Emerging Sustainability Issues

• Climate change– Remains a leading issue of concern– Paralysis in Copenhagen

• Biodiversity loss– Expanding awareness throughout 2010– At the nexus of many other risks

• Freshwater resources– Increasing water scarcity: an environmental and social issue

• Total contribution– Socio-economic assessment of a company’s net impact

Climate Change

• Remains one of the leading sustainability issues of our time, yet one for which global consensus on mitigation strategy continues to elude us (e.g. Copenhagen)

Climate Change

• Affects many aspects of business risk (and potential opportunities):– Financial: costs associated with regulatory GHG reduction requirements

– Operational: negative impact on a company’s inputs through resource constraints or disruptions, and increasingly unpredictable weather patterns that could impede revenue forecasts

– Physical: adverse impacts on infrastructure due to climatic change depending on the region in which a company, and its operations, are located

– Reputational: consumers increasingly looking to reduce their carbon footprint through lifestyle changes and more select product selection

– Legal: compliance with climate change regulations, water withdrawal licenses and land access permits.

Climate Change

• Numerous stakeholders requesting disclosure on executive ability to manage climate change-related issues:– Regulators

(e.g. seeking industry collaboration in addressing international commitments to fight climate change)

– Investors (e.g. CDP)

– Consumers (e.g. possibility of carbon labelling)

Biodiversity

• Variability among living organisms within species, between species, and between ecosystems

• Underpins the proper functioning and delivery of ecosystem services

• Biodiversity loss can exacerbate other observed risks, including coastal flooding and droughts and desertification

• Requires revising valuations for ecosystem services that are currently undervalued

• Still very much a nascent area for corporate reporting, despite growing concern among stakeholders and GRI guidance on how to measure and disclose corporate ability to prevent biodiversity loss

Freshwater Resources

• Concerns over:– Water quantity: natural and man-made changes to water availability.

– Water quality: protection of drinking water, human health impacts, and ecosystems/ biodiversity.

• These two concerns are often inter-connected: as water quantity decreases, concern over quality increases.

Freshwater Resources

• Significant diversity in how companies address water issues in sustainability reports, depending on:– Internal factors:

• How integral water is to business and operations

• Nature of impact(s) on water• Company environmental programs• Company policy on reporting

– External factors:• Local/regional water availability

and quality• Stakeholder concerns / demand

for information• Regulatory environment

Total Contribution

• Reporting the total impact a company has on the regions in which it operates by measuring contributions to local:

– Government revenues (taxes – subsidies)

– Employment– Investment

(e.g. use of local suppliers)– Access to education– Community support (e.g. NGO

partnerships, sponsorship, disaster relief)– Infrastructure – Knowledge transfer– Conservation initiatives

Future of Reporting

• Companies moving to online reporting and continuous disclosure of sustainability information

• Increasing demand for more rigour behind sustainability data

• Investors calling for third party assurance of sustainability data

• Greater integration of sustainability information in traditional corporate disclosures and analysis

• OSC last year mandated to assess the investor need for more robust environmental and social disclosure

Concluding Thoughts

• There is increasing pressure from a number of stakeholders for companies to improve the quality of their sustainability reporting

• Companies face myriad sustainability issues, increasing the importance of meaningful materiality assessments to prioritize them according to their impact on the company and the society in which it operates

• As sustainability issues increase in complexity, practical solutions continue to evade us

• There will continue to be less confidence in sustainability reporting as long as it, and the independent assurance of this type of data, remains voluntary