Revealing the full picture

Your guide to ESG reporting

Guidance for issuers on the
integration of ESG into investor
reporting and communication
 Contents
Introduction 2
Towards deeper understanding between issuers and investors 4
ESG reporting priorities 6
01. Strategic relevance 8
02. Investor materiality 12
03. Investment grade data 18
04. Global frameworks 22
05. Reporting formats 28
06. Regulation and investor communication 32
07. Green Revenue reporting 36
08. Debt finance 40
Summary 46
How LSEG supports ESG reporting and communication 47
Appendices 48

This Guidance is for information only. It has been produced by London Stock
Exchange Group plc and its group companies, including London Stock Exchange
plc, FTSE Russell (a trading name of FTSE International Limited and Frank Russell
Company) and Borsa Italiana S.p.A (LSEG). While all information contained herein is
obtained from sources believed to be accurate and reliable, LSEG and the individual
authors of the Guidance do not accept responsibility for any errors, omissions,
or inaccurate information or any decisions made in reliance on this Guidance.
Any inaccuracies can be reported in writing to sustainablebusiness@lseg.com
but neither LSEG nor the individual authors of the Guidance shall become
responsible for such inaccuracies as a result of them being reported.

This publication does not constitute an offer to buy or sell, or a solicitation of

an offer to sell, any securities, or the solicitation of a proxy, by any person in any
jurisdiction in which such an offer or solicitation is not authorised, or in which the
person making such an offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such an offer or solicitation.

This Guidance is not offered as advice on any particular matter and must not
be treated as a substitute for specific advice. In particular, information in this
publication does not constitute legal, professional, financial or investment advice
or an endorsement of any particular reporting standard or framework in relation
to Environmental, Social and Governmental (ESG) factors. Advice from a suitably
qualified professional should always be sought in relation to any particular
matter or circumstances.

“FTSE®”, “Russell®”, “FTSE Russell®”, “London Stock Exchange®”, “London Stock

Exchange Group®” and other related service marks and trademarks are trademarks
of the London Stock Exchange group companies. No part of these trade marks
or any other trade mark owned by the London Stock Exchange or any of its group
undertakings can be used, reproduced or transmitted in any form without
express written consent by the owner of the trade mark.

© 2020
2 Revealing the full picture Introduction 3 Revealing the full picture Introduction

Who this Guidance is for to quantify the business value of sustainability initiatives
accurately, yet only 7% of investors agreed5.

Introduction
Institutional investors are interested in ESG issues for
This discrepancy can be ascribed to a number of practical
all of the entities they invest in, irrespective of whether
challenges, including: investors finding it difficult to
they are large or small, equities or bonds, listed or
access appropriate data and information; issuers failing
unlisted, across all industries. And in our view, whatever
to understand what information investors need; investors
the entity in question, the characteristics of high
using different ESG information in their investment
quality reporting and effective communication with
research and raising different questions with issuers;
investors are always broadly the same.
Once upon a time, environmental, social and governance Therefore we believe that you will find this Guidance
and issuers’ needs and interests differing in terms
of the ESG issues that they see as important.
(ESG) factors were a niche interest among asset owners, asset equally relevant to your organisation whether it is
managers, banks, brokers and investment consultants. No longer. a large publicly listed issuer with a long track record
of reporting; a smaller company; a privately held
The aims of this Guidance are to:

Investors now routinely analyse information on ESG performance business; or a debt issuer.
— make companies more aware of the importance
of providing high quality ESG information, and
alongside other financial and strategic information in order to engaging investors on sustainability-related issues;
gain a better understanding of companies’ future prospects. How investors use ESG — stimulate interest in the innovation opportunities
information is changing

60
opened by this new economic paradigm;

%
In recent years, the views of investors in this area have — help issuers and investors to navigate the complex
Issuers’ ESG performance on subjects such as resource matured significantly. ESG-related information has landscape of ESG reporting;
use, human rights, health and safety, corruption and moved from a ‘peripheral’ to a ‘core’ part of investment
transparency is increasingly used to draw conclusions analysis, across all asset classes1. — enable richer data flows and dialogue on ESG
about the quality of their management, identify their between issuers and investors;
exposure to business risks and assess their ability to Signatories to the United Nations-supported Principles
for Responsible Investment (PRI) now represent $60trn2 — support the consolidation of sound global reporting
leverage business opportunities. Therefore it is becoming standards; and
more and more important for companies and other in assets under management, up from $22trn2 in 2010.
issuers to communicate with investors clearly and Almost all leading institutional investors of UK and — enable investors to make better informed
accurately on these aspects of their performance. of assets managed for Italian listed companies are PRI signatories. Recent investment decisions.
research from the Global Sustainable Investment Alliance
The intention of this Guidance is to help companies EU investors incorporate (GSIA)3 suggests that sustainable investing strategies
gain a clear understanding of what ESG information
they should provide and how they should go about
sustainable investment now represent more than 60% of professionally
managed assets for EU investors.
providing it. This is a task for which London Stock strategies

$60trn
Exchange Group, as a leading international markets The need for issuers to respond to this demand for
infrastructure provider connected to issuers, sell side information is clear. By disclosing the information that
and investors is ideally placed. investors want, issuers can provide reassurance that
“Our Group plays an essential
2
they are effectively managing business risks and
identifying opportunities. There is growing evidence
About London Stock role in supporting sustainable that issuers that publish high quality information on
Exchange Group economic development through the longer-term implications of ESG for their business

Sitting at a critical junction between issuers and

a number of our businesses are more likely to attract and retain long-term
investors4. These issuers can also reduce the cost of
investors, London Stock Exchange Group plays an around the world. This ESG capital and increase their ability to raise new capital
essential role in supporting global sustainable guide is an important new tool to finance sustainable projects. Signatories to the
economic growth.
to encourage and assist issuers The process of reflecting on, analysing and reporting United Nations-supported
With more than 2,700 companies hosted on our
markets, we seek to recognise and encourage dynamic
in providing ESG information ESG issues provides important insights into the positive
Principles for Responsible
and negative implications for financial and operational
companies that will drive long-term economic that investors can use to performance. This also applies to decisions about Investment (PRI) now
prosperity; helping them improve the sustainability of inform their engagement with strategy and capital expenditure. Further, having a clear
their business and enhance their ability to raise capital
companies and their investment view on ESG issues and strategy positions businesses represent $60trn2 in
for growth and employment creation. At the same time,
through FTSE Russell, our benchmarking and analytics decisions. I hope this report
at the forefront of opportunities presented by the
unfolding sustainable and green economy.
assets under management,
business, we seek to support investors in making helps improve transparency and While there is a compelling case for companies
up from $22trn2 in 2010.
informed and sustainable decisions; providing them
with the information and tools they need to assess disclosure in this increasingly strengthening their reporting on ESG issues, research
issuers’ strategy, performance and governance. important area.” suggests that Chief Executives tend to overestimate their
success in communicating with investors: in a recent
study, over a third of companies believed they were able
4 Revealing the full picture Towards deeper understanding between issuers 5 Revealing the full picture Towards deeper understanding between issuers
and investors and investors

Towards deeper
understanding
between issuers
and investors
In publishing this ESG You don’t have to be big
Reporting Guidance, our aim to be an ESG reporter
is to help enable your company The ESG dimension is not something only larger
to effectively navigate the companies need to concern themselves with. When
a small or mid-sized issuer understands the value of
reporting landscape of today ESG data and reporting, investors’ ability to see the full
picture of its performance and prospects is enhanced
and tomorrow. just as much.
London Stock Exchange Group (LSEG) is the global
“ESG reporting is not just for market of choice for such smaller companies. Over 1,000
of them are quoted on AIM in the UK and Italy; more
larger companies. This is about than 460 belong to our ELITE programme for dynamic
all issuers, regardless of size, private companies; and we also enable the issuance
of corporate bonds by smaller companies.
reporting relevant and material
information to investors so that The Guidance is intended to help both companies
that have a long history of ESG reporting and those
they can make better informed that are less experienced in it. Is ‘ESG’ the same as “We have a fiduciary duty
investment decisions.” ESG data and information can be provided by a company ‘sustainability’ and towards our members and we
Mark Zinkula to a wide range of stakeholders. This Guidance is ‘corporate responsibility’? are committed to protecting
CEO, Legal & General Investment Management specifically focused on the dialogue and information
Many companies use ‘sustainability’, ‘corporate
retirement savings from any
flows between issuers and investors.
responsibility’ or ‘corporate social responsibility’ to refer potential investment risk
In dealing with good practice in voluntary reporting
to investors, the Guidance is in line with the UN-backed
to strategies or programmes related to environmental, within a long-term horizon.
Sustainable Stock Exchanges initiative model guidance
social or governance (ESG) activities. We make no
particular recommendation concerning which term
The best way to do this is to
for exchanges6. We believe that it is time to move to use. take not only financial and
beyond the debate around mandatory versus voluntary
reporting. Issuers should now focus on innovation and For the purpose of this Guidance, LSEG has chosen economic factors but also
relevance in the information they provide to investors to use the term ‘ESG’ as it has become a commonly- ESG performance into
– and ESG is part of that picture. used investment term. Other terms for this type
of ESG reporting can include ‘non-financial’ and
consideration.”
‘extra-financial’ reporting. Maurizio Agazzi
Direttore Generale, Fondo Pensione Cometa
6 Revealing the full picture ESG reporting priorities 7 Revealing the full picture ESG reporting priorities

ESG reporting
priorities
We have identified eight
priorities for ESG reporting.

1234 5678
Strategic
relevance
Investor
materiality
Investment
grade data
Global
frameworks
Reporting
formats
Regulation
and investor
Green Revenue
reporting
Debt finance
What should debt
What is the relevance What do investors What are the essential What are the most How should ESG communication How can issuers get issuers report and
of ESG issues to business mean by materiality? characteristics of important ESG reporting data be reported? recognition for green what are the emerging
How can companies standards here?
strategy and business ESG data? standards? navigate regulations and products and services?
models? communicate effectively?
Page 8 Page 12 Page 18 Page 22 Page 28 Page 32 Page 36 Page 40
8 Revealing the full picture 01. Strategic relevance 9 Revealing the full picture 01. Strategic relevance

01
Strategic relevance
Investors want to understand
how issuers are responding to
long-term and macroeconomic
trends such as climate,
demographic and technological
change as well as political
developments. A number of
the world’s largest investors are
allocating capital to companies
that are well equipped to
benefit from the transition to
the green economy, and wish to
protect their portfolios against
What is the relevance of ESG downside environmental, social
and governance (ESG) risks.
issues to business strategy As an issuer, you should explain the relevance of

and business models? ESG factors to your business model and strategy. You
should make clear how your company is positioning
itself, either to benefit from these factors or to manage
and mitigate the risks associated with them.
Issuers should also explain how they intend to
access the new opportunities and revenue streams
generated by green and socially beneficial
products and services.
10 Revealing the full picture 01. Strategic relevance 11 Revealing the full picture 01. Strategic relevance

“Sustainability factors, such as

climate change or demography, GREEN ECONOMY
impact companies’ operating EXPLAINED
environments. It is therefore Over the last 300 years there have been a
critical that companies provide number of economic cycles as new industries
have emerged and revolutionised economies
a clear strategic view on the both nationally and globally. Previous cycles
likely impact of such trends have been linked to the introduction of the
or factors on their business steam engine, electricity, mass automation, and
recently information technology and computing.
models. This will allow investors A number of economists now suggest that we
to understand how they are rapidly moving into the next cycle of
are positioned, and provide economic change linked to industrial changes
to overcome climate change, environmental
confidence that they are erosion and resource depletion. The Paris
resilient and can where possible Agreement that entered into force in November
exploit opportunities from 2016, marked an important turning point.
It aims to ‘keep a global temperature rise this
a changing environment.” century well below 2 degrees Celsius above
Steve J. Berexa pre-industrial levels and to pursue efforts to
Global CIO Equity and Global Head of Research, limit the temperature increase even further
Allianz Global Investors to 1.5 degrees Celsius’. Achieving its goals by
meeting the signatories’ nationally determined
It is important for any company to be able to explain contributions (‘NDCs’) requires the growth of
how its core business models and strategies may be new products and new ‘green’ industrial sectors
impacted by ESG trends, and how it is seeking to in areas including renewable energy, energy
position itself either to benefit from them or manage efficiency, waste processing and recycling.
and mitigate risks associated with them. This provides The green economy encompasses these sectors
the context for ESG reporting and allows investors to and services, and companies that demonstrate
assess how well prepared the company is strategically their contribution to the green economy are
for changes in its operating environment. attracting investment.

A number of the world’s largest investors are allocating

additional capital to companies that have higher green
revenue exposure or are better equipped to fulfil How ESG issues can impact
sustainable goals.
business models and strategies
Demonstrating resilience as well as readiness to
transition to a sustainable and green economy is The ESG issues and trends that can have a powerful
relevant for issuers across a number of industries and impact on business models are varied. Some possible
sectors. This means looking beyond the risks to new examples include:
opportunities and revenue streams generated by green — a confectionery company that sources cocoa from
and socially beneficial products and services. These West Africa explaining their readiness for increased
can drive value for the organisation and provide social levels of drought;
and environmental solutions.
— an integrated oil and gas business explaining how
Integrating both financial and non-financial carbon costs and changing energy demands linked
performance requires leadership and support from to carbon intensity would impact their reserve
the Board and senior management. They play a central portfolio and how future pricing scenarios link into
role in integrating sustainability into the business their exploration and production strategy; and
strategy, overseeing implementation across the
business and communicating to investors. At a working — a professional services outsourcing firm outlining
level in larger companies, investor relations, finance the increasing international demand for highly skilled
functions and CSR or sustainability divisions will need staff and explaining their approach to motivating,
to align to ensure the quality and consistency of retaining and developing their workforce in order
information reported. to reduce high turnover rates of skilled staff.
12 Revealing the full picture Strategic
02. Investor
relevance
materiality 13 Revealing the full picture Strategic
02. Investor
relevance
materiality

02
Investor materiality
To understand a company’s
long-term prospects, investors
will focus on those issues
that they believe to be most
relevant – or ‘material’ – to any
particular business. However,
different investors inevitably
have different views on what
they see as material.
What do investors Issuers should explain which ESG issues they see as

mean by materiality? most relevant or material to their business. They should

explain how ESG issues may affect their business, e.g.
through legislation, reputational damage, employee
turnover, licence to operate, legal action or stakeholder
relationships. They should then explain how these
impacts may affect business strategy and financial
and operational performance.
When presenting this information to investors, it is
important to understand what information and data
your investors are looking for. This should include
ensuring you are informed about what your industry
peers globally are reporting on.
14 Revealing the full picture 02. Investor materiality

How to identify
material ESG themes Example
There is no standard template for a successful
materiality assessment and issuers need to find the Index membership: FTSE 100
approach that is appropriate for their organisation. ICB subsector: Recreational Services
There are a number of considerations that can help
A FTSE 100 company in the travel and leisure
companies identify what is relevant to their business
sector conducts a materiality assessment every
and what the critical issues are to report on:
two years. This allows the business to update
its understanding of the issues that influence
1
Align with what international standards
recommend and peer companies report. This
stakeholder (including investor) perceptions and
decision-making, and to respond effectively to
facilitates comparability for investors globally.
sustainability-related opportunities and risks.

2
Use tools at your disposal. ESG research
and index providers have specific criteria
Its materiality assessment process involves:
— re-evaluating the previous assessment;
and identified material themes for different
companies and industrial sectors. FTSE Russell, — reviewing relevant standards;
a London Stock Exchange Group business, has
— engaging with internal
a well developed model which may be helpful
and external stakeholders;
in this regard. See more on pages 50 and 51.
— benchmarking the strategy against industry
3
Explicitly link ESG performance, business
strategy and financial and operational
and broader corporate best-practice; and
— reviewing operational impacts and
performance.
sustainability trends.
The full list of issues is plotted on a matrix based
on significance to the business and relative
‘MATERIALITY’ concern to stakeholders.
DEFINED
Index membership: FTSE Small Cap
The International Accounting Standards Board
ICB subsector: Software
defines ‘material’ information as that which
could, if omitted or misstated, influence the A small-cap software business has a strong
economic decisions of readers relying on the reliance on employees, reflected in its vision:
financial statements. The UK FRC’s ‘Clear & ‘To enable outstanding people to create digital
Concise’ guidance to narrative reporting states solutions that have a positive impact on people’s
that ‘information is material if its omission or lives.’ Noting that employee retention is a key
misrepresentation could influence the economic risk, the company includes data on its staff
decisions shareholders take on the basis of the attrition rate and its ‘Best Companies to Work
annual report as a whole’. For’ rating in its KPIs.

“One size does not fit all when

it comes to ESG data. Although
there is a need for consistency,
there is also a need to focus on
investor materiality to ensure
that the data being reported
is of relevance to investors.”
James Bevan
CIO, CCLA Investment Management
16–17 Revealing the full picture 02. Investor materiality

1. CLIMATE CHANGE 3. HUMAN RIGHTS & COMMUNITY

The investment case The investment case
Investors often want to understand whether businesses can: Investors want businesses that:
2 — successfully respond to climate change risks; — engage in active discussion around human rights and community issues;
— demonstrate future viability and resilience; and — demonstrate operational robustness and reputational resilience by
— achieve cost savings through efficiencies and identify opportunities addressing their impact on the communities in which they operate; and
through green revenue opportunities. — Have strong and positive relationships with communities.
1 The sources of investment risks The sources of investment risks
Tax Key sources of investment risk and opportunity: Key sources of investment risk and opportunity:
ncy
spare
Tran Biodive — regulatory: standards, taxes, carbon pricing; — regulatory: costs associated with regulatory compliance;
rsity — market: reduced demand for high-carbon goods, products and services — market: increased exposure to human rights risks in supply chain;
and decreased capital availability for high carbon products; — reputation: risks caused by community relations and human rights
t
sk men Cli

Su
— market: increased demand for low-carbon goods, products and services; issues; and
m

pp
e at
na i
Ma R

— capital: increased capital availability for low-carbon services — operations: increased chance of operational shut downs or revocation

ly
e
g

and technologies; and of licenses, if the local community resists or protests the presence

Ch
Ch
of the business.

ain
— weather: natural disasters and resource risks.

an
En

: En
ge
Example indicators of practice and performance Example indicators of practice and performance

ce v

viro
Type Description Applicability Type Description Applicability

nm
iro
n

enta
Qualitative Stakeholder engagement to verify All
ance
Govern te

rna

Quantitative Three years of total energy consumption data All

&R
Pollu rces
nm
human rights risks and impacts:
ra
Corpo

l
esou
Quantitative GHG emissions per megawatt-hr Conventional a. Evidence of consultation taking place
Gove

tion
Electricity

ental
b. Documented meetings OR reports
of how results have been used
Qualitative Board oversight of climate change: All
a. Evidence of board or board committee Qualitative How the issuer addresses freedom Broadcasting &
ESG Rating oversight of the management of climate
change risks
of expression through: Entertainment, Media
Agencies, Publishing,
a. Having a statement/policy
b. Named position responsible at Board Level Fixed Line Telecomm-
b. Being a member of a relevant
ruption

unications, Mobile

Water
industry initiative such as the Telecommunications,
Global Network Initiative Computer Services,
Internet, Software
i-Cor

Use
Qualitative Total amount of corporate or group All
Ant

2. TAX TRANSPARENCY donations/community investments

made to registered not-for-profit
organisations
The investment case

Social
si b e r
ty

Investors often want to understand whether businesses can:

La nd

ou
om
St

ili

st
b

r — not only comply with tax arrangements, but also have a strong governance
a

ar
ds Cu on process and transparency around their tax policy and tax arrangements; and
sp
Re — demonstrate commitment to transparency by engaging with stakeholders
Hu m and the public to communicate their contribution to local economies.
& C a n r ig h t s ty
Safe
om m
u n it y H e a lt h & The sources of investment risks
Key sources of investment risk and opportunity:
— regulatory: risks of increased regulation which could close particular tax
arrangements, referred to by some as ‘loopholes’ which would mean reduced
The ‘Exposure’ factor in
S u p p ly C h a in : S o ci al margins and profitability of particular companies. In some cases it may
even affect a company’s ability to operate in certain markets; and
FTSE Russell’s ESG Ratings
3 — reputational: increased scrutiny of corporate tax behaviour.

Example indicators of practice and performance The ESG Ratings service operated by FTSE Russell
Type Description Applicability identifies 14 Themes spread across the three
ESG pillars, most of which include several
Qualitative A policy OR commitment to: All relevant quantitative indicators. Its methodology
FTSE Russell has drawn from global standards and frameworks in the a. Tax transparency or tax responsibility
includes ‘Exposure’, which categorises the
development of its ESG model. The model involves producing an overall ESG b. Align tax payments with revenue-generating
materiality of the 14 Themes for a particular
activity, or reduce or refrain from the use
Rating based on the three pillars of Environment, Social and Governance and of offshore secrecy jurisdictions for the company as High, Medium, Low or Not
on 14 Themes adapted to reflect their materiality to each company. purposes of tax planning Applicable. Based on a matrix, this categorisation
Qualitative Board has oversight of tax policy: All considers business involvement across different
Three of the 14 Themes are shown opposite to outline selected examples countries and sectors; utilises a variety of robust,
a. Evidence of board oversight of the
of the ESG data – both qualitative and quantitative – that issuers can management of tax risks globally-accepted frameworks; and can help
be expected to disclose against specific, material themes. For more details b. Named position responsible at Board level issuers discern which ESG Themes they are
on the methodology please see www.ftserussell.com/esg exposed to, and how to begin reporting on them.
Quantitative Disclosure of corporation tax paid globally: All
a. With at least domestic and This can form a starting point for the potential
international breakdown ESG themes an investor may regard as
b. With country by country breakdown material for a company.
18 Revealing the full picture 03. Investment grade data 19 Revealing the full picture 03. Investment grade data

03
Investment
When using ESG data to
inform capital allocation and
investment decision-making,
investors want ESG information

grade data to be complete, consistent,

reliable, comparable and clear.
Issuers should ensure that the data they provide
is accurate, timely, aligned with the issuer’s fiscal year

What are the essential

and business ownership model (i.e. aligned boundaries),
and based on consistent global standards to facilitate
comparability.
characteristics of ESG data? Raw as well as normalised data should be provided,
and your company should offer a balanced view that
highlights both positives and negatives in its
performance.
To provide investors with a greater degree of confidence
in their reported data, some issuers choose to have
their ESG data assured.
20 Revealing the full picture 03. Investment grade data 21 Revealing the full picture 03. Investment grade data

Characteristics of investment grade data —O

 perations: ESG data should cover 100% of the issuing
entity and employ the same principles as financial
Timeliness
Accuracy: deploy rigorous data collection systems
data. If your company has partial ownership of certain It is best practice to provide ESG data at the same INVESTMENT
Boundaries: align to the fiscal year and business subsidiaries (perhaps without operational control), time as the annual report and accounts are published, GRADE DATA FOR
ownership model the data should be reported on a percentage ownership or as soon as possible afterwards.
basis in order to accurately reflect the proportional
SMALLER ISSUERS
Comparability and consistency: use consistent A company may need to communicate sooner when
exposure the company has to these businesses, unless The importance of providing investors with
global standards to facilitate comparability a significant incident or controversy has taken place, or
national reporting rules have different requirements. investment grade data applies to smaller issuers
has been alleged. In these situations, investors do not
Data provision: provide raw as well as normalised data In situations where parts of the business were acquired too, as the quality of this information informs
expect to wait for the next annual reporting cycle.
or sold during the reporting period, data should be investment decision-making.
Timeliness: provide data to coincide with the annual
provided on both a consolidated and separate basis.
reporting cycle
External assurance Smaller issuers should aim to follow the seven
criteria described in this chapter, taking a
External assurance: consider strengthening
the credibility of data by having it assured
Comparability and consistency As an issuer you may seek to strengthen the credibility pragmatic approach where necessary. For example,
of your ESG data through external assurance. This can ESG data collection systems and processes may
In order to allow comparability between peers, it is
Balance: provide an objective view, including both be conducted through the same processes as financial be inadequate at first; however, it is better to start
important to use consistent global standards when
favourable and unfavourable information reporting, using qualified auditors. We recommend reporting and to improve systems over time
reporting. Issuers should use indicators and metrics that
that the levels, scope and process adopted for external than not to report at all.
are widely used within their sector, aiming to gather data
assurance are clearly described in the report.
Accuracy in line with common practice and to report in a similar
manner to sector peers. Issuers should consider using
As an issuer, you should have rigorous data collection standard denominators when normalising data. Balance
systems and processes for ESG. When preparing data
collection, you should pay particular attention to:
The methods used to collect and calculate data should Issuers should provide an objective picture of Example
remain consistent year-on-year. If data compilation their performance, presenting both favourable and
— Internal systems: assess the ability of existing methodologies or underlying assumptions change, unfavourable information clearly and in full to aid
systems (for example internal audit and risk and issuers need to explain the changes that have been Index membership: FTSE 100
the reader’s understanding. Efforts to avoid or obscure
data control verification systems) to support made. Where these changes have had a significant effect ICB subsector: Industrial & Office REITs
certain information or aspects of performance will
data collection; on results, data for previous years should be recalculated inevitably lead to questions from investors and may A FTSE 100 Real Estate Investment Trust (REIT)
using the new methodology or assumptions to create an environment of mistrust. reports its ESG performance data online, and
— Internal assurance: establish strong internal
enable comparison. through its annual reporting. The business’
assurance processes, including having these Data on more difficult subjects should be set
overseen by or under the governance of the board sustainability strategy prioritises job creation,
out alongside explanations and commentary. Where
audit committee; Data provision influenced by unfavourable occurrences or market
efficient use of natural resources and sustainable
design, and its data disclosure aligns with these
conditions, a full explanation detailing organisational
— Data quality: ensure that the quality of the Generally, investors will prefer to normalise ESG focus areas, offering highlights, raw numbers
learning and changes resulting from the experience
data collected and reported is understood and data themselves so that they can apply their models and discussion around performance.
will reassure investors.
documented. Issuers should collate information on consistently across companies. They therefore expect
how the data was compiled, what assumptions were As environment and energy data is considered to
issuers to provide raw as well as normalised data.
made, and whether any uncertainties or limitations However, issuers should be aware of ways they can “We are active users of ESG be of particular importance, the business reports
against frameworks published by the Climate
apply to the data. Data sources must be appropriate,
reliable and evidenced. Any data challenges should
support investors in using and interpreting the results: data in our investment process. Disclosure Standards Board (CDSB) and the
be identified and the implications assessed;
— Contextual data: investors are interested in putting The quality of data provided European Public Real Estate Association (EPRA).
data into context. Companies can help by providing, These standards commit them to reporting
— Data reliability: this should be tested through in a readily accessible manner, measures of by issuers has improved and emissions both in absolute terms and in a format
internal reviews and conducted by internal audit. financial activity such as turnover, the countries and we would like to see momentum that enables investors to compare their data
Issuers can also consider engaging third-party
assurance providers; and
markets in which they operate, the number of staff continue and build. ESG data with others in the sector.
and contractors and, where relevant, the quantity,
weight or volume of product outputs; influences how we invest. The company also provides a dedicated PDF
— Assumptions: report key assumptions that presenting its environmental and energy data
underpin reporting. — Normalised data: interpretation of progress
We therefore need companies on an absolute and like-for-like portfolio basis for
around targets that are set on a normalised basis to report on ESG with the same its properties, with comparisons to previous years.
Boundaries can be useful for investors. This should be provided level of diligence, controls and They also offer an energy reporting methodology
alongside – not instead of – raw data; and document that explains their approach,
Issuers need to take account of two distinct sets precision as they do for the data boundaries, scope, reporting period, targets
— Explanation: issuers should supplement
of boundaries: timeframes and operations.
quantitative data with narrative explaining the
provided in their annual report and measures. This data is also included in the
—T
 imeframes: ESG data should match your fiscal factors that have influenced performance, whether and accounts.” ‘Business Analysis’ section of their annual report,
with accompanying discussion and trend data.
year and hence match the time period for the annual positively or negatively. Further, where there are Trevor Green
report. This allows investors to cross-use the two core business differences or client segments that Head of UK Equities, Aviva Investors
different data sets, for example normalising certain explain performance relative to peers, these
ESG data by revenues or staff numbers. should also be explained.
22 Revealing the full picture 04. Global frameworks 23 Revealing the full picture 04. Global frameworks

04
Global frameworks
To anyone unfamiliar with
ESG reporting, the volume of
standards, frameworks and
data requirements can seem
overwhelming. Even for more
experienced issuers, it can
be a challenge to identify
the indicators and standards
which are most relevant to
their investors.
While we are some way from a global consensus

What are the most important on reporting standards, the frameworks developed by
the following organisations (in no specified order) are

ESG reporting standards? the ones most widely cited by investors: the Global
Reporting Initiative (GRI), the International Integrated
Reporting Council (IIRC), the Sustainability Accounting
Standards Board (SASB), the UN Global Compact, the
CDP (formerly the Carbon Disclosure Project), the
Climate Disclosure Standards Board, and the FSB Task
Force on Climate-Related Financial Disclosures.
FTSE Russell has consolidated indicators from
different global standards and developed an Exposure
framework. This identifies indicator applicability
for different types of company based on industrial
and geographic presence.
24 Revealing the full picture 04. Global frameworks

“Consistent global
The leading global frameworks provide an Example
ESG frameworks essential tool to allow
investors to analyse and Index membership: FTSE MIB
CDP (formerly the Carbon Disclosure Project) compare ESG risks across ICB subsector: Utilities
CDP collects standardised information from companies and sectors.” A utility group operating in Europe and Latin
companies on climate change and the use America has significant exposure to stakeholders
Rod Paris
of natural resources such as water and whose support is critical to its license to operate.
CIO, Standard Life Investments
soft commodities. The company addresses this challenge by
www.cdp.net clearly identifying and disclosing both the
most significant ESG issues and its stakeholder
Climate Disclosure Standards Board (CDSB)
engagement process, and by rigorously
The CDSB Framework helps companies explain
organising its sustainability report around the ESG
how environmental matters affect their
issues thus identified. The company’s progress
performance and show how they are addressing
on its sustainability plan is mapped against the
associated risks and opportunities to investors
Sustainable Development Goals throughout the
in annual or integrated reports.
report. The report is prepared in compliance with
www.cdsb.net
GRI G4 guidelines (“in accordance – core option”),
Global Reporting Initiative (GRI) with references to this standard clearly guiding
Despite the improvements in the quality and quantity
GRI Sustainability Reporting Standards are the reader through the various sections. ESG
of ESG data being provided by companies, this data
the most widely used standards for reporting on information is externally verified through limited
continues to be regarded as difficult to compare. We are
ESG impacts globally, and have been developed assurance by independent auditors.
in the middle stage of global standardisation, with many
over many years through multi-stakeholder
organisations – standard setters, issuers, investors –
contributions. GRI Standards aim to meet the
defining what it is they need from ESG data, how this
information needs of all stakeholders, and the
data is to be used, how its quality is to be assured,
modular structure supports both comprehensive
and how it is to be presented or reported.
reports and selected disclosures.
Progress on standardisation will help to move www.globalreporting.org
sustainability into the mainstream dialogue between
Integrated reporting
issuers and investors. Increasing use of global standards
The Integrated Reporting Framework helps
and frameworks by companies has a key role to play
companies to produce a concise, investor-focused
in making information more available, consistent and
report that looks at an issuer’s performance
reliable. For example, according to KPMG’s 2015 Survey
and prospects through the lens of six ‘capitals’
of Corporate Responsibility Reporting, 61% of European
(financial, manufactured, human, natural,
corporate responsibility reporters used the GRI
intellectual, social and relationship).
framework7. Furthermore, 93% of FTSE 100, 64% of the
www.integratedreporting.org
FTSE 350 and 45% of the top 100 on Borsa Italiana
reported to CDP on climate change8. Sustainability Accounting
Standards Board (SASB)

61
SASB issues sustainability accounting standards
that help public corporations disclose material

%
and decision-useful information to investors in
their mandatory filings, based on their industry, in
line with the notion that under existing regulation
material information should be disclosed in the
Forms 10-K or 20-F.
www.sasb.org
UN Global Compact (UNGC)
The Global Compact requires companies
of European sustainability to commit to a set of ten universal principles
reporters use GRI concerning human rights, labour, environment
and anti-corruption.
www.unglobalcompact.org
26 Revealing the full picture 04. Global frameworks 27 Revealing the full picture 04. Global frameworks

The UN Sustainable TCFD recommendations and supporting recommended disclosures

Development Goals Governance Strategy Risk management Metrics and targets

The 17 Sustainable Development Goals – and 169 Disclose the organisation’s Disclose the actual and potential Disclose how the organisation Disclose the metrics and targets
governance around climate- impacts of climate-related identifies, assesses and manages used to assess and manage
associated targets – were adopted by the General related risks and opportunities risks and opportunities on climate-related risks relevant climate-related risks
Assembly of the United Nations in September 2015 the organisation’s businesses, and opportunities
to inform a global action plan on ‘people, planet and strategy and financial planning
prosperity’ through to 2030. The value of the framework Recommended disclosures Recommended disclosures Recommended disclosures Recommended disclosures
that the SDGs set out lies in its universality and bottom- a. Describe the board’s oversight a. Describe the climate-related a. Describe the organisation’s a. Disclose the metrics used
up nature, reflecting the fact that it stems from an of climate-related risks and risks and opportunities the processes for identifying and by the organisation to assess
opportunities organisation has identified assessing climate-related risks climate-related risks and
agreement reached after a long process of international over the short, medium opportunities in line with its
b. Describe the management’s b. Describe the organisation’s
negotiations and consultations involving governments, role in assessing and and long term processes for managing strategy and risk management
businesses and civil society. managing climate-related b. Describe the impact of climate-related risks process
risks and opportunities climate-related risks and c. Describe how processes b. Disclose Scope 1, Scope 2,
The 17 SDGs can provide a useful and internationally opportunities on the for identifying, assessing and and if appropriate, Scope 3
recognised framework to shape and prioritise business organisation’s businesses, managing climate-related greenhouse gas (GHG)
strategy and financial planning risks are integrated into emissions, and the related risks
plans and associated reporting. They are consistent
c. Describe the potential the organisation’s overall c. Describe the targets used by
with a number of the leading global ESG reporting impact of different scenarios, risk management the organisation to manage
frameworks9 and are reflected in a growing number including a 2°C scenario, on climate-related risks and
the organisation’s businesses, opportunities and performance
of ESG assessment frameworks including FTSE Russell’s strategy and financial planning against targets
ESG Ratings Model. Measuring progress against relevant
sustainable development goals and targets enables
the harmonisation and comparability of sustainability
investments and actions on a global scale. The task force’s recommendations very closely align —N
 on-Financials: Energy, Transportation,
with our Guidance for ESG Reporting although the scope Materials and Buildings, and Agriculture,
A summary of the SDG framework is presented
of our guidance is more broadly applicable across all ESG Food and Forest Products.
graphically. For more information, please visit the
Themes. Whilst the TCFD is focused on material risks and
UN Sustainable Development Knowledge Platform The task force also places some importance on scenario
opportunities from climate change and the transition
at https://sustainabledevelopment.un.org analysis and has published a technical supplement
to a green economy many of its principles are
setting out the use of scenario analysis, related
applicable to other sustainability themes too.
The Financial Stability Board considerations, analytical choices, climate-related
scenarios and use of leading public climate scenarios.
Task Force on Climate-related Recommendations
The task force recommends that climate-related
Financial Disclosures financial disclosures should be made in public financial
LSEG welcomes the TCFD recommendations
London Stock Exchange Group welcomes these
New contributions Background
filings such as annual reports. They believe that
since climate change often poses material risks their
recommendations and sees them as an important step
to global standards In December 2016 the Financial Stability Board Task framework provides a useful basis for complying
in driving improved global consistency in voluntary global
reporting standards. Please review the full guidance
Force on Climate-related Financial Disclosures (TCFD) with legal obligations in many jurisdictions, for listed
Among the frameworks which are likely to define the on www.fsb-tcfd.org
published its recommendations. This initiative was companies to disclose material risks. To ensure robust
next decades of global reporting and disclosure are: information the task force recommends governance The recommendations have many implications for
set up following a request from the G20 in order
— the Sustainable Development Goals (SDGs) to avoid potential negative impacts on the stability controls such as review by Chief Financial Officers and our business: for our own reporting as a listed company,
specified in the UN’s ‘2030 Agenda for Sustainable of financial markets. audit committees. The task force recommendations set for our work with issuers including this Guidance, and
Development’; and out ‘Principles for Effective Disclosures’ which closely for our information services to investors, including
The rationale for this was that appropriate disclosures
align with those set out here in Chapter 03, Investment benchmarks. LSEG and FTSE Russell, in particular, intend
— the recommendations of the Financial Stability were needed for financial firms to manage and price
Grade Data. to play a critical role enabling the flow of information
Board’s Task Force on Climate-Related Financial climate risks and to take lending, investment or
envisioned by the TCFD. FTSE Russell’s Climate Change
Disclosures. insurance underwriting decisions based on their view The more specific disclosures that are recommended
Criteria (which form part of the ESG Model) in many
of low carbon economy transition scenarios. Effective fall into four categories; Governance, Strategy, Risk
Although coming from very different directions and cases map to the recommended disclosures, and as an
disclosure of climate-related financial risks will help Management and Metrics & Targets. The task force
starting points, both initiatives could play a significant immediate step, FTSE Russell is reviewing them closely
avoid an abrupt repricing of risk and impacts on high level specific disclosure recommendations
role in the global harmonisation of ESG measurement to identify new indicators and to align existing ones.
market stability. are summarised in the table above across all four
to the benefit of both issuers and investors. The TCFD also cover disclosure of opportunities related
of these categories.
The task force has developed a set of recommendations This information to green products. This supports FTSE Green Revenues
for consultation that aim to support consistent, is based on the TCFD These disclosures above are relevant across all data model and aligns with Chapter 07 of this
recommendations
comparable, reliable, clear and efficient climate-related for consultation that
industrial sectors. The task force has also developed Guidance. LSEG is also well positioned to support and
disclosures by financial and non-financial companies. were published in much more sector-specific guidance set out for the facilitate the further refinement of metrics through
December 2016. The following industries and groups: collaboration with issuers and investors, and looks
final recommendations
are expected to be forward to exploring with the TCFD how to support
—F
 inancials: Banks, Insurance Companies,
published in June 2017. this important work.
Asset Owners, Asset Managers; and
28 Revealing the full picture 05. Reporting formats 29 Revealing the full picture 05. Reporting formats

05
Reporting formats
Companies can report ESG
information in their annual
report, in a standalone
sustainability report or in an
integrated report. The choice of
reporting formats may involve
trade-offs between breadth
and depth, between focusing
on material issues and covering
a wider horizon that addresses
the relationship between ESG
and business strategy. It is
often unclear which of these
is most useful to investors.
How should ESG data be reported? Issuers can take practical steps to ensure that their ESG
disclosures are relevant to their investors. You can ensure
that your reported data is of investment-grade quality,
set out your views on materiality, and explain the
strategic relevance of these ESG issues to your business.
There are different advantages to each type of reporting,
and each issuer should consider which approach will best
suit their own needs and those of their investors.
Remember that reporting is just one part of the wider
dialogue you have with your investors. You should
see ESG reporting, irrespective of the specific format,
as providing a basis for dialogue with your investors,
not as a replacement for this dialogue.
30 Revealing the full picture 05. Reporting formats 31 Revealing the full picture 05. Reporting formats

Annual report, standalone Integrated reporters should beware of the implications

of reducing the information made available to
An end to survey fatigue
sustainability report, investors. Although brevity is welcomed by many Publishing well considered reports that provide high
or integrated report? investors and enables a focus on the most business
critical ESG areas, it may mean that investors do not
quality ESG information and data, and placing other
relevant information such as policies online, will make
get the breadth of information they need. Investors it increasingly feasible for you to point those requesting
Annual report responses to ESG surveys towards your published
are diverse and have different ESG needs. Some of
It is increasingly common for larger listed companies materials instead.
them review published reports directly, whereas
to include explicit references to ESG themes within
others access company information (including within
their annual reports.
The integration of ESG issues into annual reports
analytics, research tools and indexes) through third
party data and research providers and index providers.
Optimising communication
allows the process of gathering and verifying this data This means that data needs to be easily collectable There are a number of steps that you can take to
to be integrated into the processes and information by these intermediaries – and as a result, integrated ensure your report is of the greatest possible value
controls that are already in place. It also means that reporting should be supplemented by additional, to investors:
ESG data is readily available to investors at the same more detailed ESG information delivered via the
time as wider information about the company. company’s website or through associated published
data appendices.
1
Separate out policies,
processes and methodologies
In practice, due to concerns about length and
–A
 nnual or sustainability reports featuring
complexity, companies tend to discuss relatively
few ESG issues in their annual reports. In addition,
Reporting as a complement large amounts of detail around policies and
ESG-related content may not fit the flow and structure
THE DIFFERENT to dialogue methodologies can obscure new information
and key messages; and
of the annual report. These issues can be addressed by
publishing methodologies, policies and historical data FORMS OF ‘CAPITAL’ Reports enable public distribution of ESG information
– Incorporate standing information (‘boilerplate’)
concurrently to all existing and prospective investors.
online, leaving just the key information pertaining Capitals (also referred to as ‘resources and repeated every year in an appendix or separate
This can complement direct dialogue with investors and
to the previous year and to future strategies, plans relationships’) are stocks of value or assets that document, and signpost it from the report.
also provide a basis for such dialogue – something which
and targets in the annual report. can be enhanced, or diminished, by the activities can in turn help shape and determine the content of
Standalone sustainability report
of a business. The International Integrated future reports. In other words, high quality reporting 2
Make it easy to find and access
Reporting Council lists six capitals in its should support deeper and more effective direct dialogue – E nsure that the report is prominent. Promote
Introducing a standalone sustainability or CSR report framework: it on the corporate website, including the
with the investor community, not replace it.
is an approach favoured by many issuers. In 2015, investor relations section, include a link within
726 non-financial reports were published in the UK — Financial: internal and external funds news releases to the markets and summarise
and 309 in Italy10. available to a business; findings in investor presentations; and
These reports provide a clear ‘home’ for ESG content, — Manufactured: for example, buildings,
equipment and infrastructure;
Example –P
 rovide data in spreadsheet format, hyperlink
consolidating the information in a single location. to corresponding financial statements, or further
In addition, a standalone sustainability report does not — Intellectual: knowledge-based intangibles, ESG information if producing a report online.
necessarily need to align with the style of the annual Index membership: FTSE Italia Small Cap Data can also be tagged in XBRL, so that it can
for example brands and patents; ICB subsector: Industrial Goods & Services
report; issuers can adopt a style of presentation for raw more easily be pulled out and aggregated by
data, tables and charts best suited to ESG information. — Human: people and their capabilities A mid-cap manufacturer of components for specialist applications. XBRL is a type of
and experience; household appliances listed on Borsa Italiana’s extensible markup language used for organising
The separation can imply that sustainability information
— Social and relationship: stakeholder premium segment STAR has adopted the IIRC’s and defining financial data in a standardised
is considered separate from the core business of the
and network relationships; and reporting format for its annual report, published way, applying tags to unify and compare
company. This can be addressed by aligning key areas of
both in Italian and English. The business different accounting standards.
the annual report and sustainability report. For example, — Natural: environmental resources, such as air,
if a performance trend or external driver is highlighted strategy is broken down into the forms of
in the annual report, it should also be addressed in
water and land. capital suggested by the Integrated Reporting 3
Consider language
the standalone sustainability report. Framework. It also adopts GRI standards for – Ensure the language used, and its accessibility,
materiality analysis and KPI disclosure with meet the needs of your investor base.
Integrated report three year data series provided for each KPI.
The concept of an integrated report is that ESG The intellectual capital section includes detailed
research and development indicators, in line with
4
Combine data tables and
include historical information
information and data are presented in an integrated
manner within the annual report. This model has been the emphasis placed on innovation and intangible –R
 etain three to five years’ worth of historical
promoted by the International Integrated Reporting assets described in the company’s business information and data. Where there are significant
Council (IIRC) and aims to offer investors a more model. The governance section is also well corporate changes such as acquisitions and
rounded, concise and holistic insight into business developed to meet STAR investors’ expectations de-mergers, the reports and information
performance and impact over the short, medium of a strong sustainability dimension. pertaining to the previous entities should
and long term. also be retained wherever possible.
32 Revealing the full picture 06. Regulation and investor communication 33 Revealing the full picture 06. Regulation and investor communication

06
Regulation
The volume of regulation
concerning ESG reporting
has increased substantially
in recent years. If regulators
in different countries and
regions set different reporting
requirements and standards,
this can be problematic for

and investor both issuers and investors.

As a result of this level of activity in ESG reporting,

communication
over 80% of the world’s top economies by GDP in 2016
mandated ESG reporting in some form10. Well-crafted
disclosure regulation can aid issuers and investors by
improving data consistency, availability and reliability,
and by helping focus attention on key ESG issues.
Issuers should see regulation as a starting point

How can companies navigate

for reporting. However, rather than taking a minimum
compliance approach, you should use regulatory
requirements as an opportunity to develop an investor-

regulations and communicate focused approach to reporting. It is important that,

as an integral part of the reporting you’re required

effectively? to produce, you identify and report on what you

see as your most material issues.
34 Revealing the full picture 06. Regulation and investor communication 35 Revealing the full picture 06. Regulation and investor communication

Governments around the world, responding chiefly

EU regulation: the Non- Key ESG reporting regulations: Italy, the UK and the EU
100+
14

to broader societal awareness around sustainability,

have introduced a number of mandatory reporting Financial Reporting Directive
instruments. In just three years, over 100 new mandatory Country Institution Year Title Type Status Commentary
mandatory The aim of the EU non-Financial Reporting Directive
instruments have been introduced across 64 countries11.
reporting (NFRD) is to establish a minimum standard for ESG Italy Market 2015 Italian Corporate Non-Government Issued The Italian Corporate Governance
Participants Governance Code Suggested Committee included ESG risks and
instruments have As a result of this level of activity in ESG reporting, reporting across the EU. The Directive requires the largest Associations & Corporate governance considerations in its
been introduced over 80% of the world’s top economies by GDP in 2016 companies to report on environmental matters, social Borsa Italiana Governance review of the Code issued in July 2015.
across 64 mandated ESG reporting in some form11. and employee affairs, human rights and anti-corruption Disclosure,
Voluntary
countries10 and bribery issues. National governments transposed
However, this can often mean that companies will face
the Directive into national law in 2016. Italian 2007 Legislative decree Government Issued States that directors’ reports should
differing requirements, while investors will be unable Government No.32/2007 Imposed Corporate include financial and non-financial
to compare data on companies globally. The UK’s implementation of the EU Non-Financial transposing directive Environmental key performance indicators relevant to
2003/51/CE and Disclosure, the specific business of the company,
Reporting Directive builds on earlier provisions to Article 2428 of the Mandatory including information relating to
Reporting standards are still evolving and whilst issuers
require companies and groups with over 500 employees Italian Civil Code environmental matters.
need to report in a way that is consistent with regulatory
that are classed as public interest entities (i.e. entities
reporting requirements, they can also innovate and UK FRC 1992, most UK Corporate Industry Body Issued For Premium companies listed on
whose activities are of significant interest to the public, recently Governance Code Led Corporate the Main Market, the code sets out
should aim to report in a manner that is most useful
and include banks, insurers and quoted companies) to updated Governance standards of good practice in relation
to investors. This can sometimes mean going above in 2016 Disclosure, to board leadership and effectiveness,
disclose a fuller range of non-financial information in
and beyond regulation. ‘comply or explain’ remuneration, accountability and
their strategic reports. This requires eligible companies relations with shareholders, on a
to disclose information on environmental, employee, comply-or-explain basis.
UK and Italian regulation social and human rights. The framework also requires UK Government 2015 Modern Slavery Act Government Issued Section 54 of the Modern Slavery Act
disclosures on anti-corruption and anti-bribery matters. Imposed Corporate 2015 requires certain organisations
The 2015 update of the Italian Corporate Governance Environmental to develop a slavery and human
There is a further requirement for quoted companies to Disclosure, trafficking statement each year.
Code, which is applied on a comply-or-explain basis,
include a description of their diversity policy and how Mandatory
recommends that the boards of listed companies
it has been implemented or to explain why one is
should take into account any risk that may affect the UK Government 2006, Changes to the Government Issued Carbon emissions, human rights and
not relevant. revised Companies Act 2006 Imposed Corporate diversity reporting required by all listed
sustainability of the business in the medium-long term 2013 (Strategic Report Environmental companies in the Director’s Report.
when assessing the company’s risk profile. In addition, If the company does not have a policy in relation and Director’s Disclosure,
the Code recommends that the largest companies, to any of these matters the company should provide Report) 2013 Mandatory
namely the constituents of the FTSE-Mib index, should a clear and reasoned explanation as to why it would All EU National 2016 Transposition of the Government Issued Applies from January 2017 to all
consider whether or not to set up a board committee not be relevant. The first reports under the new member governments EU Non-Financial Imposed Corporate listed companies with more than 500
states Reporting Directive Environmental employees, and mandates disclosure
tasked with supervising sustainability issues related requirements should be published in 2018, for financial 95/14 Disclosure, of environmental, social (including
to the company’s business. years commencing in 2017. There is flexibility on Mandatory diversity and human rights) and
how to report and companies can draw on relevant anti-corruption issues.
The UK governance and reporting framework12
international, European or national guidelines. — Transposed in the UK through the
encourages reporting of ESG and non-financial matters Companies, Partnerships and Groups
through the Guidance on the Strategic Report and The Italian transposition of the Directive in addition (Accounts and Non-Financial
Reporting) Regulations 2016 n. 1245
Corporate Governance Code requirements for disclosure requires issuers to adopt global standards wherever
— Transposed in Italy through
of principal risks and uncertainties and a viability possible, or to explain why the company decided to Legislative Decree 30 December
statement. The 2013 updates to the UK Companies develop its own disclosure approach. Disclosure has 2016 n. 245
Act 2006 included a number of ESG reporting provisions. also to cover a minimum set of parameters, including
UK incorporated quoted companies i.e. those with equity energy use from renewable and non-renewable sources,
shares listed on London Stock Exchange Main Market, impact on health and safety, and measures aimed at
EEA regulated, NYSE or NASDAQ, are expected to explain implementing international gender diversity frameworks. Getting value from regulation Going forward, we may see the financial community
sharing the responsibility of disclosing alignment with
how they are managing issues such as environmental The non-financial statement can be part of the annual
performance, human rights, social and community report, or be a separate document, and it has to be Rather than taking a minimum-compliance approach, ESG considerations. Article 173 of France’s Energy
involvement and diversity. They are also expected to externally verified either by the company’s legal issuers should use the regulatory requirements as an Transition for Green Growth Law which came into effect
report on certain statistics, for example Scope13 1 and auditors or by an auditing firm specially appointed. opportunity to enhance their reporting to investors. in early 2016 requires investors to outline how they
2 CO2 emissions and gender diversity at Board, senior The statement has to be submitted to the Italian capital factor ESG criteria into their investment decisions. As
It is critical to move beyond the areas covered in
management and whole-company levels. markets authority Consob, who is also in charge of this effectively forces ESG engagement and integration
regulation and towards identifying your business’s most
monitoring compliance. from both sides, it adds still more momentum to the
Requirements differ for companies of different sizes material ESG themes and the underlying indicators
drive for consistency, standardisation and recognition
and listed status. For example while all companies are based on global standards. Only then will you be able to
of the global context influencing reporting.
expected to disclose principal business risks, medium- produce ESG reporting that aligns closely with your own
sized companies are not expected to include an material issues, and that enables a richer data flow
analysis of non-financial KPIs. Furthermore, only listed and dialogue with investors to take place.
companies are required to contain an overview of the
business strategy and model as well as environment,
employee, social, community, human rights and
diversity information in the strategic report.
36 Revealing the full picture 07. Green Revenue reporting 37 Revealing the full picture 07. Green Revenue reporting

07
Green Revenue
Around the world, investors
want to understand issuers’
exposure to green products
and services. However, there is

reporting
limited consistent information
available on how issuers are
deriving revenue and growth
from providing environmental
solutions.
How can issuers get recognition As an issuer you should proactively communicate

for green products and services? your exposure to the green products and services
that enable the transition to the green economy.
To do this, you need to identify the parts of your
business that manufacture or provide goods, products
and services delivering environmental solutions,
quantify the associated revenues, and talk about
how your investments in innovation and R&D will
drive your business’s future growth.
38 Revealing the full picture 07. Green Revenue reporting

Climate risk and rewards “Certain segments of global

Investors need to understand how companies in markets will undergo significant
their portfolios are changing their exposure to green change as the world moves towards
revenues subsectors and therefore need issuers to
provide more detailed revenue breakdown, at a green
Green Revenues. Companies that
sub-segment level, to measure this. Some of the world’s offer comprehensive reports
largest investors are actively allocating additional on the environmental solutions
capital to companies with higher green revenue
exposure; so better reporting can directly lead to greater
they provide, send a strong signal
investment flows. This requires you as an issuer to: to capital markets that they are
aware of the business opportunities
1
Understand opportunities in the
transition to a green economy that come with long term trends
Identify parts of the business that manufacture like the transition to Green
or provide goods, products and services driving
value for the business and delivering
Example Revenues. Companies disclosing
environmental solutions. their ‘green revenues’ can benefit
Index membership: FTSE 100 through greater investment from
2
Identify green revenues
Provide details of the revenues resulting
ICB subsector: Speciality Chemicals
funds such as ours.”
A UK chemicals company breaks its revenues Maurice Versaevel
from ‘green’ goods, products and services.
into specific sub-segments, enabling investors to Investment Strategist, PGGM
understand precisely how much of those revenues
3
Connect to your own climate impacts
Ensure that reporting on green revenues is
make a contribution to the green economy.
integrated with both wider financial reporting For example, it has a segment named ‘Precious
and with carbon strategy, emissions data Metal Products’, which it breaks down into two
and performance reporting. sub-segments, ‘Recycling’ (revenue gained from
providing recycling services) and ‘Other activities’
4
Talk about where the future lies
Discuss how investment in innovation and
(revenue gained from refining and developing
paint coats and other products). This allows
R&D will support the transition to a green investors to see that the recycling segment
economy. contributes to the green economy, whereas
the ‘Other activities’ do not. Each of these
sub-segments is furnished with a separate
published calculation sheet.

FTSE Green Revenues Index membership: FTSE 100

RENEWABLE FUNDS
data model ICB subsector: Fixed Line Telecommuniactions
An emerging asset class associated with the
A FTSE 100 telecommunications company has
transition to a green economy is represented
reported its aim as being to ‘have helped our
FTSE Green Revenues data model measures the by renewable infrastructure funds. Renewable
customers cut their carbon emissions by at least
green revenues of over 13,000 public companies infrastructure funds listed on London Stock
three times our own end-to-end carbon impact’ by
globally across 60 subsectors; from advanced Exchange are worth a combined £3.4bn and
2020. This 3:1 ambition is based on the company’s
battery and solar panel manufacture to flood have raised £2.7bn since 2013. For investors to
products and services having a carbon abatement
defence construction. For the full list of be able to report on the impact of these funds
effect at least three times the impact of its own
subsectors, see Appendix ii. on the exposure of their portfolios to the green
emissions (Scope 1, 2 and 313).
economy, clarity and details regarding the type
By quantifying and reporting the abatement of assets these funds are invested in are extremely
affects of products such as video-conferencing useful. These could include the renewable energy
and cloud computing services, the business generation capacity and the equivalent estimated
demonstrates how it is not only prepared for the GHG emissions avoided through the infrastructure
transition to the green economy but will benefit projects that are financed or in which the funds
directly as a result. are invested.
40 Revealing the full picture 08. Debt finance 41 Revealing the full picture 08. Debt finance

08
Debt finance
Investors are increasingly
interested in the ESG
characteristics of fixed income
issuers. They recognise these
issues as sources of risk and of
opportunity. In addition, with
the growth of the green bond
market, investors are also
interested in financing that
is linked to specific activities
and projects delivering
environmental benefits.
What should debt issuers The rest of this Guidance is also applicable at an

report and what are the entity level to issuers of bonds considering their ESG
reporting. Issuers may also wish to consider issuing

emerging standards here?

green bonds to access new sources of capital. However,
this requires a number of criteria to be satisfied.
Issuers need to ensure that proceeds are fully directed
towards green projects, that there are clear criteria
for project selection and evaluation, that proceeds
are only used for green projects, and that information
on the use of proceeds is published regularly.
To be included on the London Stock Exchange
green bond segment, an issuer also needs to use
an external reviewer.
42 Revealing the full picture 08. Debt finance

As investors increasingly need ESG information at To be admitted on these segments, issuers are required
entity level for all corporate bond issuers, the previous to submit an external review document verifying the
sections of this Guidance are also relevant for fixed ‘green’ nature of the bonds. Ongoing disclosure and
income issuers. However, the data needs are likely to be impact reporting are also encouraged to enable investors
subtly different for bond investors, especially with regard to make their own investment assessments regarding
to materiality. The materiality lens for a bond investor these instruments.
is typically tighter than for equities, as only ESG factors
The UK already has some of the highest standards
that could potentially impact the likelihood of a bond
of disclosure and regulatory oversight. Not only does
issuer paying interest or capital repayment at the end
this benefit issuers by associating them with a strong
of the bond’s duration would be material, while for
reputation for quality, but it benefits investors too –
equity investors a wider range of factors can impact
ensuring greater transparency. The additional
company value and share price returns.
certification on the green bond segments is vital to
Standards for information on fixed-income reporting attracting more investors who can then have confidence
are also developing around green finance through the in the integrity of the bond and its green proceeds.
relatively new concept of green bonds. The standards
The first green bond in London was listed in 2012 by
for green bonds relate to reporting on the use of
proceeds with respect to positive green impacts. There
the Nordic Investment Bank. As of January 2017, there Example
were 40 green bonds listed across LSE’s Main Market
is also the early emergence of social bonds which,
and Professional Securities Market (PSM). Issued by
in a similar manner, consider the use of proceeds Index membership: FTSE Small Cap
15 different institutions, including supranationals, local
with respect to positive social impacts. ICB subsector: Waste & Disposal Services
governments and municipalities as well as corporates,
they have raised over $10.5bn in seven currencies A FTSE Small Cap company active in the waste
Green bonds: bringing through a range of transactions, many of which are world management sector publishes a corporate
green finance to scale firsts in terms of currency, geography or structure. responsibility report that analyses the
environmental and social performance of
According to the Climate Bonds Initiative’s State
There is significant momentum behind ‘green bonds’ of the Market 2016 report15, over $42bn of green bonds its business by operating divisions, based on
– fixed-income instruments that are designed to help were listed in 2015. Furthermore, 82% of the green GRI standards. A very clear summary table
fund environmentally friendly projects. Major global bond market is investment grade (BBB rated or higher) of performance indicators and five-year targets
institutions, industry bodies and policy makers, and more than half of that is AAA rated. is followed by deep-dive sections dedicated
including the G20, have backed the development to environmental performance (30 KPIs),
of this market. In June 2015, London Stock Exchange In parallel to this sharp growth, concerns have arisen Health & Safety (8 KPIs) and people (17 KPIs).
(LSE) became the first exchange globally to launch about definitions and transparency. Which projects All narrative sections clearly identify the link
a comprehensive dedicated green bond offering. meet sufficiently ‘green’ standards? How can investors between specific sustainability themes and the
be sure that their funds will achieve impact? company’s business model. More detailed KPIs
There are emerging approaches to meeting this need are provided in a separate document available
for clarity in the market. The biggest step came with online, which also reports on the use of the
G20 Green Finance the publication of the Green Bond Principles in 2014. proceeds raised through a green bond issuance.
Study Group (GFSG) Focusing on transparency and disclosure, these aim
The report describes the initial proposed
allocation of funds to the sustainable projects
to provide issuers with the key components required specified in the green bond issuance documents,
Chaired by China and the UK, the G20’s Green for listing on the green bond market. and the actual allocation of funds. For every
Finance Study Group convenes a group of project an overview of the associated

82
countries and institutions including the United environmental benefits is provided.
Nations Environment Programme to explore
the potential for green finance to contribute
to sustainable development, overcome barriers
and create an enabling environment for change.
China is one country transforming its financial
% “We see ESG factors as very important investment
considerations in all asset classes: green bonds is a
system to facilitate green instruments, including
green bonds, green credit, green equity index
way for issuers to show investors that they hardwire
products and carbon finance. ESG into the capital structure. As such, we look not
only into expanding green bond exposure per se,
of the green bond market but also to issuers that issue green bonds.”
is investment grade Ulf Erlandsson
(BBB rated or higher) Senior Portfolio Manager, AP4
44 Revealing the full picture 08. Debt finance 45 Revealing the full picture 08. Debt finance

Green Bond Principles – what investors need to know

The Green Bond Principles (GBP) define green bonds 3. Management of proceeds
as ‘any type of bond instrument where the proceeds Issuers should transparently track net proceeds,
will be exclusively applied to finance or re-finance allocating them in a segregated sub-account,
in part or in full new and/or existing Green Projects… sub-portfolio or otherwise. The Principles recommend
and which are aligned with the four core auditing as an additional level of robustness.
components of the GBP’.
Alignment with this Component requires
GBP core components can be summarised as: confirmation that the proceeds from the green
bond are used only for the nominated projects.
1. Use of proceeds – measuring green impact
Proceeds should be fully directed towards ‘Green 4. Reporting
Projects’. That is, they will address key areas of Information on the use of proceeds, including the
environmental concern such as climate change, amounts allocated at project level and the impacts
evolution of natural resource depletion, biodiversity achieved and expected, should be published annually
loss and/or pollution. until full allocation and processing thereafter.
These categories are purposefully broad and Overall, issuers are recommended to use an external
non-exhaustive. The GBP’s website provides examples reviewer. The external review can take the form
on what projects qualify, but acknowledges that of a consultant review, verification, certification,
definitions can vary. and/or rating.
2. Process for project evaluation and selection Transparency and access to information are
Issuers should be transparent in how they determine central to mobilising private sector money and
the eligibility of their projects, outlining how they will mainstreaming environmental risks. One of the
meet critical environmental sustainability objectives. great challenges for green bonds is the further
development of impact reporting standards as
In practice, this means articulating targets for
there are no universally agreed metrics or formulas
the environmental benefits that the projects will
achieve, for example reductions in CO2 and
for quantifying or calculating the environmental ‘Climate-aligned’ bonds
water emissions.
impact of the underlying projects.
According to the Climate Bonds Initiative’s State of Charity bonds
the Market 2016 report, ‘climate-aligned’ bonds have
reached a total value of $694bn. These bonds include
not just labelled green bonds but those that are In July 2014, London Stock Exchange launched
financing low-carbon and climate adaptation a dedicated ‘retail charity bond’ segment on the
Climate Bonds Initiative infrastructure, and are issued by companies with over Order book for Retail Bonds (ORB) in response to
95% of revenue derived from climate-aligned assets. increased investor demand for instruments with
an ethical impact. ORB is London Stock Exchange’s
Climate Bonds Initiative is an investor-focused, consists of a certification process, pre- and flagship electronic retail bond market, offering
not-for-profit organisation whose purpose is to post-issuance requirements and a set of sector- Social bonds issuers a primary market for the issuance and
mobilise capital markets for climate change specific eligibility and guidance documents. Bonds distribution of retail-eligible bonds as well as a
solutions. Its Climate Bonds Taxonomy has been are accorded the status of Certified Climate Bonds ICMA and the Green Bond Principles have published
liquid, transparent secondary market for investors.
one of the first attempts to provide broad guidance when they are verified as adhering to the Climate guidance for issuers aiming to finance projects with
A total of 56 dedicated issues raised approximately
for prospective green bond and climate bond issuers Bonds Standard, providing investors with assurance social objectives. Focused on populations that are living
£6bn between 2010 and 2016.
and investors by encouraging common definitions about their contribution to the delivery of a under the poverty line, excluded, and/or vulnerable,
across global markets, in a way that supports the green economy. social projects can include providing development In June 2015, in order to support future issuances,
growth of a cohesive thematic bond market. Eight infrastructure and services such as sanitation, clean London Stock Exchange waived admission fees
The certification process is summarised as: drinking water, affordable transport, education and for charity bonds issued on ORB. Since the launch
specific ‘climate bond’ sectors have been identified
for which detailed eligibility criteria have been 1. Identify qualifying projects and assets, healthcare as well as affordable housing, employment of the retail charity bond segment, London Stock
developed. Sector specific standards currently exist based on the Climate Bond Standards criteria; projects, food security and socioeconomic advancement. Exchange has welcomed three Retail Charity
for solar, wind, low carbon economy buildings, Bonds raising a total of £68m. Issuers include
2. Arrange an independent review; and As with green bonds, social bond issuers should
geothermal and low carbon economy transport Golden Lane Housing, Hightown Housing
apply the four core components of the GBP (use of
whilst standards for water, bioenergy and 3. Track and report; the value of the assets must Association and Charities Aid Foundation.
proceeds, process for project evaluation and selection,
agriculture and forestry are also under stay equal to, or greater than, the value of the management of proceeds, and reporting), and
development. The Climate Bonds Standard (v2.0), bond, and reporting to investors must take external reviews.
which fully integrates the Green Bond Principles, place each year.
46 Revealing the full picture Summary 47 Revealing the full picture How LSEG supports ESG reporting and communication

Summary How LSEG supports ESG

reporting and communication
With data on ESG data now frequently being used alongside Beyond its contribution to public policy discussions on driving
other financial and strategic information in investment analysis global standardisation of ESG reporting, LSEG supports issuers
and decision making, there is a compelling case for companies and investors in making ESG communication effective.
strengthening their reporting and communication by
incorporating ESG issues. 1
Capacity building and supporting issuers –W
 e collect ESG data from public sources
in reporting: and contact over 4,000 companies to check
that information with them directly;
–W
 e provide training, including through our
Investors want to understand how well companies
are managing the risks associated with ESG issues,
4
As the most important part of the above, identify
the parts of the business that manufacture or
Academy, and host events that clarify good –W
 e track the proportion of companies’ revenues
practice in corporate reporting; that derives from products and services serving
seeing this as a key test of management quality. provide goods, products and services delivering the transition to a green economy through FTSE
They are also interested in the opportunities presented environmental solutions and supporting the – T hrough our unique open access technology
Green Revenues data model; and
by the green economy – and increasingly, they are transition to a green economy; and break down platform ELITE Connect, we allow listed
allocating capital to companies that are well equipped and quantify the associated revenues. companies to manage their local and global –W
 e support stock exchanges including Madrid,
to benefit from this. investor relations efforts and to improve their Johannesburg and Malaysia in creating
To respond to the growing interest, issuers should 5
Provide data that is accurate, timely, aligned with
their fiscal year and business ownership model,
communications with their shareholders and
intermediaries. This platform enables issuers to
dedicated ESG indexes for their markets.
provide investment-grade data and information. showcase their company story and ESG activities
and based on consistent global standards
Specifically, they should:
to facilitate comparability. through digital meetings and webcasting; 4
Contributing to global policy
development and dialogue
1
Explain the relevance of environmental, social
and governance factors to their business models 6
Recognise that reporting is just one part of
– I n 2000 Borsa Italiana established the STAR
segment which includes mid-cap companies
– We contribute to consultations on ESG reporting.
the wider dialogue they have with their investors. Recent responses have included those regarding
and strategy. These factors should not be with high corporate governance standards; and
ESG reporting, irrespective of the specific format, the EU Non-Financial Reporting Guidance, the
‘bolt-on’ but an integrated component of –B
 orsa Italiana regularly organises thematic FSB Task Force on Climate-Related Financial
provides a basis for dialogue with investors but
business drivers and considerations. road shows to facilitate dialogue between listed Disclosures, the United States Securities and
is not a replacement for it.
companies and investors. Sustainability topics Exchange Commission’s consultation on material
2
Explain how ESG issues may affect their business,
e.g. through legislation, reputational damage,
are increasingly part of these initiatives. disclosures, and the UK Government consultation
on the amendments to the Companies Act;
employee turnover, licence to operate, legal action
or stakeholder relationships, and how these
impacts may affect business strategy and
2
Profiling issuers on our markets with green
or other sustainability attributes:
–W
 e play an active role in a number of global
associations including the UN-backed PRI
financial and operational performance. and Sustainable Stock Exchanges initiative,
– L ondon Stock Exchange has developed one
bringing together a wide range of sustainable
of the world’s first green bond segments based
3
Explain how they intend to access the new
opportunities and revenue streams generated
on strict admission criteria to support the
investment association;
growth of this market segment; and –W
 e promote good standards in the UK and set
by green and socially beneficial products and the Italian corporate governance code. In 2016,
services. In this context they should explain how –O
 n Borsa Italiana, listed companies can include
we published ‘Creative Tension? 25 Years On’,
their investments in innovation and R&D will information on sustainability strategies, targets
a collection of essays on corporate governance
drive future growth for the business. and performance as an integral part of their
by leading industry figures; and
company profiles.
–W
 e convene market participants, issuers
and investors to improve data, dialogue, and,
3
Providing investors with ESG data,
analytics and indexes:
ultimately, capital flows.

– FTSE Russell has pioneered ESG indexes for over

15 years since the launch of the FTSE4Good
Index Series and now provides a comprehensive
range of ESG ratings and data;
48 Revealing the full picture Appendices 49 Revealing the full picture Appendices

Appendices
50 Revealing the full picture Appendices 51 Revealing the full picture Appendices

Appendix i – Materiality Disclosure data detailed

Quantitative indicators to consider reporting against: These are drawn from the FTSE Russell ESG Ratings Model
– Clarity and transparency is vital in your disclosure,
and their materiality for different ICB Industries. Note that these indicators themselves draw from a wide variety Carbon emissions
of pre-existing established standards such as GRI and CDP. being as specific as possible, reflecting recognised
categories of hazardous waste
– Three years of total operational Green House Gas
(GHG) emissions data (Scope 1 & 2) typically via – Key global standards for this include SASB
Disclosure categories by industry
CDP (below) (Sustainability Accounting Standards Board: www.
sasb.org) section150a.1 and GRI (Global Reporting
– Scope 1 emissions are direct emissions from
Financials Basic Materials Consumer Goods, Customer company owned or controlled sources. Scope 2
Initiative: www.globalreporting.org) section 306-2.
Services & Healthcare emissions are indirect emissions from the generation
Carbon emissions Carbon Emissions of purchased energy. See www.ghgprotocol.org for Non-recycled waste
Energy use Energy use Carbon emissions more information
Social & Community investment Hazardous waste Energy use – Disclosure of three years of non-recycled waste
– Scope 1 emissions should include a breakdown by
Staff turnover rates Non-recycled waste Social & Community investment generation (tonnes)
GHG type with a gross figure for each GHG and the
Share of temporary staff Recycled waste Staff turnover rates Global Warming Potential for that gas – This is generally waste that is sent to landfill
Employee training hours Environmental fines Share of temporary staff or incinerated
– CDP (formerly the Carbon Disclosure Project)
Political contributions Environmental management Employee training hours
manages one of the most widely used international – It is important to differentiate between treated,
Independent directors NOx emissions Independent directors standards for reporting emissions (www.cdp.net) recycled and non-recycled for this to be
Female directors SOx emissions Female directors considered disclosed
– Other global standards include TCFD (Taskforce for
Corruption fines VOC emissions Climate-related Financial Disclosure); GRI (Global – Normalized data such as non-recycled waste per unit
ESG fines Water Use Industrials, Technology Reporting Initiative: www.globalreporting.org) section of revenue is acceptable, provided that it can be
Water recycled & Telecomms 305-1 & 305-2 and SASB (Sustainability Accounting consolidated to a corporate level
Standards Board: www.sasb.org) section 110a.1.
Utilities Social & Community investment Carbon emissions – Providing granular data in addition to a consolidated
H&S management figure is particularly useful for certain industries.
Energy use Energy use
Carbon Emissions H&S training However, if it is disclosed in multiple different units,
Social & Community investment e.g. 100 tonnes of scrap, 500 litres of oil, 20 pieces
Energy use Lost-time incidents Staff turnover rates – Three years of total energy consumption data is of car body etc, it is vital to highlight the relevance
Hazardous waste Staff turnover rates Share of temporary staff disclosed. Typically, this may be via CDP (below) to the production process
Non-recycled waste Share of temporary staff Employee training hours – A single, combined figure for all fuel sources i.e. – Key global standards for this include GRI (Global
Recycled waste Employee training hours Political contributions electricity, gas, fuel, measured in kilowatt hours Reporting Initiative: www.globalreporting.org) section
Environmental fines Employee fatalities Independent directors (kWh) of energy is preferred 306-2 and SASB (Sustainability Accounting
Environmental management Political contributions Standards Board: www.sasb.org) section 150a.1).
Female directors – If fuel sources are separated this should be clear and
NOx emissions Independent directors Corruption fines use comparable units
SOx emissions Female directors Recycled waste
Volatile Organic Compound emissions – Companies should include their data centres in
their disclosure
Social & Community investment Oil & Gas – Disclosure of three years of waste recycled (tonnes)
H&S management – Key global standards for this include SASB
– This includes waste that is re-used as it is, as well as
Carbon Emissions (Sustainability Accounting Standards Board: www.
H&S training waste that goes through a recycling process as it may
Energy use sasb.org) section 130a.1, GRI (Global Reporting
Lost-time incidents have ended up in landfill otherwise. This includes
Initiative: www.globalreporting.org) section 302-1
Staff turnover rates Hazardous waste waste recovered, e.g. spread on land, or composted
and CDP: www.cdp.net).
Share of temporary staff Non-recycled waste – It is important to differentiate between waste that
Employee training hours Recycled waste is treated, recycled and not recycled in order for this
Environmental fines Hazardous waste to be considered as disclosed, using consistent
Political contributions
Environmental mgmt. measurement (tonnes)
Independent directors – Disclosure of three years of hazardous waste
Water Use generation (tonnes) – It cannot be considered disclosed if data is
Female directors
Social & Community investment inconsistently measured – as this makes it difficult
Corruption fines – This refers to substances released to land and water
H&S management for an investor to consolidate. Similarly, if data is
only: those released to air such as Green House
broken down by site/division/operations without an
H&S training Gases, Sox & NOx should be reported separately
explanation of how much of the business they
Lost-time incidents – Hazardous waste is usually treated / diverted for represent, investors cannot reasonably establish
Staff turnover rates treatment (sometimes it is clinical waste which that it represents 100% of operations
Share of temporary staff is incinerated) and disposed of separately to
– Key global standards for this include SASB
Employee training hours other wastes
(Sustainability Accounting Standards Board: www.
Employee fatalities sasb.org) section 150a.1 and GRI (Global Reporting
Political contributions Initiative: www.globalreporting.org) section 306-2.
Independent directors
Female directors
Corruption fines
52 Revealing the full picture Appendices 53 Revealing the full picture Appendices

– This data should be relevant to your business and

Environmental fines NOx emissions Health and safety training
may be in more relevant units e.g. a water utility
company may report in litres/day
– Total costs of environmental fines and penalties – Disclosure of three years of NOx emissions (tonnes) – Number and percentage of staff trained on health
during financial year – Key global standards for this include SASB and safety standards within the last year
– Key global standards for this include SASB
(Sustainability Accounting Standards Board:
– Figures must be specific and complete (Sustainability Accounting Standards Board: – Only trainings separate from induction and explicitly
www.sasb.org) section 140a.1, GRI (Global Reporting
www.sasb.org) and GRI (Global Reporting Initiative: cover health and safety aspects should be included
– A clear, specific and complete statement that no Initiative: www.globalreporting.org) section 303-1
www.globalreporting.org) section 305-7
fines were levied to any part of the business or its and CDP: www.cdp.net). – Health and Safety training is particularly important
subsidiaries is required to give confidence of zero – NB: Under the Global Reporting Initiative (section in sectors where injury rates and fatalities are
fines, e.g. "There were no public sanctions and/or EN20) NOx emissions are captured with SOx, however yearly issues. By disclosing the number and
Water recycled
penalties imposed on the Company and its to count as disclosed, SOx and NOx figures must be proportion of staff trained annually, companies
subsidiaries, Directors or Management by the reported separately. demonstrate an ongoing commitment to reducing
– Percentage of water recycled for use within
relevant regulatory bodies during the financial and avoiding this risk
own operations
year ended …”
SOx emissions – GRI (Global Reporting Initiative: www.globalreporting.
– This should be a total consolidated percentage
– Responses such as ‘no significant fines’ is considered org) sections 403-5, 403-8 provides a consistent
figure for the whole organisation
as non-disclosure, unless clearly linked to a specific – Disclosure of three years of SOx emissions (tonnes) global standard for this.
disclosure standard such as GRI, which does provide – Key global standards for this include SASB
– Key global standards for this include SASB
for minimum thresholds for some industries (Sustainability Accounting Standards Board:
(Sustainability Accounting Standards Board: Lost-time incidents
www.sasb.org) section 140a.1, GRI (Global Reporting
– Further details can be found from the GRI (Global www.sasb.org) and GRI (Global Reporting Initiative:
Initiative: www.globalreporting.org) section 303-1
Reporting Initiative) website: www.globalreporting. www.globalreporting.org) section 305-7 – Lost-time incident rate (LTIR) or Lost-time incident
and CDP: www.cdp.net).
org) section 307-1. & fatality rate (LTIFR), over last three years
– NB: Under the Global Reporting Initiative (section
EN20) SOx emissions are captured with NOx, however – It is important to be clear about the absolute
Social and community investment
Environmental management to count as disclosed, SOx and NOx figures must be number of accidents and the time lost versus hours
reported separately. worked or a representative volume
– Total amount of corporate or group donations
– Percentage of sites covered by recognised
and community investments made to registered – A definition of lost-time can include accidents,
environmental management systems such as
Volatile Organic Compound (VOC) emissions not-for-profit organisations injuries and fatalities. Disclosures should be clear
ISO14001 or EMAS
how this is being reported
– An aggregated figure for donations across global
– An example of this would be: Widget plc has four – Disclosure of three years of volatile organic
operations should be provided, including cash – GRI (Global Reporting Initiative: www.globalreporting.
sites (A1, A2, A3, A4), of these 2 sites (A2, A3) are compounds (VOC) emissions (kilograms)
donations, in-kind donations and voluntary hours org) section 403-9 provides a consistent global
certified to ISO14001. A1 contributes to 50%
– VOC’s are compounds such as Benzine using a consistent monetary value equivalent standard for this.
revenues, A2 contributes to 20% revenues, A3 & A4
contributes to 15% each – VOC’s should be disclosed separately rather – In-kind donations include products and services
than consolidated Staff turnover rates
– ISO 14001 is a systematic framework to manage the – K
 ey global standards for this GRI (Global Reporting
immediate and long-term environmental impacts of – Normalized data such as emissions per unit Initiative: www.globalreporting.org) section 201-1.
– Full time staff voluntary turnover rate calculated
an organisation’s products, services and processes to production is acceptable, provided your company
against the average number of Full Time Employees
help organisations: minimise their environmental only produces one thing (e.g. cars, aircraft,
Health and safety management during the year to create a consistently comparable
footprint; diminish the risk of pollution incidents; computers, etc)
figure year on year
provide operational improvements; ensure
– Key global standards for this include SASB – Percentage of sites with OHSAS 18001 (or ISO 45001,
compliance with relevant environmental legislation; – The figure should not include retirements and deaths,
(Sustainability Accounting Standards Board: www. which is replacing it)
and develop their business in a sustainable manner. though these can be reported separately
sasb.org) section 120a.1 and GRI (Global Reporting
See www.iso.org for further information – This is the international standard for occupational
Initiative: www.globalreporting.org) section 305-7. – The UN PRI (Principles for Responsible Investment:
health and safety. The goal of the certification is
– EMAS (the EU Eco-Management and Audit Scheme) www.unpri.org) and GRI (Global Reporting Initiative:
to reduce workplace hazards and boost employee
is a premium management instrument developed by www.globalreporting.org) section 401-1 provides clear
Water use morale. OHSAS 18001 is a framework for an
the European Commission for companies and other reporting guidance.
occupational health and safety (OHS) management
organisations to evaluate, report, and improve their
– Three years of total water use is disclosed in an system and is a part of the OHSAS 18000 series of
environmental performance. EMAS is open to every
appropriate, consistently measured unit, including standards. Along with OHSAS 18002, it can help Share of temporary staff
type of organisation eager to improve its
both freshwater and salt water organisations to put in place the policies, procedures
environmental performance. It spans all economic
and controls needed for to achieve the best possible – The percentage of the workforce that is employed
and service sectors and is applicable worldwide. – Best practice is to disclose water data separated into
working conditions and workplace health and safety, temporarily or on a contract basis
For more information see: https://ec.europa.eu/ water withdrawal, water used and water discharged
aligned to internationally recognized best practice
environment/emas/index_en.htm. (at same levels of quality) – GRI (Global Reporting Initiative: www.globalreporting.
– See www.bsigroup.com and www.iso.org for org) section 102-8 provides a consistent global
– Normalized data such as water use per unit of
more information. standard for this.
production is acceptable provided your company
only produces one thing, e.g. cars, aircraft,
computers, etc, otherwise water consumption per
unit of revenue can be accepted irrespective of the
number of types of products produced – as revenue
can be consolidated at a corporate level
54 Revealing the full picture Appendices 55 Revealing the full picture Appendices

Employee training hours Independent directors Appendix ii – FTSE Green Revenues Definitions
– Hours spent on employee development training – Number and percentage of independent Directors FTSE Green Revenues Classification System
to enhance knowledge or individual skills on the board
– This can be total hours as a company, or average – An independent director is defined as one with no Sector EG Revenue generating activities from the generation of power from renewable and
hours per employee conflicts of interest ENERGY GENERATION alternative energy sources.

– It should not include training time on company – Your company should identify who specifically on Sub Sector Micro Sector Description
policies (e.g. safety, code of conduct) as it I intended the Board is independent according to a recognised Bio Fuels Bio Fuels (General) Revenue generating activities related specifically to the operation and supply of power generation
to reflect your company’s investment in developing corporate governance code from within your own facilities that utilizes non-fossilized organic material, with the exception of peat.
human capital, particularly through training that jurisdiction Bio Gas Revenue generating activities related specifically to the operation and supply of power generation
expands the knowledge base of employees facilities that utilizes gas generated through the active decomposition of organic matter, typically
– ICGN (International Corporate Governance Network: during landfill processes.
– GRI (Global Reporting Initiative: www.globalreporting. www.igcn.org) and OECD (Organisation for Economic
Bio Mass (Grown) Revenue generating activities related specifically to the operation and supply of electricity from
org) section 404-1 provides a consistent global Co-operation and Development: www.oecd.org) power generation facilities that utilizes crops grown as a fuel source.
standard for this. provide advice on disclosure for this.
Bio Mass (Waste) Revenue generating activities related specifically to the operation and supply of electricity from
power generation facilities that utilizes organic byproducts of the agricultural and other systems.
Employee fatalities Female directors Cogeneration Cogeneration Revenue generating activities related specifically to the operation and supply of power generation
(General) where the waste heat is utilized for large-scale heating and/or cooling purposes.
– Number of work-related employee fatalities over last – Number and percentage of women on the board
Cogeneration Revenue generating activities related specifically to the operation and supply of power generation
three years (Biomass) where primary source is biomass-based, and where the waste heat is utilized for large-scale heating
– Whilst this may appear to be obvious, companies should and/or cooling purposes.
– Include disclosure of zero fatalities, if that was the case be clear who specifically on their Board is female
Cogeneration Revenue generating activities related specifically to the operation and supply of power generation
– Employee fatalities should be captured separately – ICGN (International Corporate Governance Network: (Renewable) where primary source is renewables-based, and where the waste heat is utilized for large-scale
from contractor fatalities and both listed www.igcn.org) and OECD (Organisation for Economic heating and/or cooling purposes.

Co-operation and Development: www.oecd.org) Cogeneration (Gas) Revenue generating activities related specifically to the operation and supply of power generation
– Key global standards for this include SASB where the primary source is natural gas, but where the waste heat is utilized for large-scale heating
provide advice on disclosure for this.
(Sustainability Accounting Standards Board: www.sasb. and/or cooling purposes.
org) section 320a.1 and GRI (Global Reporting
Clean Fossil Fossil Fuels (General) Revenue generating activities related specifically to the operation and supply of power generation
Initiative: www.globalreporting.org) section 403-9. Fines Fuels that utilizes fossilized organic material. Only clean fossil fuels (EG.03.01) are considered green
revenues.

Political contributions Corruption fines Clean Fossil Fuels Revenue generating activities related specifically to the operation and supply of power generation
that utilizes fossilized organic material, where chimney emissions are zero (or practically so), for
– Disclosure of the individual and total cost of fines, instance through Carbon Capture & Storage.
Disclosure of total amount of political penalties or settlements in relation to corruption Geothermal Geothermal Activities related specifically to the operation and supply of power generation that utilizes energy
contributions made: produced by the internal heat of the earth, excluding small-scale heat pump systems.
– Reporting of no fines or incidents should be clear and
– Donations to Political Action Committees in the U.S specific, for example: ‘There were no legal actions, Hydro Hydro (General) Revenue generating activities related specifically to the operation and supply of power generation
(a way to pool money from companies, etc. to action fines or sanctions relating to anti-corruption, that utilizes the energy produced by flowing fresh water.
political advocacy) should also be disclosed anti-bribery, anti-competitive behaviour or anti-trust Large Hydro Revenue generating activities related specifically to the operation and supply of power generation
or monopoly laws or regulations’ that utilizes the energy produced by flowing fresh water, where the power generation capacity of
– Indirect contributions should also be included. This the system is greater than 10MW.
is defined by the Global Reporting Initiative (GRI) as: – GRI (Global Reporting Initiative: www.globalreporting. Small Hydro Revenue generating activities related specifically to the operation and supply of power generation
“Any financial or in-kind support to political parties, org) section 205-3 and SASB (Sustainability that utilizes the energy produced by flowing fresh water, where the power generation capacity of
their representatives, or candidates for office made Accounting Standards Board: www.sasb.org) section the system is less than 10MW.
through intermediary organizations such as lobbyists 510a.2 provides clear reporting guidance on reporting Nuclear Nuclear (General) Revenue generating activities related specifically to the operation and supply of power generation
or charities or support given to organizations such on corrupt practices. that harnesses the energy present within atomic nuclei or their components.
as think tanks or trade associations linked to or
Ocean & Tidal Ocean & Tidal Revenue generating activities related specifically to the operation and supply of power generation
supporting particular political parties or causes ESG fines (General) that utilizes the energy produced by harnessing the power of wave, tidal or other ocean and marine
current forces.
– Clarity is important in statements reflecting no – Provisions for fines and settlements specified for
political contributions – for example, stating that the ESG (Environmental, Social or Governance) issues Solar Solar (General) Revenue generating activities related specifically to the operation and supply of power generation
that harnesses the power of solar radiation, such as solar photovoltaic or concentrated solar
company policy is to make no political contributions in audited accounts systems but excluding solar thermal heating systems.
and there are no exceptions in this financial year /
time period – A separate figure for provisions for ESG-related fines, Waste to Waste to Energy Revenue generating activities related specifically to the operation and supply of power generation
rather than inclusion in a consolidated figure is required Energy (General) that utilizes the energy derived from the incineration of municipal waste, or from a fuel source
– GRI (Global Reporting Initiative: www.globalreporting. derived thereof. Otherwise known as Energy from Waste.

org) section 415.1 provides a consistent global – This does not relate to provisions/reserves created Wind Wind (General) Revenue generating activities related specifically to the operation and supply of power generation
standard for this. for environmental protection that harnesses the power of movements or currents in the air.

– The UN PRI (Principles for Responsible Investment:

www.unpri.org) and GRI (Global Reporting Initiative:
www.globalreporting.org) section 307-1 provides clear
reporting guidance on reporting on ESG-related fines.
56 Revealing the full picture Appendices 57 Revealing the full picture Appendices

Sector EM Revenue generating activities from products and services enabling more efficient Sector EQ Revenue generating activities from the renewable and alternative energy value chain,
ENERGY MANAGEMENT methods of energy usage and management. ENERGY EQUIPMENT excluding power generation activities.
& EFFICIENCY
Sub Sector Micro Sector Description
Sub Sector Micro Sector Description
Cogeneration Cogeneration Revenue generating activities related specifically to the development, processing, production and
Buildings & Buildings & Revenue generating activities related specifically to the design, development, manufacture or Equipment Equipment (General) distribution of equipment for power generation where the waste heat is utilized for large-scale
Property Property installation of energy and other resource efficient products and services for use in residential, heating and/or cooling purposes.
(Integrated) (Integrated) commercial and municipal buildings. Products include those that contribute to international
(General) certification standards such as LEED and BREEAM and can include entire buildings. Cogeneration Revenue generating activities related specifically to the development, processing, production and
(Biomass) distribution of equipment for power generation where primary source is biomass-based, and
Controls Controls (General) Revenue generating activities related specifically to the design, development, manufacture or where the waste heat is utilized for large-scale heating and/or cooling purposes.
installation of efficient energy manipulation and optimization systems. Activities include
efficient semiconductor controllers and microgrid controllers. Cogeneration Revenue generating activities related specifically to the development, processing, production and
(Renewable) distribution of equipment for power generation where primary source is renewables-based, and
Energy Energy Revenue generating activities related to the design, development, manufacture or installation of where the waste heat is utilized for large-scale heating and/or cooling purposes. This excludes
Management Management energy management or efficiency products or services that are directly related to the other core activities where biomass is the primary energy source.
Logistics & Logistics & Support products but do not by themselves lead to increased efficiencies.
Support (General) Cogeneration (Gas) Revenue generating activities related specifically to the development, processing, production and
distribution of equipment for power generation where primary source is natural gas, and where
Industrial Industrial Processes Revenue generating activities related specifically to the design, development, manufacture or the waste heat is utilized for large-scale heating and/or cooling purposes.
Processes (General) installation of energy and other resource efficient products and services for use in industrial
applications. These include products and core components which improve energy profiles, and Clean Fossil Fossil Fuels Revenue generating activities related specifically to the development, processing, production and
products or systems which reduce energy and other resource usage within processes. Fuels (General) distribution of equipment for power generation using fossilized organic material. Only activities
related to carbon capture & storage (EQ.03.1) are considered green revenues.
IT Processes IT Processes Revenue generating activities related specifically to the design, development, manufacture or
(General) installation of energy efficient information technology products and services. Carbon Capture Revenue generating activities related specifically to the development, processing, production
& Storage and distribution of equipment for capturing carbon dioxide produced through power generation
Cloud Computing Revenue generating activities related specifically to the design, development, manufacture or for long-term storage.
(General) installation of cloud computing products and services. These include infrastructure and
underlying platforms but not pure software. General data centers are not included. Fuel Cells Fuel Cells Revenue generating activities related specifically to the development, processing, production and
distribution of equipment for power generation through fuel cells, which are primary cells that
Efficient IT (General) Revenue generating activities related specifically to the design, development, manufacture or consume fuel continuously and converts its chemical energy directly into electrical energy.
installation of highly energy efficient IT equipment and electronics.
Geothermal Geothermal Revenue generating activities related specifically to the development, processing, production and
Lighting Lighting (General) Revenue generating activities related specifically to the design, development, manufacture or distribution of equipment and plants engaged in the supply of power generation that utilizes
installation of energy efficient lighting. energy produced by the internal heat of the earth, excluding small-scale heat pump systems.

Power Storage Power Storage Revenue generating activities related specifically to the design, development, manufacture, Hydro Hydro (General) Revenue generating activities related specifically to the development, processing, production and
(General) installation or operation of products that store energy at a grid or building level. distribution of equipment and plants engaged in the supply of power generation that harnesses
the energy produced by flowing fresh water.
Power Storage Revenue generating activities related specifically to the design, development, manufacture,
(Battery) installation or operation of products that store electrical energy at a grid or building level. Large Hydro Revenue generating activities related specifically to the development, processing, production and
Also include lithium-ion and other advanced batteries and their components unless specifically distribution of equipment and plants engaged in the supply of power generation that harnesses
designed for consumer products. the energy produced by flowing fresh water, where the power generation capacity of the system is
greater than 10MW. This includes dam construction.
Power Storage Revenue generating activities related specifically to the design, development, manufacture,
(Pumped Hydro) installation or operation of products and facilities that store potential energy at grid level through Small Hydro Revenue generating activities related specifically to the development, processing, production and
the utilisation of electricity at times of low demand to pump water to an upper reservoir. distribution of equipment and plants engaged in the supply of power generation that harnesses
the energy produced by flowing fresh water, where the power generation capacity of the system is
Smart & Smart & Efficient Revenue generating activities related specifically to the design, development, manufacture or less than 10MW.
Efficient Grids Grids (General) installation of equipment and services that enhance the efficiency of operation of the electrical
power network. This includes advanced meters, distributed generation, “smart grid” technologies, Nuclear Nuclear (General) Revenue generating activities related specifically to the development, processing, production and
high efficiency power generation, transmission and distribution technologies. distribution of equipment and plants engaged in the supply of power generation that harnesses
the energy present within atomic nuclei or their components.
Sustainable Sustainable Revenue generating activities related specifically to the operation of sustainable buildings.
Property Property Operator Ocean & Tidal Ocean & Tidal Revenue generating activities related specifically to the development, processing, production and
Operator (General) (General) distribution of equipment and plants engaged in the supply of power generation that harnesses
the power of wave, tidal or other ocean and marine current forces.

Solar Solar (General) Revenue generating activities related specifically to the development, processing, production and
distribution of equipment and plants engaged in the supply of power generation that harnesses
Sector EQ Revenue generating activities from the renewable and alternative energy value chain,
the power of solar radiation, such as solar photovoltaic or concentrated solar systems but
ENERGY EQUIPMENT excluding power generation activities.
excluding solar thermal heating systems.
Sub Sector Micro Sector Description Waste to Waste to Energy Revenue generating activities related specifically to the development, processing, production and
Energy (General) distribution of equipment and plants engaged in the supply of power generation that utilizes the
Bio Fuels Bio Fuels (General) Revenue generating activities related specifically to the development, processing, production energy derived from the incineration of municipal waste, or from a fuel source derived thereof.
and distribution of bio-derived fuels for transport, heat and electrical power generation.
Bio-derived fuels include bioethanol, biodiesel, and ‘advanced’ biofuels such as cellulosic ethanol. Wind Wind (General) Revenue generating activities related specifically to the development, processing, production and
Excluded are blends combining bio and conventional fuels. distribution of equipment and plants engaged in the supply of power generation that harnesses
the power of movements or currents in the air.
Bio Fuel (1st & 2nd Revenue generating activities related specifically to the development, processing, production
Generation) and distribution of bio-derived fuels predominantly for transport. These include 1st Generation
Biofuels that use food stock (such as corn) and 2nd Generation uses other biomass types such as
woodcuttings or waste products from food stock (such as sugarcane bagasse).

Bio Fuel Revenue generating activities related specifically to the development, processing, production
(3rd Generation) and distribution of bio-derived fuels for transport, heat and electrical power generation. These
include 3rd Generation uses specially-engineered non-food items such as algae.

Bio Gas Revenue generating activities related specifically to the development, processing, production
and distribution of bio-derived gas generated through the active decomposition of organic matter,
typically during landfill processes.

Bio Mass (grown) Revenue generating activities related specifically to the development, processing, production and
distribution of bio-derived fuels typically for heat and/or electrical power generation using crops
grown as a fuel source.

Bio Mass (waste) Revenue generating activities related specifically to the development, processing, production
and distribution of bio-derived fuels typically for heat and/or electrical power generation using
organic byproducts of the agricultural and other systems.

* Data captured but not used in index calculations

58 Revealing the full picture Appendices 59 Revealing the full picture Appendices

Sector ER Revenue generating activities from production, processing and sale of key and advanced Sector FA Revenue generating activities from products that improve yield, productivity and sustainability
ENVIRONMENTAL RESOURCES materials which specifically enable the minimization of negative environmental impacts FOOD & AGRICULTURE in agriculture, silviculture, aquaculture and food production or distribution, whilst minimizing
and improve the efficiency of natural resource use. negative environmental impacts.

Sub Sector Micro Sector Description Sub Sector Micro Sector Description

Advanced & Advanced & Light Revenue generating activities related specifically to the design, development or manufacture of Agriculture Agriculture Revenue generating activities specifically designed to improve yield, productivity and
Light Materials Materials (General) materials that during their manufacture or through their use allow for considerable increases in (General) sustainability in agriculture, silviculture, aquaculture and food production or distribution, whilst
the efficiency of resource usage. minimizing negative environmental impacts, or that help with adaptation to long term issues of
climate change.
Key Raw Key Raw Minerals & Revenue generating activities related specifically to the mining, processing, handling or owning
Minerals & Metals (General) of raw materials fundamental to the transition to a green economy. GM Agriculture Revenue generating activities related specifically to the design, development or manufacture of
Metals advanced seeds in which the genetic material (DNA) has been altered in a way that does not occur
Cobalt Revenue generating activities related specifically to the mining, processing, handling or owning naturally by mating and/or natural recombination.
of cobalt, a key input into advanced batteries.
Machinery Revenue generating activities related specifically to the design, development or manufacture of
Lithium Revenue generating activities related specifically to the mining, processing, handling or owning agricultural machinery that demonstrate exceptionally high levels of operational efficiencies.
of lithium, a key input into advanced batteries.
Meat & Dairy Revenue generating activities related specifically to the design, development or manufacture of
Platinum & Revenue generating activities related specifically to the mining, processing, handling or owning Alternatives advanced or modern foods that aim to replicate either animal meat or dairy products.
Platinum-Group of the Platinum Group Metals (PGMs), a key input into pollution control systems.
Metals (PGM) Non GM Revenue generating activities related specifically to the design, development or manufacture of
Advanced Seeds advanced seeds in which the genetic material (DNA) has been altered in a way that occurs
Rare Earths Revenue generating activities related specifically to the mining, processing, handling or owning naturally by mating and/or natural recombination.
of Rare Earth Metals, a key input into super-strength magnets for the renewable energy and
advanced vehicles industries. Organic & Revenue generating activities related specifically to the food producers and distributors of food
Low-Impact that meets national organic standards. Typically, these are those that use natural pesticides and
Silica Revenue generating activities related specifically to the mining, processing, handling or owning Farming fertilizers, no antibiotics or genetically modified ingredients, and that encourages wildlife.
of silica, a key raw material for the solar photovoltaic industry.
Aquaculture Aquaculture Revenue generating activities related specifically to the design, development or manufacture of
Uranium Revenue generating activities related specifically to the mining, processing, handling or owning (General) fish farming equipment, or those who operate fish farms.
of uranium, a key raw material for the nuclear power industry.
Aquaculture Revenue generating activities related specifically to the design, development or manufacture of
Recyclable Recyclable Products Revenue generating activities related specifically to products and materials that are explicitly (Conventional) standard fish farming equipment, or those who operate fish farms that do not meet feed inputs,
Products & & Materials designed with disassembling and repurposing abilities or that biodegrade rapidly at the end of antibiotic use and transparency levels as defined by the ASC.
Materials (General) their useful life.
Aquaculture Revenue generating activities related specifically to the design, development or manufacture of
Recyclable Revenue generating activities related specifically to materials that have been created to allow for (Sustainable) fish farming equipment that is designed to significantly reduce the impact the industry has on
Materials repurposing or are able to be or to biodegrade rapidly at the end of their useful life. the environment, or those who operate fish farms where feed inputs, antibiotic use and
transparency levels are meet as defined by the ASC.
Recyclable & Revenue generating activities related specifically to products that have been created to allow for
Reusable Products multiple re-use, disassembling and repurposing or are able to biodegrade rapidly at the end of Land Erosion Land Erosion Revenue generating activities related specifically to the design, development, manufacture or
their useful life. (General) installation or application of products or services that reduce the degradation and movement of
the upper layer of soil, particularly in areas exposed to natural disasters or those that have
erosion-related soil quality issues.

Sector ES Revenue generating activities from environmental support services relating to consulting, Logistics Logistics (General) Revenue generating activities related specifically to the operation of efficient logistics systems
ENVIRONMENTAL investment or urban design that enable or indirectly contribute to green activities resulting and infrastructure in areas of high food wastage in the transportation stage of production.
SUPPORT SERVICE in a large breadth of environmental utility.
Food Safety, Food Safety, Revenue generating activities related specifically to the design, development, manufacture,
Efficient Efficient Processing installation or application of products or services that raise food safety standard, test or monitor
Sub Sector Micro Sector Description Processing & & Sustainable food, or packaging technologies that extend shelf life and reduce waste.
Sustainable Packaging (General)
Environmental Environmental Revenue generating activities related specifically to companies that provide advice and/or
Packaging
Consultancies Consultancies support regarding environmental issues and strategies. Food Safety, Revenue generating activities related specifically to the design, development, manufacture,
(General) Efficient Processing installation or application of products or services that raise food safety standard, test or monitor
& Sustainable food, or packaging technologies that extend shelf life and reduce waste where no single-use
Finance & Finance & Revenue generating activities related specifically to tradable environmentally based credits and
Packaging (no plastic material is used in the product.
Investment Investment to investment vehicles that specialize in environmental themes.
single use plastic)
(General)
Food Safety, Revenue generating activities related specifically to the design, development, manufacture,
Carbon Credits Revenue generating activities related specifically to tradable environmentally based credits or
Efficient Processing installation or application of products or services that raise food safety standard, test or monitor
trading certificates, such as RECs, TRCs or carbon credits.
& Sustainable food, or packaging technologies that extend shelf life and reduce waste where single-use plastic
Sustainable Revenue generating activities related specifically to investment vehicles that specialize in Packaging (with material is used in the product.
Investment Funds environmental themes. single use plastic)

Smart City Smart City Design Revenue generating activities related specifically to the design, development, manufacture or Sustainable Sustainable Revenue generating activities related specifically to the cultivation of forests and oil palms
Design & & Engineering installation of products and services that allow cities to use IT and communication technologies Plantations Plantations to verifiable international standards and protocols, which maintain or improve the
Engineering (General) to operate at a significantly higher resource efficiency level. (General) long-term productivity of timberlands and plantations while enhancing the efficiency of
input resources used.

Sustainable Forestry Revenue generating activities related specifically to the cultivation of timber and lumber to
verifiable international standards and protocols, which maintain or improve the long-term
productivity of timberlands and plantations while enhancing the efficiency of input
resources used.

Sustainable Revenue generating activities related specifically to the cultivation of oil palms to verifiable
Palm Oil international standards and protocols, which maintain or improve the long-term productivity of
plantations while enhancing the efficiency of input resources used.
60 Revealing the full picture Appendices 61 Revealing the full picture Appendices

Sector TE Revenue generating activities from the provision of technologies, systems and services Sector WI Revenue generating activities from technologies, infrastructure, products and services for
TRANSPORT EQUIPMENT which minimize the environmental impacts and improve the efficiency of natural resource WATER INFRASTRUCTURE the supply, management and treatment of water.
use associated with the transportation industry. & TECHNOLOGY

Sub Sector Micro Sector Description Sub Sector Micro Sector Description

Aviation Aviation (General) Revenue generating activities related specifically to the design, development or manufacture of Advanced Advanced Irrigation Revenue generating activities related specifically to the design, development, manufacture or
advanced aircraft, or products or services that enable advances in the environmental impact of Irrigation Systems & Devices installation of equipment that enables water to be applied efficiently in agricultural contexts.
aviation above and beyond the improvements in fuel economy typically associated with new Systems & (General)
generations of aircraft. Devices

Railways Railways (General) Revenue generating activities related specifically to the design, development or manufacture of Desalination Desalination (General) Revenue generating activities related specifically to the design, development, manufacture,
rolling stock or its key components. operation or installation of facilities that remove salt from marine and other saline waters for
subsequent industrial, agricultural or residential use.
Railway Revenue generating activities related specifically to the design, construction or management of
(Infrastructure) rolling stock and rail infrastructure. Activities include locomotives, rolling stock, railway Flood Control Flood Control Revenue generating activities related specifically to the design, development, manufacture,
infrastructure, systems and equipment (excluding infrastructure where the primary goods (General) operation or installation of products and services that prevent or reduce the impact of flood
transported is coal). waters.

Trains (Electric / Revenue generating activities related specifically to the design, development or manufacture of Meteorological Meteorological Revenue generating activities related specifically to the design, development, manufacture,
Magnetic) electrical or magnetically powered rolling stock and their key components. Solutions Solutions (General) operation or installation of products and services that enable accurate weather forecasting and
climate predictions.
Trains (General) Revenue generating activities related specifically to the design, development or manufacture of
diesel-powered rolling stock, and their key components. Natural Natural Disaster Revenue generating activities related specifically to the design, development, manufacture,
Disaster Response (General) operation or installation of products and services that help reduce the adverse impact on
Road Vehicles Road Vehicles Revenue generating activities related specifically to the design, development or manufacture of Response human life and property in the event of a natural disaster.
(General) low-impact and other advanced road vehicles and their key components.
Water Water Infrastructure Revenue generating activities related specifically to the design, development, manufacture,
Advanced Vehicle Revenue generating activities related specifically to the design, development or manufacture of Infrastructure (General) operation or installation of products and services that enhance water infrastructure systems.
Batteries advanced batteries designed for road vehicles. This includes specialty pipes, pumps, valves, actuators, hydrants and meters activities and the
development and construction of water infrastructure.
Bikes and Bicycles Revenue generating activities related specifically to the design, development or manufacture of
bicycles, and advanced electrified components. Water Water Treatment Revenue generating activities related specifically to the design, development, manufacture or
Treatment (General) installation of technologies or facilities for the separation and purification of water to meet
Bus and Coach Revenue generating activities related specifically to the design, development or manufacture of environmental standards. This includes membranes, ultra-violet, desalination, filtration, ion
Manufacturers buses and coaches for public transportation. exchange, biological treatment, chemical and environmental treatment.
Electrified Road Revenue generating activities related specifically to the design, development or manufacture of Water Treatment Revenue generating activities related specifically to the design, development, manufacture or
Vehicles & Devices advanced road vehicles and their key components. These include hydrogen-powered, electric and Chemicals installation of chemicals produced for the separation and purification of water to meet
(incl Hydrogen hybrid vehicles, but exclude mild hybrids and gas-powered vehicles. environmental standards.
powered)
Water Treatment Revenue generating activities related specifically to the design, development, manufacture or
Energy Use Revenue generating activities related specifically to the design, development or manufacture of Equipment installation of equipment used for the separation and purification of water to meet
Reduction Devices road vehicle devices that lead to considerable savings in fuel economy, such as Stop-Start environmental standards. This does not include any chemicals.
systems.
Water Utilities Water Utilities Revenue generating activities related specifically to the operation of water treatment and
Shipping Shipping (General) Revenue generating activities related specifically to the design, development or manufacture of (General) supply infrastructure, providing potable water or wastewater and sewage services.
advanced ships and components that lead to considerable savings in fuel economy. This does not
include shipping operators.

Sector WP Revenue generating activities from products and services which reduce, monitor, or prevent
WASTE & POLLUTION CONTROL the contamination of air, water and soil to address global, regional and local environmental
Sector TS Revenue generating activities from the operation of transportation solutions and services which issue and technologies, systems and services for waste management, reuse and recycling.
TRANSPORT SOLUTIONS minimize the environmental impacts and improve the efficiency of natural resource use
associated with the transportation industry.
Sub Sector Micro Sector Description
Sub Sector Micro Sector Description Cleaner Power Cleaner Power Revenue generating activities related specifically to facilitating the substitution of more
(General) polluting fuels by cleaner burning fuels in areas of chronic air pollution, in particular relating to
Railways Railways Operator Revenue generating activities related specifically to the operation of rolling stock networks. the powering of industry.
Operator (General)
Decontamination Decontamination Revenue generating activities related specifically to the design, development, manufacture,
General Railways Revenue generating activities related specifically to the operation of diesel-powered public Services & Devices Services & Devices installation or operation of equipment and services for the clean-up of air, soil or water pollution.
transportation and railway freight networks (excluding those where the primary goods (General)
transported is coal).
Air Revenue generating activities related specifically to the design, development, manufacture,
Electrified Railways Revenue generating activities related specifically to the operation of electrified public Decontamination installation or operation of equipment and services for the clean-up of air pollution.
transportation and railway freight networks (excluding those where the primary goods Services & Devices
transported is coal).
Land & Soil Revenue generating activities related specifically to the design, development, manufacture,
Road Vehicles Road Vehicles Revenue generating activities related specifically to the operation of sustainable road Decontamination installation or operation of equipment and services for reduction, prevention or clean-up of land
(General) transportation services. Services & Devices & soil pollution.
Bike Sharing Revenue generating activities related specifically to the operation of city cycle hire schemes and Sea & Water Revenue generating activities related specifically to the design, development, manufacture,
other similar ultra-short-term individual transport vehicle schemes. Decontamination installation or operation of equipment and services for reduction, prevention or clean-up of
Services & Devices marine, river and other water table pollution.
Bus and Coach Revenue generating activities related specifically to the operation of bus and coach fleets.
operators Environmental Environmental Revenue generating activities related specifically to the design, development, manufacture,
Testing & Gas Testing & Gas installation or operation of equipment and services for environmental analysis, monitoring and
Car Clubs Revenue generating activities related specifically to the operation or management of fleets of
Sensing Sensing (General) modelling, auditing, site evaluation and environmental impact assessments.
self-drive road vehicles (typically in urban or residential locations) which members may rent,
usually on an hourly or per minute basis.

Ride Hailing Revenue generating activities related specifically to the operation of pre-booked taxi fleets,
particularly those that offer ride-sharing services.

Video Video Conferencing Revenue generating activities related specifically to the design, development, manufacture of
Conferencing (General) video-based teleconference facilities designed for business purposes that allow participants to
see as well as hear one another.
62 Revealing the full picture Appendices 63 Revealing the full picture Appendices

Sector WP Revenue generating activities from products and services which reduce, monitor, or prevent the Appendix iii – ESG investors overview
WASTE & POLLUTION CONTROL contamination of air, water and soil to address global, regional and local environmental issue
and technologies, systems and services for waste management, reuse and recycling.
The adoption of ESG approaches in investment is a growing force in global financial flows.
Sub Sector Micro Sector Description
Due to the complexity of this market, there have been various attempts to classify investors into categories
Particles & Particles & Revenue generating activities related specifically to the design, development, manufacture,
Emission Emission Reduction installation or operation of equipment and services for the clean-up of air pollution. Principal according to their strategy. These could be grouped according to their capital focus and motivations, from ESG-risk
Reduction Devices (General) areas are the industrial and power generation sectors (such as smoke stack scrubbing related issues only to environmental and/or social impact only. In addition, they could be classified depending
Devices technologies), and the transportation sector (such as particulate filters and catalytic upon how ESG is implemented. The table below outlines the commonly used categories.
converters).

Industrial Pollution Revenue generating activities related specifically to the design, development, manufacture,
Reduction installation or operation of equipment and services for the prevention of air pollution associated Eurosif GSIA-equivalent16 PRI-equivalent17 EFAMA-equivalent18
to the industrial and power generation sectors (such as smoke stack scrubbing technologies).
Exclusions ESG Negative screening ESG Negative / Negative screening or Exclusion
Transport Pollution Revenue generating activities related specifically to the design, development, manufacture, Exclusionary screening
Reduction installation or operation of equipment and services for the prevention of air pollution associated
to the transportation sector (such as particulate filters and catalytic converters). Norms-based screening Norms-based screening Norms-based screening Norms-based approach

Recycling Recycling Revenue generating activities related specifically to the design, development, manufacture, Best-in-Class selection ESG Positive screening ESG Positive screening Best-in-Class policy
Equipment Equipment installation or operation of equipment for the return of materials to a previous stage of a and Best-in-Class and Best-in-Class
(General) cyclic process.
Sustainability-themed Sustainability-themed ESG-themed Investments Thematic investment
Recycling Recycling Services Revenue generating activities related specifically to the design, development, manufacture,
Services (General) installation or operation of services for the return of materials to a previous stage of a cyclic ESG integration ESG Integration Integration of ESG issues –
process.
Engagement and voting Corporate engagement Engagement (three types) Engagement (voting)
Waste Waste Management Revenue generating activities related specifically to the design, development, manufacture, and shareholder action
Management (General) installation or operation of equipment and services for the collection, management and
treatment of waste. Impact investing Impact / Community investing – –

Hazardous Waste Revenue generating activities related specifically to the design, development, manufacture,
Management installation or operation of equipment and services for the processing and treatment of
hazardous waste such as clinical waste, batteries, end of life vehicles, electronic equipment
(e-waste) and radioactive waste. Glossary 19

Organic Waste Revenue generating activities related specifically to the design, development, manufacture,
Process installation or operation of equipment and services for the processing and treatment of animal Best-in-Class investment selection: Approach Integration of ESG issues: The explicit inclusion
and plant-based waste.
where leading or best-performing investments within by asset managers of ESG risks and opportunities in
General Waste Revenue generating activities related specifically to the design, development, manufacture, a universe, category or class are selected or weighted traditional financial analysis and investment decisions
Management installation or operation of equipment and services for general municipal and commercial
waste management operations, typically including collection, processing and disposal based on ESG criteria. based on a systematic process and appropriate
(including landfill and incineration). research sources Norms-based screening: Screening
Engagement and voting on sustainability matters:
of investments according to their compliance with
Engagement activities and active ownership through
international standards and norms.
voting of shares and engagement with companies
on ESG matters. This is a long-term process, seeking Sustainability themed investment: Investment
to influence behaviour or increase disclosure. in themes or assets linked to the development
of sustainability. Thematic funds focus on specific
Exclusions: An approach that excludes specific
or multiple issues related to ESG.
investments or classes of investment from the investible
universe such as companies, sectors or countries.
Impact Investing: Impact investments are
investments made into companies, organisations
and funds with the intention to generate social and
environmental impact alongside a financial return.
Impact investments can be made in both emerging
and developed markets, and target a range of returns
from below-market to market-rate, depending upon
the circumstances.
64 Revealing the full picture Appendices

Appendix iv – References
1 UNPRI Annual Report 2016 http://annualreport.unpri.org –
Over 300 asset owner members and over 1,000 asset manager
members all commit to incorporate ESG issues into investment
analysis and decision-making across all assets.
2 UNPRI Annual Report 2016.
Available at http://annualreport.unpri.org/messages.html
3 The Global Sustainable Investment Review 2014.
Acknowledgements
www.gsi-alliance.org/members-resources/ global-sustainable-
investment-review-2014 written by the Global Sustainable
London Stock Exchange Group wishes to thank
Investment Alliance and the Japan Social Investment Forum. all Markets Participants, both issuers and investors,
4 The 2012 ‘Short-termism, Investor Clientele, and Firm Risk. Harvard who have contributed their experiences, ideas and
Business School Accounting & Management Unit Working Paper enthusiasm to support the development of the Guidance.
No. 12-072’ http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=1999484. Paper by Brochet, F., Loumioti, M. and Serafeim, G. We also wish to thank Salterbaxter MSLGROUP for their
5 The 2015 ‘Insights from PRI Signatories’ report written by support in developing this report.
Accenture-UNGC in collaboration with PRI states that 38% of CEOs
believe they are able to accurately quantify the business value
of sustainability initiatives – yet just 7% of investors agree. About London Stock
6 Model Guidance on Reporting ESG Information to Investors,
www.sseinitiative.org/wp-content/uploads/2015/10/SSE-Model- Exchange Group
Guidance-on-Reporting-ESG.pdf
7 https://home.kpmg.com/xx/en/home/ insights/2015/11/ London Stock Exchange Group (LSE.L) is an international
kpmg-international-survey-of-corporate-responsibility- markets infrastructure business. Its diversified global
reporting-2015.html business focuses on capital formation, intellectual
8 ‘Out of the starting blocks: Tracking progress on corporate property and risk and balance sheet management. LSEG
climate action’, CDP, 2016.
operates an open access model, offering choice and
9 For example see the SDG compass by the GRI together with the
UN Global Compact and WBCSD; http://sdgcompass.org/wp-content/ partnership to customers across all of its businesses.
uploads/2016/05/019104_SDG_Compass_Guide_2015_v29.pdf The Group can trace its history back to 1698.
10 Data from Corporate Register, October 2016,
www.corporateregister.com The Group operates a broad range of international
11 The 2016 ‘Carrots & Sticks’ report, https://assets.kpmg.com/ equity, ETF, bond and derivatives markets, including
content/dam/kpmg/pdf/2016/05/ carrots-and-sticks-may-2016.pdf London Stock Exchange; Borsa Italiana; MTS (Europe’s
written by KPMG, GRI, UNEP and the Centre for Corporate
Governance in Africa. leading fixed income market); and Turquoise (a
12 FRC, UK Corporate Governance Code, April 2016. pan-European equities MTF). Through its platforms,
www.frc.org.uk/Our-Work/Publications/Corporate-Governance/ LSEG offers market participants, including retail
Final-Draft-UK-Corporate-Governance-Code-2016.pdf investors, institutions and SMEs unrivalled access to
13 Scope 1 and 2 definitions are from the GHG Protocol Europe’s capital markets. The Group also plays a vital
(www.ghgprotocol.org) and are only for direct emissions and
indirect emissions from purchased electricity and gas. economic and social role, enabling companies to
14 Source: Global guide to responsible investment regulation, access funds for growth and development.
www.unpri.org/about/pri-teams/ policy/responsible-
investment-regulation Through FTSE Russell, the Group is a global leader in
15 Bonds and Climate Change: The State of the Market in 2016. financial indexing, benchmarking and analytic services
Climate Bond Initiative. with approximately $10trn benchmarked to its indexes.
16 Global Sustainable Investment Alliance (GSIA), 2012 Global The Group also provides customers with an extensive
Sustainable Investment Review.
range of real time and reference data products,
17 PRI Reporting Framework, 2013 Main Definitions.
including SEDOL, UnaVista, XTF and RNS.
18 EFAMA Guidance on RI information in the KIID & Post Investment
Disclosure, 16 February 2012. Post trade and risk management services are a
19 European SRI Study, Eurosif (2014). significant part of the Group’s business operations.
In addition to majority ownership of LCH, a multi-asset
global CCP operator, LSEG owns CC&G, the Italian clearing
house; Monte Titoli, a leading European custody and
settlement business; and globeSettle, the Group’s CSD
based in Luxembourg.
LSEG is a leading developer and operator of high
performance technology solutions, including trading,
market surveillance and post trade systems for over
40 organisations and exchanges, including the Group’s
own markets. Additional services include network
connectivity, hosting and quality assurance testing.
MillenniumIT, GATElab and Exactpro are among the
Group’s technology companies.
Headquartered in the United Kingdom, with significant
operations in North America, Italy, France and Sri
Lanka, the Group employs approximately 3,500 people.
Further information on London Stock Exchange Group
can be found at www.lseg.com