INTEGRATED REPORTING AND INTERNAL AUDIT ROLE

Bruxelles November 2014

Silvio de Girolamo

Chief Audit Executive & CSR AUTOGRILL GROUP

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The importance of Integrated and Sustainability Reporting

An Overlook on Policies and Guidelines

INDEX

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Integrated Reporting Framework

and Global Reporting Initiative (G4)

EU Directive on disclosure of non financial reporting

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Internal Audit Role: possible development 5

0 Sustainability & CSR Definition

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WHY SUSTAINABILITY 0. Sustainable Development

Sustainable Development stands for meeting the needs of present generations without

jeopardizing the ability of futures generations to meet their own needs – in other

words, a better quality of life for everyone, now and for generations to come.

It offers a vision of progress that integrates immediate and longer-term objectives,

local and global action, and regards social, economic and environmental issues as

inseparable and interdependent components of human progress.

Sustainable Development

” “

EU Sustainable Development Strategy, 2006

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WHY SUSTAINABILITY

The Commission puts forward a new definition of CSR as “the

responsibility of enterprises

for their impacts on society”.

To fully meet their corporate social responsibility, enterprises

should have in place a process to integrate social,

environmental, ethical, human rights and consumer concerns

into their business operations and core strategy in close

collaboration with their stakeholders, with the aim of:

– maximising the creation of shared value for their

owners/shareholders and for their other stakeholders and

society at large;

– identifying, preventing and mitigating their possible adverse

impacts.

Corporate Social Responsibility

” “

0. Corporate Social Responsibility

A renewed EU strategy 2011-14 for Corporate Social Responsibility, 2011

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Companies are facing an increasingly complex and varied set of challenges such as demographic changes, human rights issues in the supply chain, environmental pressures, that:

• it is becoming increasingly clear that traditional financially oriented management and corporate reporting does not help investors understand and feel confident in their understanding of a company’s full range of current activities and future direction, including both its financial and non-financial aspects

• non-financial reporting offers significant benefits to organisations in terms of stakeholder engagement, reputation and risks control

• businesses more and more use sustainability reporting as a powerful tool in their decision-making as well as in their corporate policy and strategy

1.The importance of Integrated and Sustainability Reporting

WHAT’S AROUND EUROPE?

Current EU legislation, in particular, the Fourth Company Law Directive on annual accounts,

addresses the disclosure of non-financial information in a way that companies may choose to make public certain information on environmental, social and other aspects of their activities.

Over time, some Member States have introduced disclosure requirements that go beyond the

Fourth Company Law Directive.

For instance:

the UK introduced legislation in 2006 which is now being updated;

Sweden adopted legislation in 2007;

Spain in 2011;

Denmark amended its legislation in the same year;

the latest update in France dates from May 2012.

On June 2013, regulation on sustainability reporting came into force in Norway. The Norwegian

government requires large companies to provide information on how they integrate social

responsibility into their business strategies.

More information: http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm

2. An overlook on policies and guidelines

Sustainability reporting is increasingly a core topic in international forums and was

afforded unprecedented attention at the June 2012 United Nations Conference on

Sustainable Development (Rio+20). At Rio, governments agreed on the importance of corporate transparency and sustainability reporting, and that they

have a role to play in advancing it, as stressed in paragraph 47 of the outcome

document The Future We Want.

In recent years also countries like India, China, Brazil, South Africa and the US

have pioneered a number of innovative policies on sustainability disclosure.

2. An overlook on policies and guidelines

WHAT’S AROUND WORLD ?

Source: CARROTS AND STICKS – SUSTAINABILITY REPORTING POLICIES WORLDWIDE, GRI May 2013 https://www.globalreporting.org/resourcelibrary/Carrots-and-Sticks.pdf

Trends in sustainability reporting

2. An overlook on policies and guidelines

The statistics are from the Sustainability Disclosure Database and include information as at 04 April 2013. The database

includes sustainability/integrated reports that GRI is aware of through its Data Partners, the GRI Application Level Check

process, registration forms and internet searches.

Global increase of sustainability reports

2. An overlook on policies and guidelines

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3 Integrated Reporting Framework

<IR> is a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.

The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies,

standard setters, the accounting profession and NGOs.

Together, this coalition shares the view that corporate reporting needs to evolve to provide a concise

communication about how an organization’s strategy, governance, performance and prospects, in the

context of its external environment, lead to the creation of value over the short, medium and long term.

The International Integrated Reporting (<IR>) Framework is being developed to meet this need and provide

a foundation for the future.

3 Integrated Reporting Framework

AIM

The Integrated Report should enable stakeholders to assess the organization's ability to create and maintain value over the short, medium and long term.

Guiding Principles

1. Strategic focus and future orientation

2. Connectivity of information

3. Stakeholder responsiveness

4. Materiality and conciseness

5. Reliability and completeness

6. Consistency and comparability

3. Global Reporting Initiative

The Global Reporting Initiative (GRI) is a leading organization in the sustainability field.

GRI promotes the use of sustainability reporting as a way for organizations to become

more sustainable and contribute to sustainable development.

VISION

A sustainable global economy where organizations manage their economic, environmental, social and governance performance and impacts responsibly, and report transparently.

MISSION

To make sustainability reporting standard practice by providing guidance and support to organizations.

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The GRI Sustainability Reporting Guidelines are

periodically reviewed to provide the best and most up-

to-date guidance for effective sustainability reporting.

The aim of G4 is to help reporters prepare

sustainability reports that matter, contain valuable

information about the organization’s most critical

sustainability-related issues, and make such

sustainability reporting standard practice.

The GRI Reporting Guideline is intended to serve as a

generally accepted framework for reporting on an

organization’s economic, environmental, and social

performance. It is designed for use by organizations of any

size, sector, or location.

3. Global Reporting Initiative (G4)

3. Global Reporting Initiative (G4)

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MATERIALITY AND BOUNDARIES

• Required explanation of process to identify material aspects,

including involvement of stakeholders.

• Boundaries to be included in the materiality process are determined

by the significance of the impacts in the value chain.

• Required “disclosure on management approach” for each identified

material aspect.

GOVERNANCE

• Several new standard disclosures introduced related to composition,

involvement and authority of highest governance body.

• Detailed information on remuneration process, including ratio of

remuneration of the highest-paid individual to median annual total

compensation for all employees in each country with significant

operations.

SUPPLY CHAIN

• Required disclosure on the % of assessed supplier

about their economic, environmental, societal impact

and labor & human rights.

• Identification of positive & negative impacts in

supply chain and action.

• Grievance mechanisms, grievances, follow-up.

• Develop clear methodology to determine risk

approach and link it to your materiality analysis.

‘IN ACCORDANCE’ (with the guideline)

LEVELS

• Required to perform a gap analysis between the

current report and the ‘In Accordance’ levels.

Timing: Reports issued after 31 December 2015 must follow G4

3. Global Reporting Initiative (G4)

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3. Global Reporting Initiative (G4)

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Focus on Internal Control and Internal Audit

Increased recognition of need for Assurance: • The importance of the assurance of

sustainability reports has been recognized by GRI since its formal launch in 2002, with concentration on external assurance

• In the new G4 Guidelines, GRI recommends the use of external assurance for sustainability reports, but does not require it to prepare a report ‘in accordance’ with the G4 Guidelines

• The new G4 Guidelines also make reference to Internal controls and to Internal audit…

September the 29th, the European Union Council adopted the directive on the disclosure of

non-financial and diversity information.

To comply with the new measures, public interest entities (defined by Art. 2 of the 2013

Accounting Directive as: listed companies, credit institutions, insurance undertakings, others

defined by Member States as public-interest entities) with more than 500 employees will

report on:

environmental, social and employee-related, human rights, anti-corruption and bribery

matters. Companies will also have to describe their business model, policies, outcomes of the

policies and principal risks on the above matters, the diversity policy applied for management

and supervisory bodies, and relevant non-financial KPIs.

Member States have 2 years to transposed the directive into national laws. Additionally,

member States may exempt companies that provide a report of the FY which covers the

same content and if it’s published with the management report in accordance, or made

publicly available within 6 months after the balance sheet date.

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4. EU Directive on disclosure of non financial reporting

The IIA and Audit Executive Center has developed a document about the emerging role of internal audit : • in order for integrated reporting to be seen as a reliable instrument for assessing sustainability, organizations will need to provide assurance regarding the info reported within; • the look-forward nature of integrated reporting also presents the potential for internal audit to take a more strategic role in assessing the risk for an organization in the short-, medium-, and long-term, and the benefits/opportunities of sustainability.

So internal auditors can support the adoption of IR by fulfilling existing requirement to contribute to governance, risk management, and control processes as stated in Standard 2100. At the same time, the trend toward IR offers a great opportunity for IA to act in an advisory role that can heighten the status of the profession.

5. Internal Audit Role: present situation and possible development

First References

The World Business Council for Sustainable Development has developed a document (starting from the COSO Internal Control-Integrated Framework) aimed at: • help organizations implement controls to improve accuracy, completeness and reliability of information, including guidance on supporting evidence, the use of spreadsheets, and other system solutions; • provide guidance for internal and external assurance providers on how to improve the quality of their reviews and have a consistent, efficient and controlled approach.

5. Internal Audit Role: present situation and possible development

First References

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5. Internal Audit Role: possible development

EVOLUTION STAGE

Internal Audit will be involved in the project team to lend advice to the implementation activity and be in a position to provide assurance to those charged with governance that the implementation is being done effectively. However, internal audit will not own, or be responsible for the implementation of, processes, policies, or procedures.

IA role

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5. Internal Audit Role: possible development

MATURITY STAGE

Internal Audit will provide assurance on the accuracy and reliability of the material processes that produce the data being reported, both internally and, as appropriate, externally. And, for a company that receiving external assurance, internal audit should partner with external assurance providers to ensure that the assurance engagement is conducted and shared in the most cost-effective, efficient, and reliable manner.

IA role

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5. Internal Audit Role: Possible Next Steps in Advocacy

• ECIIA

prepare a Position Paper about the role of IA in non-financial information disclosure (December 2014).

presentation of this document to the EU officials bodies in Bruxelles (March 2015).

• ECIIA

participation to workgroup on non-financial

information that will be set up at the EC in order to prepare the implementation guidelines (December 2015).

IA role

THE AUDITOR IS LIKE A CRITICAL

FRIEND.

WE EXPECTED TO BECOME A

SUSTAINABLE CRITICAL FRIEND.

Thanks dear friends!!! Silvio de Girolamo

Chief Internal Audit & CSR Officer Autogrill Group

• European Confederation Institute Internal Audit (ECIIA) Board Member

• Institute Internal Audit (IIA) Global Advocacy Member

• Global Reporting Initiative (G.R.I.) Stakeholder Council Member

• CSR Manager Network Board Member