Sustainability reporting: A contrarian’s viewpoint Lynn Patterson Director, Corporate Responsibility RBC lynn.e.patterson@rbc.com 416-974-1381

Source: Corporate Register The facts Everybody’s doing it. 5000 companies worldwide producing reports. In the United States, out of the S&P 100 companies: 86 have corporate sustainability Web sites, a 48 percent increase from 58 in 2005 - 49 produced a sustainability report in 2007, up 26 percent from 39 in 2005 - 41 incorporates GRI standards, an 71 percent increase from 24 in 2005 - 34 include a GRI Index in their report, up 70 percent from 20 in 2005 BUT IT’S STILL LARGELY VOLUNTARY: The CICA’s October 2005 Discussion Brief, MD&A Disclosure about the Financial Impact of Climate Change and Other Environmental Issues, pointed out that certain environmental (and social) disclosures are already required by securities regulators’ rules and, therefore, are, in fact, mandatory where likely to be material to investors. In 2008, the Ontario Securities Commission published OSC Staff Notice 51-716, a targeted review of environmental disclosure of 35 Ontario-based reporting issuers from the TSX (63 per cent) and the TSX Venture (37 per cent) exchanges. The review examined disclosure in issuers’ annual financial statements, annual management’s discussion & analysis (MD&A), annual information form (AIF), if applicable, and the issuers’ websites. In UK, all companies must adhere to the OFR (Operating and Financial Review) Source: Corporate Register CR Reporting Awards ‘08 March 2009

Why report?

Stakeholders say they want to hear about: human rights 61.4 energy/eco-efficiency 61.0 health and safety 60.4 climate protection 59.4 environmental policy 58.8 environmental management of the production process 58.8 corporate governance 56.8 standards in developing countries 56.6 avoiding soil and water contamination 53.9 environmental management system 53.9 bribery and corruption 52.7 51.1 supply chain standards for social issues 34.5 corporate citizenship Source: Pleon

Transitioning from “a report” to “reporting” Ad hoc Annual Report Marketing Vehicles CR Report/Review CR or sustainability website Responses to SRI analysts

RBC’s reporting suite

…plus a ‘create your own’ option

So…what to include? Issues that are relevant to your business (common sense) GRI indicators (menu approach) Areas of interest identified on SRI surveys Competitive scan (financial services) Input from stakeholders Report rankers (CERES, Stratos) Content of award-winning reporters (UK, Brazil, Canada, US) Current events (trends, scandals, media campaigns etc.) Codes of conduct or voluntary commitments your company has signed (UN Global Compact)

Example: CERES/ACCA

RBC’s reporting cycle Spring Summer Fall Winter

RBC reporting strengths and weaknesses Readable style Consistent structure year over year 3-year comparative data Discussion of issues that are relevant to the business Good mix of formats for various audiences Few or no targets No external verification Lack of specific information about risk, liabilities and exposure within our investments arm (carbon etc). Lacking specific detail on CR governance (such as job titles (!) Too much good news We’re not a great sustainability reporter, and have no aspirations to win prizes for our reporting. Although we did

Impact “goodwill bank” already in place with employees.Timing: at end of financial services meltdown. RBC’s share price increasing, market cap, safety and stability…reassuring employees Employee feedback NGO feedback Interbrand Brand Study : RBC continues to reign as king of the Canadian financial services brands, led by Gord Nixon, who was awarded Outstanding CEO of the Year in 2007 by Caldwell Partners. RBC keeps growing in Canada through balancing its commitment to existing clients with increased outreach efforts to secure relationships with new Canadians, and now must increase marketing efforts to support its expansion strategy in the cluttered US market. RBC wins on market penetration and supports it with local community involvement and corporate social responsibility successes. It recently announced the Blue Water Project that will secure water resources into the future, was cited as Canada’s top corporate citizen in 2007 and has been recognized as one of the top 100 sustainable companies in the world.

Reality Check

Are these your target audiences? Who’s reading CR reports? CR Consultants Corporate CR Professionals Students Academics Are these your target audiences?

How attentive are readers?

How easy are reports to read?

Who has a vested interest?

Who’s making money? 1. Surveys 2. Results pre-packaged and sold 3. “Seals of Approval” used for company PR 4. Desire for increased disclosure

Is CR content really ‘material’? “Whatever else emerges from this crisis at the heart of our financial system, a total overhaul in the content and presentation of company annual reports is now due. [B&B’s Corporate Responsibility report was 28 pages long] … 7 times longer than the coverage given to risk management and control. And here we find top-notch twaddle: deep layers of low-grade corporate mince that is now routinely served up by the bucketful in annual reports.” Bill Jamieson, Upon reading the Bradford & Bingley 2007 Annual Report From The Scotsman The 2007 Annual Report and Accounts from Bradford & Bingley this year is a classic of how company disclosure has come to tick all the boxes of corporate governance - yet utterly fails to relay the risks in the business and the threats to its model. You would hardly guess much was wrong at Bradford & Bingley. This is the end result of years of corporate governance campaigning, countless reports and recommendations, layer upon layer of irrelevant disclosure heaped upon page after page of useless information - company accounts have ceased to be focused on the financial state of the business, but have come to obscure the points that really matter: balance sheet strength; exposure to risk and financial performance and prospects. No-one can complain that Bradford & Bingley did not have an impressive monitoring and reporting structure. "The Directors confirm that they are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future." After this comes a six-page section on corporate social responsibility. And here we find top-notch twaddle: deep layers of low-grade corporate mince that is now routinely served up by the bucketful in annual reports to appease minority lobbyists, whistle-blowers, green campaigners, health and safety naggers, axe grinders, loony tunes, malcontents and others who have made it all but impossible for the public to tell the wood from this wasted forest of trees. Has it not occurred to them that the corporate social responsibility that matters for a business is staying in business; that the fact of business endeavour and survival is of itself social responsibility? Extensive reports range across employment practices in relation to human rights standards; the group's "staff culture and values" programme; a staff satisfaction survey; manager training modules; diversity and equality analysis, community economic development in Bradford; flexible working policies; staff "induction loops" at branches; health and safety management; involvement in Bradford regeneration plans; and environmental impact performance. Phew! And in case your eye-balls have wilted in exhaustion, the final paragraph tells you that this is just a summary and that the full Corporate Responsibility Report is posted on the website. Is there any wonder Bradford & Bingley lost the plot? This entire twaddle, this flight from sense, this travesty of an annual report and accounts was signed off as a true and fair view of the group's affairs by no less than KPMG. Call it what you will. But don't ever dare to call it Corporate Social Responsibility.

Reporting does not = performance

5 Best Practices

1. Focus Alcan 8

2. Report targets and performance This could also be called materiality….but there are some schools of thought that if something is truly material, it needs to be disclosed to the markets and shareholders ASAP, or at least included in proxy circular, MD&A or… Stakeholders can help determine what is relevant for a company to disclose. Companies don’t always know this. (McCain Foods example…) Most companies would say that stakeholder engagement is a critical part of determining what is relevant to report…I’m of two minds on that.

3. Drill down on key issues This could also be called materiality….but there are some schools of thought that if something is truly material, it needs to be disclosed to the markets and shareholders ASAP, or at least included in proxy circular, MD&A or… Stakeholders can help determine what is relevant for a company to disclose. Companies don’t always know this. (McCain Foods example…) Most companies would say that stakeholder engagement is a critical part of determining what is relevant to report…I’m of two minds on that.

4. Consistency for comparability Whether or not companies are reporting according to GRI, we are all tending to report in the same categories: E S G Or ‘people/planet/profit”. Also sector supplements.

4b. Consistency across media

5. Opportunities for conversation Approximately 3,000 companies are planning to publish a sustainability report in 2008, but only a quarter of these companies want to have their report independently audited, according to a study by CorporateRegister.com, a global online portal for CSR and sustainability reporting. In addition, the study, “Assure View – The CSR Assurance Statement Report”, gives an overview of the market for independent assurance of CSR and sustainability reports. “While CSR reporting has become a basic business expectation, the majority of CSR reports are not independently assured. There is confusion as to which of the many assurance approaches provides the most credibility and certainty. Some standards and guidelines are emerging, but these are far from being accepted across the board.” A UN commissioned study written by the Global Public Policy Institute, a Berlin based think tank, believes that by 2020, barely one in ten multinationals will be producing sustainability reports. Mainstream analysts are not asking about the info generally covered in CR reports, and there is no hard data that a company that produces a report actually performs better than one that doesn’t. The quality of a company’s report does not reflect its actual sustainability or share performance.

Director, Corporate Responsibility Lynn Patterson Director, Corporate Responsibility RBC lynn.e.patterson@rbc.com 416-974-1381 RECAP Stakeholders say they want reports Reports are useful for Internal performance management Reports can be useful to SRI community Reports can be content for other communications But: X Stakeholders don’t read reports carefully X Information is too detailed or not detailed enough leading to multiple formats and inefficiency. X Standards like GRI make reports unintelligible to a lay- reader X Hard to maintain a business case for reporting resources A UN commissioned study written by the Global Public Policy Institute, a Berlin based think tank, believes that by 2020, barely one in ten multinationals will be producing sustainability reports.