Corporate Sustainability Disclosure in Emerging Markets

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Corporate Sustainability Disclosure Practices in Emerging MarketsVII. Annex: EMDP Investor Statement on Sustainability Reporting inEmerging MarketsA. Statement (Published in June 2008)Introduction: Global institutional investors representing more than $960 billion in assetsunder management encourage companies in emerging markets to provide betterinformation on their management of environmental, social, and corporate governance (ESG)issues. Often called “sustainability reporting”, such information can help investorsdetermine which companies are best positioned to deliver strong long-term investmentperformance.Companies increasingly understand that effective management of sustainability challengesand opportunities can contribute directly to financial success by:• Allowing companies to reach a broader range of investors• Achieving greater operational efficiency• Improving enterprise-wide risk management• Making more strategic capital expenditures decisions• Enhancing customer loyalty and developing new customers• Improving brand positioning• Developing market leadershipHowever, in order for such actions to be properly valued by financial markets, companiesmust disclose information about their ESG programs and the progress made toward meetingspecific ESG business objectives. For this reason, over 2,300 global companies, includingmore than half of the global Fortune 250, issued sustainability reports in 2006, according toCoporateRegister.com.Sustainability disclosure in emerging markets: As the role of emerging market companiesin the global economy increases, so do investor expectations for these companies. Emergingmarkets represent important investment areas, but a lack of transparency can hamperpotential investment. Specifically, investors often do not have enough information on themanner in which companies in emerging markets have assessed and responded to risks andopportunities related to sustainability issues—and how these risks and opportunities mightaffect future financial performance and valuation.In particular the signatories of this statement encourage all companies to enhancetransparency by working towards:• Providing regularly updated ESG disclosure in financial reports or in specializedsustainability reports, focusing on the most material business risks andopportunities.• Setting clear goals and disclosing progress towards meeting targets.• Utilizing the Global Reporting Initiative (GRI) framework in preparing their reports. Ata minimum, we recommend that companies list exactly which GRI indicators areaddressed in their reports as part of a “GRI Index.”28 - Copyright © 2009 Social Investment Forum, Washington, DC
Corporate Sustainability Disclosure Practices in Emerging Markets• Continually improving reporting based on feedback from key stakeholder groups,including both financial stakeholders and non-financial stakeholders, such asemployees, customers, and relevant community and civil society groups.Why sustainability reporting: Disclosing environmental and social performance data iscritical to investors for evaluating:• Financial health and risk management, as this information augments financialanalysis by indicating material risks and potential liabilities that are often overlookedby general accounting standards.• Management quality, as ESG issues management can be used as a proxy for strongcorporate governance and serve as an indicator of a company’s overall managementquality.• Competitive positioning, as firms in emerging markets are increasingly competingglobally and will be assessed according to their ability to comply with evolvinginternational standards such as the European Union’s Restriction of Use of certainHazardous Substances Directive (RoHS) and the Waste Electrical and ElectronicEquipment Directive (WEEE) regulations.• In addition, home country standards are changing quickly and creating opportunitiesfor companies with forward looking environmental and labor policies and programsto distinguish themselves.• Growth potential, as there is a large and growing body of evidence indicating thatcompanies that are pro-active environmental stewards, responsive corporatecitizens, and strong employers, are more likely to create long-term shareholdervalue.Why the GRI: We urge companies to use the GRI Sustainability Reporting Guidelines(“Guidelines”) to inform company reporting, and in so doing, increase the credibility,comparability, and utility of their reporting efforts. A GRI-based report also serves as astrong “Communication on Progress” for corporate signatories of the Global Compact.The Global Reporting Initiative (www.globalreporting.org) is an international organizationdeveloped by businesses working with a broad base of global organizations. The GRIprovides guidance on sustainability reporting process and content through the GRIGuidelines, a flexible reporting system that allows companies to focus on the issues mostrelevant to company operations. More than 1,000 organizations globally currently use theGRI Guidelines in developing their sustainability reporting. A recent report by theSustainable Investment Research Analyst Network (SIRAN) showed that 27 percent of largeemerging market companies in three sectors now reference GRI in their public sustainabilityreporting.Conclusion: This group of signatories believes that the next generation of leadingcompanies will distinguish themselves through their commitment to sustainability, asdemonstrated through robust sustainability reporting, and will be correspondingly rewardedby the market.December 2009 - 29
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