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May 18, 2010
Draft of Key Performance Indicators for Corporate Reporting Is Published in Europe
    by Robert Kropp

The EFFAS Commission on ESG Environmental, Social & Governance expands upon previous recommendations by adding key performance indicators (KPIs) for 114 industry subsectors.

Last week, the EFFAS Commission on ESG Environmental, Social & Governance (CESG) published the exposure draft of KPIs for ESG 3.0, a reporting framework for the integration of environmental, social, and corporate governance (ESG) considerations into corporate performance reporting and valuation.

The document was prepared by the
German Society of Investment Professionals (DVFA) and CESG. CESG, a European organization of investment professionals whose objective is to facilitate the integration of ESG factors into investment decision making, is part of the European Society of Financial Analysts Societies (EFFAS).

KPIs for ESG 3.0 follows version 1.2, which was published in 2008. The new document improves upon the former by extending beyond a list of general key performance indicators (KPIs) applicable to all industries, to include a set of industry-specific KPIs for 114 industry subsectors. In order to determine the relevance of KPIs, the authors engaged with such stakeholders as investors, financial analysts, asset owners, sustainability experts, and corporations.

Defining corporate sustainability as “the capacity of companies and organizations to remain productive over time and to safeguard their potential for long-term maintenance of profitability,” the document focuses on both the risks and opportunities presented by ESG factors. It recommends that companies include ESG assessments in their development of corporate strategy, and “strongly recommends including corporate social responsibility (CSR) data as an integral part of statutory and legally required financial reporting.”

The draft also recommends that companies include the key elements and processes of their ESG management systems in their reports, and describes best practice examples of the organizational structure of ESG management.

In the document, the authors suggest that “companies formally orient ESG reporting towards the requirements of the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board.” Furthermore, it encourages “investors, financial analysts, credit rating agencies and other vital functions in capital markets to integrate KPIs for ESG 3.0 into their valuation models and use individual KPIs or ESGs in their dialogue with companies.”

CESG plans to issue its final document later in 2010. Until June 30, 2010, it will be accepting comments on the draft.


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