Driving transparency &

effectiveness through disclosure

of information. In preparation for

implementation of the EU

Directive no. 2014/95/EU.

Banking Compliance Summit

Bucharest, 20 October 2015

2 © 2015 Deloitte Central Europe

Objectives

Present you insights related to creating business

value through disclosure of non-financial

information

Show you that organisational reputation is driven

among others through the reporting and

transparency & effectiveness have got a role to

play

Explain in details what undertakings fall under

new EU directive on non-financial disclosure

Highlight to you 2 key trends that may help you

being in line with the regulation: GRI & integrated

reporting

3 © 2015 Deloitte Central Europe

Who we are? Deloitte Sustainability Consulting Central Europe

As Deloitte in the CE, we take it forward and focus

on 4 key dimensions: ECONOMICS, IMPACT,

RELATIONS, TRANSFORMATION.

Currently we have got 20 team members based in

Warsaw and a number of additional consultants

across the CE, including among others Hungary.

Our team members delivered over 400 CSR-

related assignments focusing on a number of

areas from strategy, reporting, risk management,

energy efficiency to communiction and economic

analysis.

In the past 15 years ,we helped in educating the

marketplace on CSR/sustainability matters

through our various initatives such as Vision 2050,

Carbon Disclosure Project, Green Frog Award for

Best CSR Reporting, Respect Index.

1

2

3

4

Context: creating business value

© 2015 Deloitte Advisory Sp. z o. o. 5

The changing landscape of financial and non-financial

reporting

of investors surveyed stated that

a company’s social responsibility

initiatives can have an impact on its

financial performance.

Source: Deloitte and WSE “Investment Decisions and Corporate

Social Responsibility. A Survey Report„ 2011

62.5% of CFOs of big companies express

a view that the challenges in respect

of sustainable development will

trigger changes in financial reporting

and verification (according to Deloitte

CFO Survey). Source: Deloitte “Sustainable Finance: The Risks and Opportunities

that (Some) CFOs Are Overlooking” 2011

60%

1732

6880 84

8368

3220 16

200

5

199

5

201

5

198

5

197

5

S&P 500 Historical Market Value (%)

Intangible assets constitute from 50%

to 84% of the company equity market

value (depending on the industry and

market)

50-84%

Source: Ocean Tomo; Components of S&P 500 Market Value; 2015

The valuation of

companies has

changed over

the past 30 years.

© 2015 Deloitte Advisory Sp. z o. o. 6

Reputation risk is the top strategic business risk (Deloitte

2014 global survey on reputation risk Reputation@Risk)

© 2015 Deloitte Advisory Sp. z o. o. 7

Loss of revenue and brand value are the key impacts

(Deloitte 2014 global survey on reputation risk

Reputation@Risk)

Creating value in the market

8 © 2015 Deloitte Central Europe

Source: EACSR 2009, Valuing non-financial performance: A European framework for company and investor dialogue

© 2015 Deloitte Advisory Sp. z o. o. 9

Growing expectations of investors

Investors are

almost unanimous

about the non-

financial disclosure

requirements for

large public

undertakings.

Source: “What do investors expect from non-financial reporting?” Eurosif and ACCA, 2013.

The survey covered 94 investors, analysts and representatives of other stakeholders from 18 countries.

of investors claim that the current

scope of non-financial disclosures is

not sufficient.

78%

of investors believe that the non-

financial information disclosed by

companies is irrelevant and

unimportant.

93%

of investors state that the financial

and non-financial data should be

more integrated.

92%

PUBLIC PRIVATE

99%

66%

33% 23%

39%

56%

LARGE

MEDIUM

SMALL

© 2015 Deloitte Advisory Sp. z o. o. 10

Information gap defined as the difference between the

importance of various information for the CEO and its

availability

Sustainability report

can help fill this gap in

the following categories:

• Non-financial risks to

which the company is

exposed

• Supply chain

• Opinions and needs

of the employees

• Preferences and

needs

of the clients

• Impact of climate

changes on the

company

Information

about

preferences

and needs

Critical information

Information gap

Comprehensive information available

Information

about the

impact of

climate

change on

the company

40

60

20

80

100

Inforamtion

about the

supply chain

Information

about needs

and opinions

of the

employees

Financial

forecasts

Information

about the

effectiveness

of R&D

actions

Information

about the

brand and

reputation

Comparative

analysis of

the

company’s

results

against other

companies in

the industry

Information

about risks to

which the

company can

be exposed

Investors are looking more and more often how you

manage your company: Respect index

11 © 2015 Deloitte Central Europe

The RESPECT Index project, similarly to the first edition

held in 2009, aims at identification of companies managed in

a responsible and sustainable manner, but additionally it puts

strong emphasis on investment attractiveness of companies

that are characterized, among others, by reporting quality,

level of investor relations or information governance. Thanks

to the incorporation of the liquidity aspect into the eligibility

criteria the RESPECT Index, similarly to other exchange

indices, represents a real reference for professional

investors.

© 2015 Deloitte Advisory Sp. z o. o. 12

Based on: Tim Mohin, Top 10 trends in CSR for 2012

CDP

Trend: standardisation, regulation…

© 2015 Deloitte Advisory Sp. z o. o. 13

Reporting requirements or best practice?

Developing sustainability reporting requirements

„Soft regulations” and/or applicable sustainability reporting regulations,

dedicated to specific organization and/or indicators.

EU

Reporting in the CE region: trends based on the CE Top 500

annual review by Deloitte

© 2015 Deloitte Advisory Sp. z o. o. 14

76% • 2 new sustainability-related questions to the financial

survey, which is the basis for the ranking of the

region’s top 500 companies and 100 financial

institutions. They were answered by 57% of

companies from the TOP 500 ranking, by 76 % of the

50 largest banks and 60% of the 50 largest insurers in

Central Europe.

42 • It should be highlighted that more than a fifth (109) of the largest Central

European companies already have some form of non-financial reporting in place

or will report non-financial data for 2015. Interestingly, 42 companies report non-

financial data or will do so for 2015 according to the GRI guidelines, which shows

their professional approach to non-financial reporting.

26 • Non-financial reports are prepared or will be prepared for 2015 by 26 banks

(including seven from the Czech Republic, seven from Poland and five from

Hungary) and 12 insurance companies (including nine from the Czech Republic).

About non-financial reporting: crash course

© 2015 Deloitte Advisory Sp. z o. o. 16

Non-financial reporting

• A non-financial report is a report published by a company or organization about the

economic, environmental and social impacts caused by its everyday activities.

• A non-financial report also presents the organization's values and governance

model, and demonstrates the link between its strategy and its commitment to a

sustainable global economy.

Source: Global Reporting Initiative

© 2015 Deloitte Advisory Sp. z o. o. 17

Mapping common terminology used by corporates and

investors: we talk more or less about the same things

Source: Verdantix

© 2015 Deloitte Advisory Sp. z o. o. 18

Why is non-financial reporting worth it?

…WE SHARE OUR CSR

KNOWLEDGE AND GOOD

PRACTICES

…WE MONITOR OUR

PROGRESS TOWARDS

ACHIEVEMENT OF OUR

STRATEGIC GOALS

…WE RESPOND TO

THE EXPECTATIONS OF

OUR KEY

STAKEHOLDERS

Steelcase Corporate

Sustainability Report

2013

Haworth Sustainability

Report 2012

Ahrend Corporate Social

Responsibility Report

2011

With non-financial

reporting not only

do we build our

own brand, protect

our company’s

reputation and

manage risk, but

also…

Regulation: the EU directive

Key facts abou the directive

When?

Adopted in

2014, effective

as of 2017

Why?

To increase

investors and

consumers

confidence

To contribute to

sustainable

world economy

What for?

To better manage

performance and

impact on

economy/society

To strenghten

transparency,

relevance of

information in the

marketplace

What information?

Non-financials

Diversity

Who?

Large

companies

© 2015 Deloitte Advisory Sp. z o. o. 21

New reporting standards in EU

• In 2014, the European Union imposed a new reporting requirement

regarding disclosure of non-financial and diversity information.

• From January 2017, listed companies, banks and other large

public interest undertakings will have to disclose information,

including

a description of policies, results of policies, risk assessment,

management bases and performance ratios in the following areas:

• Counteracting corruption and bribery

• Negative impact of the organisation on the natural environment

(health and safety, energy management, use of sustainable

energy sources, greenhouse gas emissions, use of water, air

pollution)

• Social aspects (dialogue, community protection and

development)

• Employee aspects (conditions of work, tools for a two-way

dialogue with employees, respect for trade unions’ rights, health-

and-safety rules, gender equality)

• Respect for human rights (preventing violation of human rights)

• In addition, a report should include a description of the

enterprise’s business model and disclose its current and predicted

negative impact on

the environment.

• Certain large undertakings listed on the stock exchange* will have to

disclose diversity policies (goals, actions, results) in relation to the

administrative, management and supervisory bodies with regard to

aspects such as, for instance, age, gender or educational and

professional backgrounds)

Source: Directive regarding disclosure of non-financial and diversity information by certain large undertakings and groups

* Enterprises that exceeded two of the three following criteria during the financial year: over 250 employees/ balance sheet total in excess of EUR 20 million / net revenue

in excess of EUR 40 million

© 2015 Deloitte Advisory Sp. z o. o. 22

Which undertakings does the new Directive* apply to?

Public-interest entities Undertakings meeting the

following criteria

• Issuers of securities admitted to trading, intending to apply for

their securities to be admitted to trading or issuers of securities

who have applied for their securities to be admitted to trading on

one of the regulated markets of the European Economic Zone

• Issuers of securities admitted to trading in

an alternative trading system

• Undertakings operating or intending to operate in accordance

with banking law (banks)

• Undertakings operating or intending to operate in accordance

with the provisions on trading in securities

• Undertakings operating or intending to operate in accordance

with the provisions on investment funds

• Undertakings operating or intending to operate in accordance

with the provisions on insurance and reinsurance activity

(insurance companies)

• Undertakings operating or intending to operate in accordance

with the provisions on pension funds (pension funds)

• Domestic payment institutions e.g. (E-card)

• Electronic money institutions

• Balance sheet total in excess of EUR 20 million

or

• Net revenue in excess of EUR 40 million

and

• Average annual number of employees in excess of 500 people

* An organisation is exempted from the non-financial disclosure obligation if it does not exceeds none of the above thresholds for two successive years.

.

© 2015 Deloitte Advisory Sp. z o. o. 23

Companies should start preparing for the new disclosure

regime today to make sure they are ready on the day

1 2 3 4 From 1 January 2015 organisations should try to conduct non-financial reporting and assess their gaps

On 1 January 2016, organisations should implement good practices in significant non-financial areas

From 1 January 2017, organisations have to start gathering non-financial data to comply with the new Directive

From 1 January 2018, organisations’ reporting has to be conducted in compliance with the new Directive

• Can you tell if your organisation is prepared for non-financial disclosures?

• Do you know what reports do you want to be preparing?

• Do you know that it takes six months to prepare your first CSR report?

• Do you know that 50 people on average are involved in the non-financial reporting process?

• Do you know that you need about 100 indicators to prepare a non-financial report in accordance with the most renowned GRI reporting standard?

• Can you determine what sustainable development and corporate social responsibility matters will be important for your organisation?

• Is there a risk management system in place in your organisation that takes social and environmental risks into account?

• Do you know how to include sustainable development matters in the business strategy of your organisation?

• Do you have policies in place that are required by the new Directive which you can describe in your report?

• Do you have the necessary tools and systems for gathering non-financial data?

2 key trends

Global Reporting Initiative framework

© 2015 Deloitte Advisory Sp. z o. o. 26

„Everyone is doing it” – 80% of G250 companies and

69% of N100 companies from 34 countries (from OECD

included) use GRI

Source: KPMG, International Corporate Responsibility Survey, 2011

N100 G250

GRI

guidlines

Company

developed

criteria

National

Reporting

standard

69% 69%

19%

13% 17%

10%

28%

Other

13% 13%

National

Reporting

standard

17%

Other

21% 19%

Company

developed

criteria

21% 20%

GRI

guidlines

80% 77%

2011

2008

© 2015 Deloitte Advisory Sp. z o. o. 27

G4 framework structure

27

Part 1

Strategy and analysis

Organizational profile

Report parameters

Identified material aspects and boundaries

Verification

Supervision

Ethics and Integrity

Disclosures on Management Approach

COMPATIBILITY

CRITERIA

INDICATORS

Core

Comprehensive

Standard

Specific

Indicators

Stakeholder engagement

Obligations (participation in external

initiatives)

Economic

Environmental

Society

Human Rights

Product Responsibility

Labor Practices

© 2015 Deloitte Advisory Sp. z o. o. 28

10 GRI reporting principles

MATERIALITY

SUSTAINABILITY CONTEXT

BALANCE

COMPARABILITY

RELIABILITY CLARITY

STAKEHOLDER INCLUSIVENESS

COMPLETNESS

ACCURACY

TIMELINESS

NON-FINANCIAL

REPORT

Content

Quality

© 2015 Deloitte Advisory Sp. z o. o. 29

Case study: Grupa Żywiec - impact report 2014

Integrated reporting

The new Directive encourages development of practices.

What is integrated reporting?

Integrated reporting reflects market

expectations resulting from declining

trust in companies because of

the financial crisis – establishment IIRC

“Integrated reporting gives an

opportunity to clearly communicate your

strategic message. What is your

business model? How do we create

value? What is our relationship with

a broad view of stakeholders and the

external environment? What is our

sustainable development strategy in the

long term?

... and we think this is a question that a

number of users are challenging

corporates to be able to answer.” Russell Picot Chief Accounting Officer, HSBC

Based on “Consultation draft of the International Integrated Reporting Framework”

Company’s profile and external

environment

Corporate governance

Risks and opportunities

Business model

Future outlook

Results

Strategy and allocation of resources

INTEGRATED REPORT CONTENT

Integrated thinking is a global trend towards

transformation of financial reporting

UNCTAD

World Bank

IFAC

ACCA

JICPA

SAICA

CIMA

ICAEW

Deloitte, PwC, E&Y,

KPMG, BDO, GT

About 150 integrated reports have been prepared in accordance with international IIRC Guidelines in 26 countries (three reporting cycles have passed since the announcement of the Guidelines in 2011).

Almost 50% of the CEOs, CFOs and COOs covered by the survey declare their willingness to adopt integrated reporting (a sample of 500 CIMA, AICPA leaders). Source: “Realising the benefits. The impact of integrated reporting”, Black Sun, 2014

WBCSD

UN Global

Compact

BSR

CERES

Global Alliance

WEF

IASB

IOSCO

FASB

London Stock

Exchange

Tokyo Stock

Exchange

GRI

CDSB

Financial Stability

Board

UN PRI

UNEP-FI

ICGN

INCR

Aviva

APG

EFFAS

Hermes EOS

Mercer

Government Fund

WWF

WRI

A4S

Volans

Transparency

International

Harvard Universtiy

São Paulo

Universtiy

© 2015 Deloitte Advisory Sp. z o. o. 33

The value creation process diagram

© 2015 Deloitte Advisory Sp. z o. o. 34

Summary

© 2015 Deloitte Advisory Sp. z o. o. 35

Summary

Good practice becomes a compulsory part of

functioning in the marketplace for some of the

companies

Risk management, reputation, operational

excellence and strengthening business value

drive reporting efforts

Learn from others (mistakes)

Use what’s ready: standards, good practices

Be credible: one chance only

Be innovative: engagement and digital

RAFAŁ RUDZKI

Senior Manager,

Sustainability Consulting

Central Europe

Mobile: + 48 734 436 311

rrudzkik@deloittece.com

© 2015 Deloitte Central Europe 36

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