Integrated Reporting: The (R)evolution of Corporate Reporting
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Transcript of Integrated Reporting: The (R)evolution of Corporate Reporting
Integrated Reporting:
The (R)evolution of Corporate Reporting
Sandy Nessing – Managing Director, Sustainability
The Ohio State University – Feb. 29, 2012
Who We Are - AEP
• 5.3 million customers in 11 states
• 18,710 employees
• One of largest U.S. electricity generators
• Approx. 63 million tons coal delivered 2011
• A leading consumer of natural gas (approx. 167 billion cubic feet in 2011)
• 1 nuclear plant (2 units)
• Renewable energy portfolio
– 364 MW hydro
– 586 MW pumped storage
– 1,994 MW renewables (wind, solar)
• Coal & transportation assets
– Control +9,000 railcars
– 2nd largest full service, dry bulk carrier in U.S. on inland waterways
– Operate 1 active coal handling terminal with 18 million tons of capacity
• 39,000 miles of transmission lines
– Includes 2,116 miles of 765kV lines – the backbone of the electric interconnection grid in the Eastern U.S.
• 223,000 miles of distribution lines (overhead and underground)
AEP Generation Capacity Portfolio
Coal/Lignite Gas/
Oil
Nuclear Other – (hydro,
wind, etc.)
65% 23% 5% 7%
3
AEP’s Footprint -- 2011
The New “Normal” for Business
“Putting off an easy thing makes it hard.
Putting off a hard thing makes it impossible.” -- George Claude Lorimer
The Business of Sustainability
AEP’s Experience
What’s Next in Reporting
THE BUSINESS OF SUSTAINABILITY
Shareholders have a valid interest and a stake
in a company’s total performance.
Sustainability is a Bottom-Line Issue That People Really Do Care About
• The CEO • The Board of Directors • Employees, retirees • Customers • Institutional investors, lenders, credit rating agencies • Environmental groups and other advocates you may only
encounter in a courtroom or hearing room • Prospective employees • The media • Your ‘green’ customers • Labor leaders • Regulators, policy-makers, legislators • (Your friends, family)
It’s All About How You Act
• Top reasons for acting sustainably: • Drives innovation
• Grows revenues
• Started as risk management platform; now a growth platform
• Avoid shareholder resolutions
• Improve business efficiency
• Capture bottom-line cost reductions
• Eliminate/reduce visits from regulators
• Focus on value chain – how you impact external environment
• Increased transparency up and down supply chain
• To sell something green, you have to sell something of
value to your customers
What’s At Stake?
• Profits
• Customers
• Public support
• Competitiveness
• Opportunities for innovation and growth
• Reputation
• Trust and credibility
• License to operate
Why Sustainability Belongs on the Balance Sheet
• Capital markets need information, at the right time, that
is clear and trustworthy.
• The financial crisis raised fundamental questions
• Were companies and markets as transparent as they could have
– or should have – been?
• Was there systemic risk that was masked?
– What were the warning signs that were missed and why?
– Could more transparent and complete reporting have connected
the dots sooner?
Nonfinancial Performance Tied to Financial Health
• Taking holistic view allows you to integrate risk,
corporate governance and sustainability into the
strategic and operational management of the
organization.
• This alignment of priorities demonstrates how your
strategy has responded to material issues.
• Value creation doesn’t come just from within; it is
influenced by: – The external environment;
– The relationships that we have; and,
– The availability, quality and affordability of management
resources, such as financial and human capital.
AEP’s Material Issues Defined
• Issues material to our sustainability are
those that:
– Have or may have significant impact on the
company’s finances or operations.
– Have or may have significant impact on the
environment or society, now or in the future.
– Can substantially influence the assessments,
decisions and actions of our stakeholders and
shareholders.
The Stakeholder Revolution…
• Everyone is a stakeholder
• Expectations are high
– Profits and positive societal contributions
• Transparency reigns supreme
– Information is power and you control the story
– Eliminate misperceptions
– Build trust, credibility
…Includes a Shareholder Revolution
• Record number of resolutions filed in 2011
• Governance expected to be top issue in 2012
• Environmental, social resolutions increase
• Corporate political spending a focus
– Advocacy, lobbying activities
• Commodity, construction, compliance
risks to dominate
• Shareholders want companies to be more
transparent, proactive on broader range of
issues to protect shareholder value
You Need A Strong Foundation & Clear Expectations of Performance
AEP’s Experience
The road traveled is not always a smooth one.
How We Began
• Environmental Report vs. Sustainability Report?
• Had to make the business case
• 2007 – 1st sustainability report; 1st stakeholder
meeting
• Painful at first – transparency very new
• Never reported publicly on some issues
• Followed Global Reporting Initiative (G3)
framework
• Piloted Electric Utility Sector Supplement
Stakeholder Engagement: A New Way of Doing Business
• Commitment from the top
• Sat across from NGOs we never had before
– First face-to-face
• We didn’t know all we thought we did
– Misperceptions on both sides
• Realized we had an opportunity
• Now, it’s how we do business
• “Voice” of stakeholder in our reporting
Engaging Coal Suppliers
• Coal always a top stakeholder issue
• Ongoing discussions led to commitment for survey
– Environmental, safety and health performance
• Followed up with stakeholder meetings
• Brought suppliers face-to-face with NGOs for the first time
– Passionate but respectful engagement
• Surprised at what we learned – as were NGOs
– Dispelled commonly-held misperceptions of coal industry
– Clearer picture of the performance of our suppliers
– Allowed AEP to begin laying the groundwork with stakeholders for a transformation of its fuel portfolio
– Sparked exploration of voluntary standards for improving conservation outcomes on reclaimed mining land
What’s Next in Reporting?
“If you are a company committed to the long term, and one of your ambitions
is to be trusted, you have no choice – integrated reporting is the way to communicate.” --Jim Singh, CFO, Nestle
Why Should Companies Report?
There are many benefits to reporting – some quantifiable, some not.
• Allows you to tell your own story
• Engages skeptics and critics
• Drives change inside, outside of company
• Identifies risks, opportunities
• Attracts capital
• Increases shareholder value
• Demonstrates and drives leadership
• Drives internal capacity for continuous improvement
• Supports recruitment, retention of best talent
• Builds customer loyalty
Reporting and Performance
• Transparency drives accountability
• Top-level support indicates seriousness of
commitment
• Stakeholder engagement and how it’s used is
important
• GRI is preferred framework – focus on
materiality
• Qualitative AND quantitative results needed
– Don’t just throw data out there without context
Investors Paying Attention More and More
• Proliferation of ratings and rankings
– DJSI, CDP, Goldman Sachs, Bloomberg
• Analysts and investors seeking more ESG data, not less
• Lack of standardization of surveys, methodology
– Resource intensive, comparability challenging
• The birth of the GISR
– Understanding what is being measured and why
– Bring convergence around core principles, content
• How material is performance to financial results?
– The ROI of sustainability
AEP’s Journey to Integrated Reporting
2004 2006 2008
2010
2009
Integrated Reporting Will Be The Norm
• International Integrated Reporting Committee (IIRC)
• Lots of disagreement over what it looks like
– Concern progress of sustainability reporting at risk
• GRI developing G4 as a bridge to integrated reporting
– Companies on their own for now
• Social metrics important but hard to quantify
– Should be developed in conjunction with affected communities
Questions?
Sandy Nessing – Managing Director, Sustainability [email protected] Twitter: @Watts4U
www.AEPsustainability.com