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Questions Addressed, Questions Remaining:

October 8, 2013

The ES&G Accountability Forum provided participants and panelists with an opportunity to examine the

question of how information (both financial and non-financial) can best be provided in a form that is

useful to decision makers that are affected by, or have an affect on Canada’s companies.

This document captures key points made by panelists, their answers to questions posed, and the Forum’s

participants’ table discussions. It is organized around each panel: investors, companies, evaluation

organizations. We hope to encourage all groups to consider the advice and comments discussed at the

Forum, and to take action on the outstanding questions and issues to improve the state of ES&G

disclosure, analysis and investing that are highlighted on pages 9 & 10.

Prologue

The pre-forum briefing presented the perspectives, challenges and influences of investors, companies

and evaluation organizations on ES&G disclosure and analysis.

Without a doubt, external influences on companies have increased awareness of the importance and

value of accountability and transparency.

A general lack of trust between providers (i.e., companies) and consumers of ES&G information

indicates that companies need to find ways to provide evidence that their information is credible. Showing

strong links between ES&G and the overall corporate strategy can help instill credibility. Involving the

board, auditors, stakeholders, and employees can further enhance credibility.

Notes from the Calgary ES&G Accountability Forum

Why are we Asking

Questions?

Stakeholders are asking

companies to explain

how they provide value

and how they mitigate

negative outcomes and

impacts on society.

Investors and evaluation

organizations request

information from

companies on

governance structure

and processes,

sustainability

performance (economic,

environmental, and

social dimensions),

management practices

to mitigate risk and

capitalize on

opportunities, and more.

This type of information

is often conveyed in a

corporate social

responsibility (CSR) or

sustainability report. The

role that the information

in these reports plays in

stakeholder decision-

making is unclear. If the

objective is to maximize

readership and impact of

corporate sustainability

information, then a

dialogue among parties

could lead to improved

communication and

utility.

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Publicly traded companies target investment firms as key stakeholders for financial and non-financial information, but it is

clear that beyond the sustainable investment community, investors are not robustly considering this information in their

investment decisions.

Although evaluation organizations have similar missions of motivating improved performance and increased transparency,

each evaluation organization attempts to differentiate itself from the others to fill a unique market need.

This desire for uniqueness results in “customized” questionnaires. Thus, in addition to producing its annual sustainability

report, companies receive numerous requests for detailed information on their operations and policies each year. Companies

selectively choose which requests they respond to, perhaps around ten. Even answering this number of requests requires

considerable dedicated resources.

Evaluation organizations have full information about their methodologies, whereas users of the evaluations have less. These

organizations do not always reveal sufficient detail about their methodologies for surveyed companies to interpret

questionnaire queries, or for investors to adequately interpret output information.

How do we make this situation better for all actors?

Setting the Stage: Highlights from Matthew Kiernan’s Keynote Address

There are challenges for all parties. Corporate reporters struggle to make a single report satisfy

diverse stakeholders. Priorities should be established.

Don’t be discouraged! Sustainability reporting is roughly 500 years younger than financial reporting

and already at least as illuminating.

Push back against applying tougher standards for sustainability reports than for mainstream financial

ones. Remember that traditional financial reports can capture only 15-20% of companies’ true risk

profiles and value potential. Sustainability reports can shed valuable light on the remaining 80-85%.

Sustainability reporting reform efforts should be focused on making investors want to use the reports.

In practice, this means focusing more on the ES&G factors with direct financial and competitive materiality.

Eschew the maxim: better to fail conventionally than to succeed unconventionally.

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Investment Firms

Q: How do you use the information from companies and evaluation organizations in your decision-making? Is it useful?

A: Responses ranged from “it is an integral part of our decision process because it is all about risk” to “we

do not use the information because it is not reliable.” Those using ES&G criteria claimed that their

investments garnered higher long-term risk-adjusted returns and sustainable value for shareholders. Those

not using company sustainability reports and evaluations gather information from other third-party reports.

Q: What critical information should companies disclose?

A:

Risks related to social and environmental issues.

Characteristics of the management team.

A materiality matrix or text that demonstrates that executives, management, and stakeholders have

had a discussion on materiality and are reporting on material aspects.

Data restatements and limitations. (It’s done all the time in annual reports.)

Details on who reviewed the report internally, e.g., a disclosure or board committee, internal audit.

Q: Does disclosure drive improved performance?

A: Disclosure, or more accurately, the lack of it, often leads to engagement between investors and companies. Engagement has

proven effective in initiating change, e.g., improved disclosure and performance on executive compensation, climate change,

aboriginal relations. Investors are not out to embarrass companies. They want to see them succeed. Investors want more dialogue

with management to better understand the companies’ strategies on ES&G.

“For the most part,

our industry is

ES&G illiterate.”

“There is no

systematic way to

measure actual risk

being managed with

ESG.”

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Recommendations from Investors to:

Investors Companies Evaluation Organizations

Learn how to read ES&G information, and to determine what features in the sustainability report and governance characteristics within the company makes the information more credible.

Get your CEO involved and show in your report that your sustainability initiatives are aligned with your financial objectives and competitive advantage.

To drive change, provide feedback to companies on how they can improve performance.

Meet with companies and ask how their ES&G performance relates to risk and future profitability.

Link your reporting to your major risks and business opportunities, and show how your initiatives contribute to risk reduction and/or opportunity creation.

Provide more transparency regarding methodologies used.

Do not assume all investors are the same – acknowledge that some do care about the long term.

Have the CEO discuss the greatest challenges and successes in both the financial and sustainability reports.

Explain how your evaluations are unique.

Just because some of the information may not be verifiable does not mean that it is all useless.

Use external assurance, but along with the standard assurance statement include recommendations from the auditor’s letter to management and explain how the company is responding.

Provide more context to numbers.

Try to reassure us that your information is credible and can be used in making investment decisions.

Transition to a new business model, as the traditional model does not work under today’s conditions.

Adapt terminology used so investors see that CSR issues are a part of the real business, that we are talking about the same things.

Make it authentic – give it to us straight.

Just focus on the investors that do care.

What Does the Research Say?

A Deutsche Bank review (2012) of more than 100 academic studies on sustainable investing found that 100% of the studies agree that companies with superior ESG performance have a lower cost of capital; 89% showed superior stock performance; and 85% showed superior profitability.

A SustainAbility (2012) survey of more than 20 analysts and portfolio managers found that 88% of the respondents “sometimes,”

“often,” or “always” use governance information in their decisions, and 78% use environmental or social information.

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Companies

Q: Is the sustainability report a sufficiently comprehensive document to be used as input for evaluation organizations and the investment community?

A: No. Because sustainability reports are increasingly focusing on material issues, some less material

information that evaluation organizations are still looking for should be disclosed elsewhere. Information

users should also look at the annual financial report and related filings, and the company website.

Q: What are the challenges of reporting and interacting with evaluation organizations and investors?

A: Significant resources go into preparing reports, answering surveys, and interacting with investors and

evaluation organizations. It results in a lot of scrambling to compile information. Frustration lies in the

uncertainty of whether or not recipients read or use the reports, re-disclosing information made available

through other means, and lack of preparation about the specific company by the evaluating organization

before requesting information. Surveys are becoming increasingly granular and companies would like to

know how that granularity helps investors make better investment decisions.

Q: What is your take on integrated reporting?

A: Integrated reporting is a noble pursuit, but the logistics are difficult. There are concerns that CSR will receive minor coverage in an

integrated report. Readers should be able to read about corporate performance—financial and non-financial—in one report. However,

an integrated report is not a combined report where the two are slapped together; the CSR message needs to be integrated

throughout and truly support the overall message of success.

“We are trying to

satisfy two masters:

the investment

community and the

rating agencies.”

“A CSR report

should be part of

driving continual

improvement and a

long-term strategy.”

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Recommendations from Companies to:

Investors Companies Evaluation Organizations

Engage us on material issues; ask questions about ES&G.

Provide investors with ES&G-specific briefings. Provide feedback to companies on why they received the rating that they did.

Determine one dimension of sustainability or governance that you can drill down on to have a meaningful discussion with us.

Determine how sustainability and sustainability information actually help your business and explain that to readers.

Be willing to enter into a dialogue about how ES&G is incorporated internally.

Give us an indication that the information is being used.

Identify the organizations to which you will supply information to get the most value.

Give more detail on how you want the information.

Join a company's materiality assessment workshop to provide insights and learn of the company’s approach.

Work with internal and external stakeholders to determine materiality and to balance diverse opinions on what should be reported.

Tailor more sector-specific questions to our asset mix.

Work with reporting standard-setting organizations to provide consistent guidelines and converge on what should be reported.

Get more people involved in the reporting process: employees, internal and external audit, and stakeholder panels.

Do not rate “did not respond” the same as “does not have”; there are other reasons for non-disclosure.

Use the report to identify internal efficiencies, and to affect employee behaviour.

Provide feedback to companies on the areas needing the greatest improvement.

Have a disclosure strategy; don’t try to meet everybody’s needs.

Work with investors and companies to determine what information is material and focus on the most material issues, making the reporting process more efficient and relevant.

Educate your investor relations people to handle more ES&G information requests.

Add rigour to your non-financial database.

What Does the Research Say?

The initiation of voluntary disclosure of sustainability activities reduced a company’s cost of equity capital and attracted

dedicated institutional investors and analyst coverage. First reporting companies raised more equity capital than did other

firms (Dhaliwal, Li Tsang and Yang (2011).

Reporting quality varies across industries and companies. Herremans and Nazari (2012) found that the following reporting

qualities lead to higher credibility in reporting: clarity on corporate values of transparency and accountability; involving many

departments in the reporting; a higher level of sophistication of information systems and reporting standards; internal reviews

and external auditor assurances; stakeholder engagement through reporting.

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Evaluation Organizations

Q: Why are so many disclosure avenues necessary?

A: Although all organizations that perform evaluations have similar missions—to motivate improved

performance and increased transparency among organizations— similar to companies, each rating

organization attempts to differentiate itself from the others to fill a perceived market need.

Q: If the same information is being used to rate the same companies, why are the ratings so different?

A: Each evaluation organization might analyze each indicator differently based on how they weigh

risk or other factors. Organizations have clients that request different weights and focus. One

wouldn’t expect multiple financial analysts to come up with the same call (e.g., buy, sell, hold) when

they are using the same information for their analyses. However, some information users felt that on

basic questions (e.g., company performance on water use) there should be more predictability and

consistency in ratings.

“We are a bridge

between the

corporation and

investment industry.”

“We believe that

sustainability helps

increase the overall

performance of the

company.”

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Recommendations from Evaluation Organizations to:

Investors Companies Evaluation Organizations

To help reduce the scope of information collected, inform us on what key indicators are important in your decision-making.

Identify your material ES&G risks and opportunities and develop strategies to mitigate risk or capture opportunities; convey these strategies in your corporate documents to satisfy divergent views on what is important.

Determine if the information you need can be garnered from the sustainability report, then engage the company separately to answer any unique questions.

Join multi-stakeholder task forces to improve the ES&G reporting process so that key indicators for decision-making are provided and meet your needs.

Balance the level of risk exposure with an equal level of management commitment to mitigate the exposure.

Work with the Global Initiative for Sustainability Ratings to ensure that accurate and reliable representations of actual performance are being provided.

Work with the Global Initiative for Sustainability Ratings to help harmonize globally accepted reporting standards.

Develop your own rating systems for suppliers/contractors and engage them to ensure consistency in values and performance.

Provide evidence that the ratings are reliable.

Identify how you differ from your global peers on ES&G.

Indicate sources used to determine the rating.

Provide input to the International Integrated Report Council on the consultation draft as to how the framework can be useful to investors.

Make it easier to have direct contact with CSR staff for follow up.

Clarify to users how your evaluation system fulfills a unique market need.

Set targets.

What Does the Research Say?

Even when considering the uniqueness in each evaluation system, there is a low correlation between the ratings provided by

evaluation organizations. (Chatterji and Levine, 2008).

The credibility of evaluation organizations’ ranges from a high of 65 percent of respondents viewing the Carbon Disclosure

Project Leadership Index as credible, to 24 percent for the lowest ranking agency. Respondents felt that objectivity and

credibility of data sources, disclosure and consistency of methodology over time, and focus on material issues lead to the

greatest perception of credibility (GlobeScan/SustainAbility, 2012).

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Key Takeaways

Sustainability reporting is here to stay. All parties need to learn how to read and use the information.

Companies should link ES&G information with business strategy and value creation to make it more useful and relevant.

Stakeholders, including investors and evaluation organizations, should work with companies to identify material issues to help

streamline the reporting process.

Companies should prioritize stakeholders. You can’t please everybody.

Further education for investors, evaluation organizations, and university students on how to use ES&G information is essential.

Investor relations departments need to be further involved in responding to investor and evaluation organization requests for

ES&G information.

Companies should regard the “burden of CSR disclosure” as a real opportunity for continual improvement.

Transparency is paramount. Companies need to be transparent about all types of risk and how they manage them. Investors

need to be transparent about how they use information; and evaluation organizations need to be transparent about their

methodologies.

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Questions Remaining Unanswered

How can ES&G reporting continue to evolve to meet the demands of the current and emerging markets of the 21st century?

Is standardization of material disclosures and analysis a good thing? Is it possible to standardize ES&G disclosures along with

other information deemed relevant to decision makers?

Would standards to assess CSR performance enable straightforward company benchmarking?

If companies incorporate the recommendations from this Forum, how will investment firms know that companies have made the

information and reports more credible if they do not read the reports?

Who audits the evaluation organizations and how do we ensure that the ratings are credible?

How can companies gain the most value from an assurance exercise?

Does external assurance increase the credibility of sustainability reports in the eyes of investors?

How can it be made easier for multi-national companies to track information for their reporting, both globally and locally?

If integrated reporting is on the horizon, how can companies make the transition with as much benefit and as little pain as

possible?

Would government regulations for implementing corporate management systems help reduce companies’ risks, increase

accountability and performance, and consequently increase credibility?

How can investment firms best be informed of the connection between ES&G and financial performance?

What factors do investor firms assess when considering quality management?

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For More Information

Please see the following selected reading:

Chatterji and Levine (2008). Imitate or Differentiate? Evaluating the validity of corporate social responsibility ratings. Working paper,

Center for Responsible Business, UC Berkeley.

DB Climate Change Advisors/Deutsche Bank Group (2012). “Sustainable Investing: Establishing Long-term Value and Performance.”

Dhaliwal, Li, Tsang, and Yang (2011). “Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate

Social Responsibility Reporting.” The Accounting Review 86 (1): 59–100.

GlobeScan/SustainAbility (2012). Rate the Raters 2012: Polling the Experts.

Herremans and Nazari (2012); Strategy and Resources in the Process of CSR Reporting: A Look Inside Organizations. Working

Paper, Haskayne School of Business, University of Calgary.

Konar and Cohen (2001). “Does the Market Value Environmental Performance?” The Review of Economics and Statistics 83 (2):

281-289.

Mackey, Mackey, and Barney (2007). “Corporate Social Responsibility and Firm Performance: Investor Preferences and Corporate

Strategies.” The Academy of Management Review 32 (3): 817-835

Marshall, Brown, and Plumle (2009). “The impact of voluntary environmental disclosure quality on firm value.” Academy of

Management Proceedings: 1-6

Orlitzky, Schmidt, and Rynes (2003). “Corporate Social and Financial Performance: A Meta-analysis”, Organization Studies 24: 403-

441.

Petrovits and Radhakrishnan (2010), “Is doing good good for you? How corporate charitable contributions enhance revenue growth”,

Strategic Management Journal: 182–200.

SustainAbility (2012). Rate the Raters Phase Five: The Investor View.

Tuwaijria, Christensen, and Hughes (2004), “The relations among environmental disclosure, environmental performance, and

economic performance: a simultaneous equations approach”, Accounting, Organizations and Society 29: 447–471.

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Thank You

This report prepared by:

Mark Brownlie, Responsibility Matters Inc.

Irene Herremans, Haskayne School of Business, University of Calgary

Rosa Rivero, Responsibility Matters Inc.

Speakers: Organizing Committee:

Matthew Kiernan, Founder & Chief Executive, Inflection Point Capital

Management

Michael Yow, Lead Analyst, Corporate Knights Capital

Stephen Donofrio, Manager, CDP North America

Bob Mann, Chief Operating Officer, Sustainalytics

Samantha Sue Ping, Account Executive, ISS Corporate Services at MSCI Inc.

Jamie Bonham, Extractives Research & Engagement Manager, NEI Investments

Gary Hawton, President, OceanRock Investment

Kara Lilly, Equity Analyst, Mawer Investment Management

Patti Dolan, Financial Advisor, Raymond James Ltd.

Henry Stoch, Partner - Enterprise Risk, Sustainability & Climate Change, Deloitte

Mark Brownlie, CEO, Responsibility Matters

Dave Lye, Vice President Corporate EH&S, Encana Corporation

Craig Stenhouse, Group Lead CSR, Cenovus

Jill Carlsen, Encana Sheila Carruthers, CSR Strategies Patti Dolan, Dolan Wealth Management, Raymond James Ltd. Steven Fish, CBSR Irene Herremans, Haskayne School of Business, University of Calgary Marie Jurcevic, Enbridge MaryAnn Kenney, Enbridge Richard Roberts, The Praxis Group Stacey Schorr, Encana

Note-takers at the Forum:

Millie Adam, Adam Consulting

Jill Carlsen, Encana

Lisa Fox, Sustainability Resources Ltd.

Soonchul Hyun, University of Calgary

Marie Jurcevic, Enbridge

Jing Lu, University of Calgary

Romaine Mcleary, University of Calgary

Ana Pazmino, University of Calgary

Elizabeth Romo, University of Calgary

Stacey Schorr, Encana

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