RIO+20 - the investors perspective

Last week, in the footsteps of the Rio +20 conference the International Corporate Governance Network ((ICGN) and the UN Principles for Responsible Investment (PRI) held their respective annual conferences back to back. Paragraph 47 and its implications for investors triggered a lot of debate.

Monday’s open meeting of the Integrated Business Reporting Committee of the ICGN was very well attended. The Committee, on behalf of the ICGN, had written to the G77 Ministers to encourage them to support the adoption of (an earlier version of) Paragraph 47 recognising the benefits that it could bring to developing countries. Equally, the great attendance at the break-out session on Integrated Reporting during the main ICGN Conference was testimony to the interest that the topic generates. Asked upfront to vote on the question whether Integrated Reporting should be a priority for global investors, 70% agreed that integrated reporting is vital to sustainable risk-adjusted returns, 18% disagreed and believed that there are other priorities, and 12% were undecided feeling that the jury is still out. The prevailing view was that it would be counterproductive to dictate to companies what they need to report as this would obviate the need for Boards to think. The Board’s own thinking of what is essential to their companies’ ability to create and sustain value is what one wants to see disclosed.

On the sidelines of the UN PRI Conference some members of the Investor Network of the IIRC took the opportunity to meet in person and continue the review of key elements of the IR framework. Everyone agreed that greater transparency on the business model would affect one’s investment decision-making. For the analysis of existing integrated/ combined reports it will be important that the quality of the financial disclosures be given equal attention as that of ESG-related disclosures.

Paragraph 47 and the formation of a Government-led group of backers means that investors need to consider how best to engage with them and the supporting UN system to advance integrated reporting. Likewise the commitment by five stock exchanges (NASDAQ, Johannesburg , Egypt , Istanbul and Brazil ) to work through the World Federation of Exchanges on integrating ESG into capital markets, will give further impetus to engagement by investors with exchanges and their regulators.

There is still much confusion about the distinction between sustainability reporting and integrated reporting. From an investors’ perspective it is absolutely critical that integrated reporting is positioned firmly within the realm of value creation and in a manner that speaks to the boards and financial (reporting) departments of companies.

APG is a financial services provider in the group pension market, and offers administration, asset management, executive consultancy, and communication services for pension funds. APG administers approximately € 299 billion for these pension funds (February 2012) of more than 4.5 million (former) employees in the public and private sectors. In the Netherlands, APG administers more than 30% of all group pensions.
APG website