34 Banks, Diverse Financials, and Insurance

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Sustainability Topics for Sectors: What do stakeholders want to know?

BANKS, DIVERSE FINANCIALS, INSURANCE

May 2013 Page 1 of 36

Additional information about the project can be found at https://www.globalreporting.org/reporting/sector-guidance/Topics-Research/Pages/default.aspx

34 – Banks, Diverse Financials, and Insurance

42 Topics

Commercial banks whose business derives primarily from commercial lending operations and have significant business activity in retail banking and small and medium corporate lending. Regional banks tend to operate in limited geographic regions. Financial institutions providing mortgage and mortgage related services. These include financial institutions whose assets are primarily mortgage related, savings & loans, mortgage GSE’s (government sponsored enterprises), mortgage lending institutions, building societies and companies providing insurance to mortgage banks. Providers of a diverse range of financial services and/or with some interest in a wide range of financial services including banking, insurance and capital markets, but with no dominant business line. Includes diversified financial companies. Providers of specialized financial services. Includes credit agencies, stock exchanges and specialty boutiques. Providers of consumer finance services, including personal credit, credit cards, lease financing, travel-related money services and pawn shops. Financial institutions primarily engaged in investment management and/or related custody and securities fee-based services. Includes companies operating mutual funds, closed-end funds and unit investment trusts. Financial institutions primarily engaged in investment banking & brokerage services, including equity and debt underwriting, mergers and acquisitions, securities lending and advisory services. Financial institutions primarily engaged in diversified capital markets activities, including a significant presence in at least two of the following area: large/major corporate lending, investment banking, brokerage and asset management. Insurance and reinsurance brokerage firms. Companies providing primarily life, disability, indemnity or supplemental health insurance. Insurance

companies with diversified interests in life, health and property and casualty insurance. Companies providing primarily property and casualty insurance. Companies providing primarily reinsurance.

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May 2013 Page 2 of 36 (if available) Economic Community investments Strategy and evaluation

Financial institutions should include and value elements of their community investment programs using the compilation methodology below. Only those elements providing a clear and identifiable benefit to the wider community should be included in this indicator of distribution of value. Elements should be valued at cost to the company. Financial institutions should further report a breakdown of their community investment by theme (e.g., arts, education etc.) and normalize the contribution as a % of pre-tax profit. To aid comparison and understanding, they may also report a breakdown by geographical area

(such as major regions), by type (cash, time, in-kind and management costs) and by motivation.

206* Civil Society Organization Social Responsible Investment (SRI) and local development Social impact evaluation

Information about socially responsible investment. Information about local development

The Social Responsible Investment has a great indirect economic impact, and sometimes it is not reflected in the disclosure of the company.

Furthermore, it is important consider the activities of the company focus on local development and that have a great indirect economic impact. Thought the activities like financing small and medium sized enterprises, venture capital, microfinance, social action or foundations, or other different initiatives, like for example “Montes de Piedad” or “Obra Social” that have been financing by the saving bank in Spain.

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May 2013 Page 3 of 36 (if available) Environmental Materials sourcing Wood-based products from responsibly managed forests

The following sections of the GRI reporting guidelines may be used by a reporter to mention FSC related activities, those are:

- Profile - Commitments to External Initiatives: 4.12 externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses.

- Environmental Impact: EN 26: Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

- Product: PR3: Type of product and service information required by procedures and percentage of significant products and services subject to such information requirements.

The above indicators are mostly not quantitative and a reporter may find difficult to integrate FSC related information.

Ideally there would be a quantitative indicator related to certification scheme or initiative regarding the supply and the final product within the GRI guideline. In order to ease the reporting of FSC related activities, we propose to include two indicators related to supply and final product content. The wording could follow the Food Processing Supplement and worded as follows: “Percentage of purchased material by volume and weight which is verified as being in accordance with credible, internationally recognized responsible production standards, broken down by standard”.

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This topic reflects significant impacts, risks and opportunities for an organization itself and its

stakeholders as well as requires active management or engagement by the organization.

By buying FSC certified products, companies provide incentives for responsible forestry and can enjoy their purchases knowing it has not contributed to the destruction of the world’s forest or even come from companies involved in human rights abuses. Almost everything made from wood and other forest products are available with the FSC label. Finding FSC products becomes easier everyday. Literally every day, more FSC products become available.

This topic is relevant for all 52 business/industry activity groups.

These simple steps can be followed by companies to find and buy FSC products:

1. Check the FSC marketplace at marketplace.fsc.org (in January 2013, the marketplace is still a beta version) Please note this database will currently only search for manufacturers and distributors, not retailers. There are only a few exceptions where retailers are also certified. To find products carried by your local retailer, please contact them directly. We are working on including other search options to this database in the future.

2. Ask your retailer

Chances are, they will carry FSC certified products. If not, let them know you would be interested in certified

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products. Not all certification systems are equal and only FSC guarantees that the product has been made from environmentally and responsibly managed forests. By asking for FSC certified products, you show that there is a demand. This is an important and simple way how you can help FSC to make a difference.

Materials sourcing and use

Plastic products It appears that the GRI G3.1 framework, plus the Financial Services Supplement, provide the opportunity for organisations to disclose accordingly, however, they often are not aware of the potential long-term impacts associated with plastic. (As the "EO" supplement does with "legacy") Commentary is needed to ensure

disclosers appreciate the materiality of plastic (and waste management) especially in:

1. EC9, EN1 & EN2 (e.g. credit cards), EN22 (e.g. food & beverage containers, IT equipment), and SO1 & SO9 for their own operations [DMA's should consider the

governance, strategy, risks, opportunities associated with plastic design, content, use, reclaiming, disposal, and Indicators should consider volumes by type, by

favourable content, by end of life disposition - Refer to the Plastic Disclosure Project ( www.plasticdisclosure.org ) for more details on the suggested questions. PDP will align its questions to GRI G4 once published to assist organisations with making GRI and PDP disclosures.]; and,

2. the Product and Service Impact Indicators (esp. FS1, FS8) also require clarification to ensure organisations consider this issue when deposit taking from, extending credit to, transacting for, investing in, and/or insuring,

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May 2013 Page 6 of 36 (if available) sustainable businesses.

Plastic can have significant positive, or negative, impacts on the economy, environment and society. Economics: There are significant cost savings available to

organisations that treat plastic as a resource (e.g. through redesign, use of recycled content, reclaiming, etc.) and risks of increased direct costs (regulation, liability, cost of capital, insurance) to organisations that do not lead in this area as well as indirect economic costs to impacted industries (e.g. food production, tourism). Environment: Plastics that are wasted or littered become extremely harmful to the environment, which will have a material effect on biodiversity and the global food chain, both nearby and far outside the local area of operations. Society: Some plastics are harmful to stakeholders during manufacture, use and/or disposal (e.g. due to phthalates, BPA), impact the wellbeing of society (e.g. effect of litter on community spirit and their interest in sustainability). As bankers, investors and insurers, the reporting organisations should disclose their approach to safeguarding sustainability considering the potential positive, and negative, impact of plastics. They have an opportunity to ensure that they are behaving sustainably themselves such as reducing use of plastics in the canteen, reclaiming or recycling plastic (e.g. water bottles, stationery, expired IT equipment) ; and also to ensure they are accepting deposits, issuing credit, transacting for, investing in, and insuring, sustainable operations.

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While a valuable invention, which benefits society in many ways, the negative impacts associated with society's growing use of plastic are not fully recognised. Roughly 85% of plastic used in products and packaging is not recycled (e.g. PCs, monitors, mobile phones, usually have a variety of plastic components), and most plastic produced in the last 60 years still remains in the environment today. Discarded plastics persist in the environment for dozens or hundreds of years,

accumulating across the globe, often out of sight of the producers and users. The direct physical impacts of plastic are significant to the organisation in increased costs or missed opportunities, and related economies (e.g. over $1.2bn in annual damages to ocean-related industries in Asia-Pacific), the environment through harming habitats and species, and to stakeholders health when exposed to the chemical ingredients; and are magnified if fragmentation of the plastic occurs, making it available for ingestion to additional species, who adsorb the chemical ingredients and/or the toxins carried on the plastic. These negative impacts could be avoided and turned into positive impacts, if plastic was treated as a resource to be managed judiciously (e.g. the US

economy lost $8.3bn worth of plastic packaging in 2010) - "It is not good business practice to throw away valuable resources".

Emissions to air - GHG emissions

Business travels Financial institutions should estimate the greenhouse gas (GHG) emissions resulting from their business travel as this represents one of the major direct impacts of

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financial institutions. This estimate should: Include travel on behalf of the company or use of the company fleet; and Include the use of courier services. The financial institution should check if the courier service is counting own GHG emissions in order to avoid double counting Paper and waste

IT products' management

The primary types of waste streams for most financial institutions will be paper and waste IT products.

Social Employment

practices

Diversity Percentage of female employees in relation to total employees

Percentage of female FTEs in senior positions in relation to total FTEs in senior positions

Percentage of total FTEs from ethnic minority groups

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Markets & Information Users Labor conditions Workforce

turnover

For Banks, in the current economic uncertainty, and with increasingly stringent regulation, continuing risks include: taxpayers’ disgruntlement over governance issues such as executive pay, social and small business distress if lending remains tight, customer dissatisfaction and staffing cuts. Efforts to recover post-crisis morale are likely to have a significant influence on competitive strength going forward.

The International Labour Organization, in a discussion paper entitled: The Impact of the Financial Crisis on Finance Sector Workers (Geneva, 24-25 February 2009) estimates that at least 325,000 workers in the sector have lost their jobs since August 2007, 40% of them since October 2008. Many banks began rehiring in 2010 and the focus is on efforts to re-build morale in the industry, while increasing integration of business ethics and

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compliances issues as a training requirement.

Employee turnover costs estimated at EUR 11,448 per employee. High labour turnover represents a loss of knowledge and skills while threatening a company's ability to meet business objectives. According to recent surveys, a majority of turnover is voluntarily, with total implied costs estimated at 26.9% of median gross salary based on a 5Y average, which translates into EUR 11,448 per EU27 affected employee in 2010E.

521 Business Labor management relations Strikes and/or lock-outs

Employee turnover costs chosen as pricing factor. Despite a general decrease in labour strikes across selective EU states (median -14.3% 2000-08), 1.9%56 of EU27 workers were still involved in labour disputes in 2007, which resulted in lost corporate productivity (37 working days lost per 1,000 workers). Fluctuations around historical turnover rates result from various sources, a major one being labour strikes, which signal employee dissatisfaction that could result in employees' departures.

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Occupational safety risks

Threats,

violence and risk control

Financial institutions should report their policies and practices regarding threats and violence in place to assist workforce members, their families, or community members which might occur for example: Attacks and aggressions by customers (verbal or physical) or others; Bank robberies (e.g. kidnapping etc.); and • As a result of legal reporting requirements on criminal activities (e.g. money laundering, terrorism). Policies and practices include education, training, counselling, prevention, and risk-control programs.

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May 2013 Page 10 of 36 (if available) Employee education and development

Motivated, highly educated and experienced employees are a key factor in developing these financial services and products as well as in attracting and retaining clients.

460 Financial

Markets & Information Users Political funding Contributions to

political parties

Contributions to political parties as a percentage of total revenues 153 Financial Markets & Information Users Indigenous peoples rights Adherence to international agreements (e.g. Equator Principles and Free Prior and Informed Consent (FPIC) of Indigenous Peoples)

The GRI should solicit details on lending and investment policies that address client's development,

implementation and disclosure of policies and practices related to Free Prior and Informed Consent (FPIC) of Indigenous Peoples. The primary indicator would be for the company to adopt the Equator Principles. Financial institutions should report on policies to institute Equator Principle compliance, which major projects have specific engagement strategies in place, number of loans that have failed Equator Principle review processes, and any loans or investments that were preempted or

discontinued due to that failure. In addition, the financial institutions should report on tracking of loan recipients’ ongoing performance as it relates to the Equator Principles.

Financial institutions are directly linked to the projects for which they have made loans, loans that allow major projects to proceed. If these projects result in

multinationals engaged in lengthy legal battles over human rights abuses among other issues, the financial institution could stand to lose substantial sums of its

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investment. In addition, the risks and opportunities can have a material impact on profitability, such as cost savings from using resources efficiently, avoiding reputational risk, and ensuring access to markets. LEGAL: With the near universal adoption of the UN Declaration on the Rights of Indigenous Peoples (IP) and with the expectation that these rights will be adopted both nationally and internationally as legal standards, corporations should be thinking from the highest levels about how they are incorporating these specific human rights into their management structure. FINANCIAL: While there are some examples of successful FPIC, there are many more where a company's operations have been shut down, projects delayed or in some cases forcibly abandoned due to blockades, legal actions or permit appeals. REPUTATIONAL: Companies that ignore the rights of local communities and/or respond to protests through the employment of private security forces are highly exposed to human rights violations, and face reputational risks that can lead to lost revenue or destruction of shareholder value.

Financial institutions that finance major projects must understand the significant impacts of those projects on Indigenous People's communities. Potential negative impacts include but are not limited to forced

displacement, contamination of and competition for water and other resources, division of local tribes, and the destruction of cultural heritage. Risks include not

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only operational (financial) but reputational. FPIC provides the opportunity for companies to operate on Indigenous Peoples' land in a manner that respects their right to self-determination, provides equitable economic benefits, and serves to preempt multiple financial, legal, regulatory and reputational risks.

Financial products and services information to customers Avoidance of conflict of interest

This indicator is intended to identify how the reporting organisation manages potential conflicts of interest between the FI and the customer. It also identifies how the institution encourages use of products, services and advice in a fair and reasonable manner (e.g. high ratio mortgages, pay-day loans, leveraged investments, fees and rates associated with foreign currency exchange and wire transfers, use of professional designations, etc.) and ensures the responsible marketing and selling to higher risk segments (e.g. seniors, immigrant customers, financially illiterate, etc.). This is important because it enables the reporting organisation to highlight the degree to which corporate and/or personal interests could conflict with the interests of present or prospective customers. In addition, it allows the reader to

understand the extent to which the FI is ensuring appropriate, fair and responsible use of products, services and advice.

206* Civil Society Organization Financial consumer protection Risk management in pension funds

Investment by pension funds should be adequately regulated. This includes the need for an integrated assets/liabilities approach, for both institutional and functional approaches, and the consideration of principles related to diversification, dispersion, and maturity and currency matching. Quantitative

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regulations and prudent-person principles should be carefully assessed, having regard to both the security and profitability objectives of pension funds.

Increased reliance on modern and effective risk

management, industry-wide risk management standards for pension funds and other institutions involved in the provision of retirement income should be promoted. The development of asset liability management techniques should be given proper consideration.

Risk managmente is applicable to other areas of the financial world as well

Consumer confidence and trust in a well-functioning market for financial services promotes financial stability, growth, efficiency and innovation over the long term. Traditional regulatory and supervisory frameworks adopted by oversight bodies contribute to the protection of consumers – which is often and increasingly

recognised as a major objective of these bodies together with financial stability. However, and while it already exists in several jurisdictions, additional and/or

strengthened dedicated and proportionate policy action to enhance financial consumer protection is also

considered necessary to address recent and more structural developments.

This renewed policy and regulatory focus on financial consumer protection results inter alia from the increased transfer of opportunities and risks to individuals and

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households in various segments of financial services, as well as the increased complexity of financial products and rapid technological change, all coming at a time when basic access to financial products and the level of financial literacy remain low in a number of jurisdictions. Rapid financial market development and innovation, unregulated or inadequately regulated and/or supervised financial services providers, and misaligned incentives for financial services providers can increase the risk that consumers face fraud, abuse and misconduct. In particular, low-income and less experienced consumers often face particular challenges in the market place. Financial inclusion, accessibility and financial education Disadvantaged people's access to financial services

This indicator starts from the premise that the financial services of an institution should be reasonably accessible to all of its customers. The absence of financial services can result in less capital available to particular groups, or individuals to support economic development. Equal access to capital for all segments of a community or society is also important from the perspective of maintaining social balance. Standard service offerings and facilities may not be easily usable by people with disabilities and/or impairments or those unfamiliar with the local language or culture and as a consequence may be excluded from access to these offerings or facilities. This indicator addresses the degree to which the financial institution has adapted its facilities and methods of providing standard service offerings to improve access to potentially disadvantaged people. This indicator focuses on initiatives to improve access to disadvantaged people. It is not requesting a list of

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products and services that might be relevant or specifically designed for such individuals. Financial literacy Insufficient financial literacy can result in poor

management by individuals and organizations of their financial resources and inappropriate use of products and services. For financial institutions, enhancing financial literacy represents an opportunity to improve the sophistication of their customer base, its ability to use products and services and to address issues of over indebtedness, social exclusion and other financial risks.

206* Civil Society Organization Low-populated or economically disadvantaged areas

Financial services should be reasonably accessible to all customers within the regions where the financial institution operates. The absence of financial services can result in less capital available to regions, groups, or individuals to support economic development. Equal access to capital for all segments of a community or society is also important from the perspective of maintaining social balance.

Information about:

Financial inclusion, accessibility, financial education...

Financial Inclusion: Give universal access to people to finances services.

Financial education: Mitigate the risk of the customers and avoid future problems and reclamations to the entities.

Accessibility: Give to all people the same possibility to access to the financial services. No discrimination.

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Other Business lines, products and services Design to deliver environmental and/or social benefits

This indicator is intended to provide insight into the degree to which the financial institution has specifically sought to build social capital to address broad-based needs. Building of social capital has multiple dimensions. On a general level, it can relate to meeting needs of all members of society such as education, affordable housing, etc. On a more specific level, it can focus on the role of financial institutions in helping to support

development opportunities for disadvantaged groups and enhance their economic capacity. While all products and services could be argued to offer some form of social benefit, this indicator focuses on those designed with a specific social outcome intended. This gives insight into the priorities of the institution and the ways in which its social contribution differs from other institutions. // The indicator assesses the relative size of products and services with an environmental focus in the

organization’s overall product and service offerings. These products or services can have specific

environmental impacts and this information provides insight into the capacity of the organization to innovate new offerings. This data is calculated independently from the organization’s efforts to integrate environmental risk assessment into its standard processes for developing and delivering products and services. This information is particularly relevant when analyzed in terms of year-onyear trends to assess the development of this product area for an institution.

understanding the evolving needs of society and markets and developing sustainability-oriented products and

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services accordingly, so as to support the transition to a more resource-efficient and low-carbon economy. Examples of Green products and services are: Green credit cards

• Green savings accounts • Green loans

• Green mortgages Green/social/responsible credit lines • Green Leasing

• Environmental advisory services

Sustainable/responsible/socially responsible (SRI) investments

• Carbon fi nance and emissions trading • Green bonds

In this allusion to the gradual transition towards a greener, more

sustainable economy, Signatories are compelled to orient new

business lines and products towards activities which, by their very

nature, provide a net benefit to society and the environment.

Due diligence on environmental and social risks

The indicator explains the process(es) and procedures that the reporting organisation uses to assess the environmental and social impacts of its products and services and how this affects transaction decisions. The indicator will provide insight on capacity of the reporting organisation to manage environmental and social risks and minimize the likelihood of negative environmental and social impacts across its business lines.Processes for

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monitoring clients’ implementation of and compliance with environmental and social requirements included in agreements or transactions. Process(es) for improving staff competency to implement the environmental and social policies and procedures as applied to business lines. Interactions with clients/investees/business partners regarding environmental and social risks and opportunities. Environmental and social policies and requirements of product development

Brief, organization-wide policy (or policies) that defines the organization’s overall commitment related to the Product and Service Impact Aspects listed above ( Product Portfolio, Audit and Active Ownership), or state where this can be found in the public domain. This indicator is intended to provide an overview of the reporting organisation’s intention to consider environmental and social criteria across design and delivery of core products and services (e.g., project finance, loans, mortgages, mutual funds, etc.). This is not intended to focus on policies related to operations. The quality of the environmental and social policy and its implementation can influence the risk exposure of the institution and the environmental and social impacts resulting from the projects or activities enabled by its products and services.

ESG risk

assessment and management

Systematic identification, analysis and management of ESG risks in banking operations with the goal of avoiding and mitigating environmental impacts, while reducing risk and increasing business performance and enhancing long-term company value;

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The Precautionary Approach (as per Principle 15

of the Rio Declaration) has made the commitment to risk management all the more important. The lack of proper risk assessment and management is also viewed as one of the key causes of the 2008 financial crisis. "We

recognize that identifying and quantifying environmental and social risks should be part of the normal process of risk assessment and management, both in domestic and international operations".

A great deal of the environmental damage is caused by the way we do business. If we are to create a truly sustainable global economy, then we must change our economic models so that business can become part of the solution, not the problem. Large institutional

investors are, in effect, ‘Universal Owners’, as they often have highly diversified portfolios that are inevitably exposed to growing and widespread costs from

environmental damage caused by companies. They can positively influence the way business is conducted in order to reduce externalities and minimise their overall exposure to these costs. For the diversified investor, environmental costs are unavoidable as they come back into the portfolio as insurance premiums, taxes, inflated input prices and the physical costs associated with disasters.

Yet the environmental, social and governance performance of companies is not, in our view, an effective means for stock selection. We recognise that this is very much a mainstream investment view. Obviously, there are investors with an ethical mandate

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that will accommodate these objectives in their

investment process. However, in relation to performance we do not believe ESG in isolation works in stock picking. For example, an increasing number of investors and financial professionals have come to recognise the usefulness of environmental, social and governance data as a means for measuring the quality of a company’s management. In a recent issue (2010) of the McKinsey Quarterly, 80% of CFOs and CIOs responding to a survey agreed with the claim that ESG data can serve as a proxy for management quality. However, despite the focus of SRI analysis on the Operational and Health & Safety performance of oil and gas companies for more than a decade, we do not believe that it was effective in

identifying this risk in relation to the oil giant, BP, and the Macondo oil disaster in the Gulf of Mexico in 2010. Rather we think that the identification and oversight of ESG issues indicates a management that has a high awareness of the company’s external operating environment (e.g. access to resources) and a sound ability to identify emerging issues (e.g. innovation). Similarly, positive ESG performance can serve as an indicator for a company’s ability to manage risk and adapt in the face of new challenges to its business models. Companies focused on short-term returns and immediate payouts are also less likely to invest in ESG issues as well as in other intangible initiatives that create long-term value.

ESG performance is only part of a complex picture, and these issues need to be aggregated into overall

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investment decisions when they are material (i.e. performance or risk sensitive). It is just one of a whole series of factors – for example, the nature of the company’s activities, the quality of the company’s management, cash flows and balance sheet strength – that investors must consider when making investment decisions.

After the financial crisis of 2008, many fiduciaries will wisely have looked at the impact of the crisis on their investments, and are now reviewing new approaches to steward and allocate

their assets. Arguably, the single most effective document for promoting the integration of

environmental, social and governance (ESG) issues into institutional investment has been the

landmark report by Freshfields (a leading international law firm) published in 2005. This report covered nine jurisdictions (Australia, Canada, France, Germany, Italy, Japan, Spain, the UK

and US) and concluded that ‘integrating ESG

considerations into an investment analysis so as to more reliably predict financial performance is clearly

permissible and is arguably required in all jurisdictions’. This conclusion clarified the legality behind whether pension schemes could consider ESG issues.

Percentage of loans subjected to ESG-screening Percentage of loans declined for ESG risks

Percentage of prop trading activities subjected to ESG-screening

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Markets & Information Users

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May 2013 Page 22 of 36 (if available) Investments in forestry activities

FSC recommends that investment banks specify in their sustainability reports the following:

1. % of FSC-certified companies or organizations with valid FSC forest management or Chain of Custody certificates (Rainforest Alliance recommends that investment banks finance only those companies or organizations that possess a valid FSC certificate); 2. % of companies that have been audited by an FSC-accredited certification body and have no major non-conformances to FSC principle 1 on legality, but have yet to obtain the FSC certificate – attested to by the certifier; 3. % of companies that have been audited by an

independent 3rd party to verify legality of the source wood for full compliance with all laws and regulations listed in the FSC Controlled Wood standard and can demonstrate a verification statement or certificate from the auditing body;

4. % of companies that have enrolled, successfully, in a phased or stepwise approach to certification and have committed to obtain certification and to improve their operations to meet certification requirements (i.e. enrolled members of Rainforest Alliance/SmartStep programs)

This topic reflects significant impacts, risks and opportunities for an organization itself and its

stakeholders as well as requires active management or engagement by the organization. The financial sector faces significant challenges when implementing sustainable investment policies that focus on the

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verification of legality and sustainability in the forest sector. These challenges include:

- A lack of agreement on which forestry practices are legal or illegal.

- A complex system of laws to assess.

- Widespread forgery and corruption that makes paper-based, non-field-based verification unreliable.

- Weak or nonexistent monitoring systems

Even if these challenges were overcome and legality reliably verified, the problem remains that legal forest practices are not necessarily sustainable.

Given these challenges and difficulties, at this time Rainforest Alliance was unable to recommend a screening tool that can be used internally by financial sector staff to reliably ensure the legality of forestry operations. They recommended that investment banks finance only those companies or organizations that possess a valid FSC certificate. Verification to certain other standards is also an acceptable guarantee of legality.

The world’s forests are threatened, with over half of original forest cover gone and much of the remaining forest area degraded (WWF 2003).

Many initiatives have been developed to counter these destructive forest practices.

The financial sector has joined these efforts, with many investors committing to policies that deny financing to forestry operations that are involved in destructive forest practices or process wood derived from those practices.

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The 2 references listed provide the financial sector with the country-level information that is

necessary for the effective and meaningful implementation of sustainable forest investment. Policies in particular for Brazil, Indonesia and Russia where FSC has been identified as the only tool that give sufficient guarantees of legality and sustainability for sustainable forest investment.

Business models Long-term value creation and short-term value creation

The banking sector remains under public scrutiny. Markets have lost faith in the sustainability of sovereign debt levels and the adequacy of capital at, in particular, European banks that have large exposures to troubled economies. The pressure to de-risk and adopt new business models that are more concerned with long-term value creation is higher than ever.

460 Financial Markets & Information Users Financial firm complexity

Too big to Fail concept

The too big to fail issue is a key sustainability issue. Highly complex financial firms impose a threat to the financial stability and the financial ecosystem, are prone to moral hazard in their behaviour due to implicit and explicit government support and show diseconomies of scale. Often, highly complex financial institutions are considered "black boxes" and seem almost impossible to manage. They are more prone to wide reaching scandals such as the most recent LIBOR manipulation scandal, systematic money laundering or trading incidents. Reducing complexity would allow better and more informed analysis by external stakeholders (analysts, investors, regulators) and reduce risks to shareholders, stakeholders and the wider public.

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May 2013 Page 25 of 36 (if available) Political accountability

Note that this topic is applicable to more than the three industries noted. Essentially the political accountability practices of any company that is owned by public stockholders. Political contributions, the amount of disclosure and board oversight are among the data items that would be helpful in a sustainability report.

In making investment decisions (especially for investors interested in socially responsible investing) is would be helpful to understand how a given company is exposed to political risk (i.e. are they backing the winning

candidate, are they subject to potential retribution, why do they find it necessary to make political contributions, etc.).

I have found the information I reference to be helpful in constructing investment portfolios that take into account this attribute of sustainability. Since it is not currently an established parameter in the socially responsible

investment industry (www.ussif.org), adoption by the Global Reporting Initiative would go a long way in moving the topic of political accountability forward.

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Solvency Internal controls and regulations

Financial services companies need to report on whether the chairman of the board is independent and separate from the CEO. In addition, internal controls and

compliance with the Volker rule (US Dodd-Frank) are critical to solvency.

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May 2013 Page 26 of 36 (if available) Corporate governance Adherence to international best practices/norms

As banks work to restore their credibility and contribute to stable financial systems, leadership and accountability are key factors in building a competitive advantage. Adherence to international best practices in corporate governance, risk management and compliance standards remains a necessity. 460 Financial Markets & Information Users Executive Board remuneration and compensation schemes

The information of the government bodies it is relevant for all the stakeholders of the companies, employees, shareholders, providers, governances, regulatory body’s…

It is importance to have information about the composition of the governance bodies, about the remuneration, if the company have ethical codes of conduct or not… In general, transparency.

The financial sector is a special sector. It is vital for the proper performance of the economy.

One the main source of financing of banks are the deposits, and besides, normally, the major banks and financial institution are listed companies. So it is necessary in these cases, a reasonable transparency for the market in this concern.

In the context of the actual crisis, where the financial sector is involved in a deep restructuration, this concern seems to be paramount.

Actually, it exits a great number of public document about governance bodies that give all the information that it is necessary, at least for listed companies. This reports are available in the web site of CNMV, the

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financial market’s regulators in Spain:

"Annual report of Government bodies" (IAGC). "Annual report of remuneration to the board of directors"

Executive board compensation and ROE chosen as pricing factor. High profile securities fraud fines (USD 0.6bn, Goldman Sachs vs. SEC), record ESG related provisions (USD 20bn, BP oil spill) and questionable compensation schemes (18.7% of US TARP used for bonus payments) may suggest need for a general corporate governance review.

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Gender

participation on governance bodies

GOVERNANCE / EUROPE: boardroom lady boom: is it possible without quotas?

On 22 June, the CapitalCom agency published its 2011 survey into the boardroom gender mix of CAC 40 companies, with fairly encouraging results: the

proportion of women on the board has doubled in recent years, from 10.5% in 2009 to 20.8% in 2011.

In January, the French parliament adopted legislation imposing quotas for the proportion of women on the board of major companies. Under the measures, the development of female board membership is mandatory and gradual: 20% for listed groups, public companies of an administrative, industrial and commercial nature by January 2014, rising to 40% by January 2017. The law also stipulates that companies with no women present on their board must appoint at least one within six months of it being on the statute books (voted on 13 January 2011). In France, some 2,000 companies are

389 Financial

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(if available)

affected (the 650 largest listed firms and companies with more than 500 employees and those generating sales in excess of €50bn). In terms of sanctions for

noncompliance, appointments that run counter to the parity principles are to be declared null and void and attendance fees are to be temporarily suspended. At the European level and at the instigation of the Vice-president of the European Commission, Viviane Reding, the European parliament will decide in March 2012 on whether to adopt common legislation on this matter (a mandatory proportion of women in decision-making positions of 30% in 2015 and 40% in 2020). This will depend on the level of improvement seen based on the self-regulation of European companies, in accordance with the equality initiative adopted by the European Commission in December 2010 and the European parliament resolution of 17 January 2008 calling for the Commission and member states to promote a balance between women and men on company boards, particularly where member states are shareholders. Europe as a whole illustrates the degree of hesitation between a soft-law approach and conventional legislation (quotas in this instance), but it is clear from the experience at national level that the second method tends to get much better results.

Risk

management

The financial services sector consists of a heterogeneous group of companies such as stock exchanges, asset managers and investment holdings. These companies

460 Financial

Markets & Information

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(if available)

have been indirectly affected by the increased concerns about the health of the banking sector through falling asset prices, shrinking volumes, high volatility, fading risk appetite and regulatory pressure. Accountability and leadership are crucial for building a competitive advantage. Adherence to international best practice standards in corporate governance, risk management and compliance is a necessity.

Users

Voting policies Voting shares for

environmental or social issues

The indicator illustrates how the reporting organisation uses voted shares of stock (including proxies) to seek change on issues of concern. It requires details on the financial institution’s approach to using share voting (including proxies) in the context of environmental or social issues 206* Civil Society Organization Business strategy Climate change affecting business

Munich Re less exposed to climate risk. Increasing losses from climate catastrophes require larger

capital/premium income coverage but offer revenue potential through climate change related insurance products/services and risk assessment. With Munich Re's lower catastrophe insurance exposure (2.1% 2009), its specialised climate change research seems risk mitigating.

521 Business

Qualitative information: description of the approach to climate change adopted by an organization.

The climate change may influence the core business of the insurance industry. It results in an increase in expected claims - and expenses, too - and requires greater capital due to the greater volatility of the events occurring. Prospectively, if the risks covered should

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increase in intensity or frequency in an abnormal fashion, there may even be the possibility that they become uninsurable. New innovative solutions should be provided by insurers. Considerations when investing in risk and conflict areas, and for protecting environmental and social stability

The decision by banks to finance certain projects or not should take into account risk, stability and the degree of conflict surrounding the project.

Increasingly, financial institutions are coming under scrutiny because of unintended negative aspects of projects they finance or financial transfers they facilitate. Investments in regions where the functioning of legal systems, democratic procedures and conflict resolution mechanisms are limited can undermine social and environmental stability. The exposure of the banking and insurance industry to political and reputational risk out of civil war, conflict or terrorism may lead them to retreat from financing projects in countries with high political risk. The challenge today is to maintain financial flows to countries with high political risk, while at the same time ensuring that these funds contribute to environmentally-sustainable development and promote social

development and peace-building

55 Mediating Institution Demographic changes affecting business

Qualitative information: actions implemented by an organization to face with the topic.

The demographic change influences the business of the insurance industry. Longer life expectancy, growing wealth, urbanization, different lifestyles, technological development create opportunities for insurers, such as

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innovative products and services to anticipate/meet evolving requirements of customers.

Demographic change may be material for all the organizations, regardless industry, since it affects their workforce. Longer life expectancy means longer retirement age, thus creating challenges for

organizations e.g. associated with alternative career paths, adapting working environments and conditions, and transfer of skill and competencies.

In many societies, demographic change can have several adverse effects on companies' business continuity. E.g. ageing of a population may result in an ageing workforce while a continuously low birth rate may aggravate the problem through shortage of young employees to replace those employees retiring. What are the effects of demographic change on your company and how do you seek to offset potentially adverse effects?

153 Financial Markets & Information Users Environmental and social aspects in long-term strategies

Globalization, demographic shifts and climate change will continue to impact the business environment. Leading banks are integrating environmental and social aspects into their long-term strategies and performance reviews. All the while, climate change and resource scarcity are creating new business opportunities, for example in the area of low-carbon mortgages or funding schemes for innovative sectors that are paving the way toward a low-carbon economy. 460 Financial Markets & Information Users Natural disasters affecting business

The growing destructive power of extreme weather events poses a material financial challenge to insurers. Although a discrete weather event, like the flooding in parts of Queensland, Australia, cannot be directly

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attributed to increasing global temperatures, it is known that extremes of weather are more likely to occur as a result of climate change. The costs of the Queensland floods – including the rebuilding of homes, business and infrastructure, coupled with economic losses – are expected to top AUD $5 billion. During 2010, serious flooding events occurred in Pakistan and China, drought and wildfires were experienced in Russia and Australia, and there were earthquakes in Chile, Haiti and New Zealand, whilst winter storms hit across Europe. According to initial estimates from Swiss Re, worldwide economic losses from natural catastrophes and man-made disasters were US $222 billion in 2010, more than triple the 2009 figure of US$63 billion. The cost to the global insurance industry was $36 billion, an increase of 34% over the previous year. However, to date the existence of ‘reinsurance’ (the insurance of the insurers) covers this cost, as long as the risk is priced in correctly. Risk management is a balance between the most likely risk and those presenting the largest threats and losses. A 2009 UNEP Finance Initiative Report, “The Global State of Sustainable

Insurance: Understanding and integrating environmental, social and governance factors in insurance” raises an interesting point, which may see a push-back by the industry going forward. It notes that ‘it could be argued quite coherently that insurance, the pooling of risks, may not be the appropriate societal response for behaviours that should not be rewarded, and that stifle innovation’. Climate change is an example of an environmental factor

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(if available)

that may present risks over time that become uninsurable. Environmental impacts of investments, products and services

Information about investment.

Financing projects is an important part of the business of the financial institutions.

If we consider the investment of the entities in this kind of project we will have a better view of the real impact of the banking sector.

469 Mediating

Institution

Information about consumption and about investment.

Financing projects is an important part of the business of financial institutions. 469 Mediating Institution Environmental and social impacts of investments, products and services Auditing and screening practices

The indicator explains the process(es) and procedures that the reporting organisation uses to assess the environmental and social impacts of its products and services and how this affects transaction decisions. The indicator will provide insight on capacity of the reporting organisation to manage environmental and social risks and minimize the likelihood of negative environmental and social impacts across its business lines./ The Indicator establishes the scale of environmental and social screening practices relative to the total funds/ assets under management.

* GRI Sector Guidance

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All references can be found at https://www.globalreporting.org/reporting/sector-guidance/Topics-Research/Pages/default.aspx

46 Best, C. & Jenkins, M., 1999. Opportunities for investment: Capital markets and sustainable forestry, Chicago: John D. and Catherine T. MacArthur Foundation.

55 Bray, J., Switzer, J., Hussels, M., Wagner, D., Kelly, M. (2004). Investing in Stability - Conflict Risk, Environmental Challenges and the

Bottom-Line. s.l.: United Nations Environment Programme (UNEP) and International Institute for Sustainable Development (IISD). 71 Centre for Australian Ethical Research, 2009. Indigenous rights: risks and opportunities for investors, London: EIRIS. 81

Comisión Nacional del Mercado de Valores, Updated annually. Información gobierno corporativo. [Online] Available at: http://www.cnmv.es/portal/Consultas/EE/BusquedaIGC.aspx

[Accessed 27 March 2013].

83 Confederacion Española de Cajas de Ahorro (CECA), 2011. Memoria Montes de Piedad, Madrid: Confederacion Española de Cajas de Ahorro (CECA).

84 Confederacion Española de Cajas de Ahorro (CECA), 2011. Memoria Obra Social 2011, Madrid: Confederacion Española de Cajas de Ahorros (CECA).

142 European Commission, 2008. Financial Services Provision and Prevention of Financial Exclusion, Brussels: European Communities.

153 European Federation of Financial Analysts Societies (EFFAS) and Society of Investment Professionals in Germany (DVFA), 2010. KPIs for ESG - A

Guideline for the Integration of ESG into Financial Analysis and Corporate Valuation, Frankfurt am Main: EFFAS. 185

Forest Ethics, n.d. Model Forest Resources Policy. [Online]

Available at: http://www.forestethics.org/model-forest-resources-policy [Accessed 27 March 2013].

206* Global Reporting Initiative (GRI), Financial Services Sector Supplement, 2008.

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353 Kershaw, P., Katsuhiko, S., Lee, S., Samseth, J., Woodring, D., & Smith, J., 2011. Plastic Debris in the Ocean. In United Nations Environment Programme (UNEP), UNEP Year Book 2011 (pp. 20-33). Nairobi: United Nations Early Warning and Assessment.

366 MacKay, F., 2010. Indigenous Peoples and International Financial Institutions. In: International Financial Institutions and International Law. Alphen Aan den Rijn: Kluwer Law International, pp. 287-320.

367 MacKerron, C., 2011. Unfinished Business: The Case for Extended Producer Responsibility for Post-Consumer Packaging, Oakland: As You Sow. 370 Martinez-Fernandez, C., Kubo, N., Noya, A. & Weyman, T., 2012. Demographic change and local development: shrinkage, regeneration and

social dynamics, Paris: Organisation for Economic Co-operation and Development (OECD).

389° Natixis, 2011. Strategy Note Equity Research - Strategy/SRI: Monthly review June 2011, Paris: Natixis.

391 Newsom, D., 2005. Guidance for the Financial Sector on Verifying Legal and Sustainable Forestry Activities: Case Studies from Indonesia, Brazil

and Russia, New York: Rainforest Alliance.

394 Nowak, T., 2012. Low Fee Socially Responsible Investing. 1st ed. Grayslake: Quantum Financial Planning LLC.

423 Organisation for Economic Co-operation and Development (OECD), ‘G20 High-Level Principles on Financial Consumer Protection’, 2011. 426 Organisation for Economic Co-operation and Development (OECD), 'OECD Recommendation on Core Principles of Occupational Pension

Regulation', 5 June 2009.

460 Robeco SAM, 2012. The Sustainability Yearbook 2012, Zurich: Robeco SAM.

462 Rose, A. & Wieladek, T., 2012. Working Paper No. 460: Too big to fail: some empirical evidence on the causes and consequences of public

banking interventions in the United Kingdom, London: Bank of England. 469 Santander, 2012. Memoria de Sostenibilidad 2011, Santander: Santander.

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521 Unicredit, 2010. Environmental, Social & Governance Research: The Halo's Creed, London: Unicredit.

533 United Nations Environment Programme Finance Initiative (UNEP FI), 2011. UNEP FI Guide to Banking & Sustainability, Geneva: United Nations Environment Programme (UNEP).

569 World Wide Fund for Nature (WWF), The WWF Guide to Buying Paper, 2010.

616 Zicklin Center for Business Ethics at the Wharton School of the University of Pennsylvania, 2012. CPA-Zicklin Index of Corporate Political

Accountability and Disclosure, Washington, D.C.: Center for Political Accountability. * GRI Sector Guidance