspects  Stakeholder perspectives on priorities The Changing Face of Audits

kpmg Traditional financial audit Time frame  Focus on the past Public outcome  One limited, legally defined opinion Audience  Primarily shareholders Contents  Single report Credibility  Status of accounting profession Emerging ‘sustainability audit’ Time frame  Towards understanding past, present and future Public outcome  Number of statements, opinions and views Audience  Broad range of stakeholders Contents  Possibly multiple reports including development status Credibility  No single acknowledged profession embracing reputational, technical and auditing skills The Changing Face of Audits

kpmg Traditional financial audit Engagement  Shareholders, analyst, (employees) post-report Emerging ‘sustainability audit’ Engagement  All significant groups in the assurance process itself  ‘stakeholder inclusive’ The Changing Face of Audits

kpmg Corporate sustainability report Stakeholder engagements standard Performance and systems standards Audit standards Reporting standards Modelling Reporting and Assurance Domains for Standard Development

kpmg  Innovation has mostly been driven by companies  Innovation mostly via alliances  Multi-sector alliances bring credibility  Innovators influence standards Should I Wait for Standards?