KPIs for ESG - DVFA

The company must ensure complete, transparent, continual and up-to-date ESG reporting that contains the most
important ESG-KPIs.
The information, data, processes and assigned competencies required for the preparation of ESG reports should be
recorded, analysed, documented and disclosed in such a way that they would stand up to an internal and external
audit or review. An independent audit by well-qualified third parties is a particularly good way to increase the
assurance capability (i.e. perceived reliability) of the reported ESG-KPIs. This also serves to ensure the credibility and
acceptance of ESG communication among the target groups. As a rule, external auditing carries the additional
advantage that ESG reporting and ESG management can be improved based on the best practices referred to by the
auditor.
For any recommendation other than these, corporates should generally align ESG reporting with all other reporting to
the capital markets.
The IASCF’s technical summary entitled “Framework for the Preparation and Presentation of Financial Statements” 4
may serve as a guideline for underlying principles of user-oriented reporting. Although the IASCF document makes
suggestions about financial statements only, the recommendations can also be applied to ESG data:
“Qualitative characteristics are the attributes that make the information provided in financial statements useful to
users. The four principal qualitative characteristics are understandability, relevance, reliability and comparability.” 5
2. Disclosure and reporting on ESG line items
Section 2.2 (Plausibility) of the DVFA Principles for Effective Financial Communication explains that
“Company reports should be consistent and plausible. Financial information should be quantified and
sufficiently documented.” 6
Quantification and documentation are also the most essential criteria relating to ESG data for investment
professionals!
Before looking at the concept of key performance indicators (KPIs), however, it is important to understand the format
in which the quantifiable data should be delivered.
First of all, the following recommendation on plausibility quoted from the DVFA principles can be easily adapted to
ESG data:
2.2.2 The method used for the calculation of reported figures is disclosed.
2.2.3 Segment reporting adequately represents the company, its lines of business and geographical
distribution.
2.2.4 The structure of reports as well as the content and scope of data included is only changed in justified
cases.
Section 3.1. (Continuity and Recentness) continues by recommending the following principles:
3.1.1 Time series are consistent over time.
3.1.2 Changes to already defined segments are only made in justified exceptional cases.
4
http://www.iasb.org/NR/rdonlyres/
E366C162-17E4-4FBE-80EB-7A506A615138/0/Framework.pdf
26 February 2008
5
ibid, page 1
6
ibid, page 12
© DVFA April 2010 ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, recording, without the prior permission of the copyright holder.
8