ICGN San Francisco Annual Conference panel discussion: Investor perspectives on how to enhance the value of disclosures

ICGN San Francisco panel summary: enhancing disclosures

Enhancing disclosures on non-GAAP and sustainability metrics, governance and cybersecurity


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How do global investors, corporate directors, and other governance professionals view non-traditional financial reporting metrics? At the International Corporate Governance Network Annual Conference in San Francisco, Scott Marcello, Vice Chair, Audit, KPMG LLP (US), led a discussion on how measures such as non-GAAP reporting, traditional operating metrics and sustainability accounting are considered when making investment decisions.

Michael Herskovich, Head of Corporate Governance for BNP Paribas Asset Management in Paris, said transparency is a factor. “It should be the first question for investors. If you look at financial metrics, non-financial metrics, non-GAAP metrics — it’s always the same question on transparency.”

Consistency is also key, according to Herskovich. “It’s important for non-standard information to be consistent in both calculation and disclosure.”

When asked about the relevance of environmental, social and governance (ESG) information for investors, Claudia Kruse, Managing Director of Sustainability & Governance at APG Asset Management in the Netherlands, said that the information can be relevant for different reasons.

“It matters for investment decisions but also, more generally, if the company abides by the standards of responsible conduct that we expect.”

 “As investors, we expect companies to report on the broad areas of environment, labor standards, human rights, and bribery and corruption,” said Kruse, especially when disclosure guidance documents are already available covering these areas.

Once laggard, the perspective on ESG in US boardrooms is coming around, according to Robyn Bew, Director of Strategic Content Development for the National Association of Corporate Directors (NACD).

“For leading companies and boards, sustainability is really part and parcel in the conversations about strategy,” said Bew. “NACD encourages directors to think about ESG in terms of alignment, making sure that management’s short-term objectives are aligned with long-term outcomes, and also that those things are very transparently communicated to investors.”

But companies in different countries have different levels of ESG maturity, said Ken Hokugo, Director and Head of Corporate Governance at the Pension Fund Association of Japan. He said Japan is still evolving in terms of stewardship and corporate governance.

Japanese investors are particularly interested in how many shares are held by allegiant shareholders who tend to vote for management. “We need more guidance or rules from the regulators with respect to how to disclose such a holding,” said Hokugo.

Ken Hokugo, Director, Head of Corporate Governance at the Pension Fund Association; Michael Herskovich, Head of Corporate Governance, BNP Paribas Asset Management; Scott Marcello, Vice Chair, Audit, KPMG in the US; Mark Vaessen, Global Head of IFRS, KPMG International.

Mauro Rodrigues da Cunha, ‎CEO at AMEC in Brazil, said current sustainability metrics are not really relevant to investment professionals and need to be translated for a broader audience — such as by spelling out environmental and social factors in the risk factors. “In Brazil, the regulator came up with a new regulation for risk disclosure and it’s having a profound effect on companies,” said Cunha. “They’re actually doing their homework and realizing that they had gaps in many aspects, including environmental and social.”

He added, “What’s missing is an engagement policy. We always talk about investor engagement. The company [and CEO] need to engage with the market to tell them what is really relevant for the sustainable growth of the company.”

“In terms of sustainability reporting, directors are asking more questions to management around, ‘Are we producing investment grade information — and how do we know that?’” said Bew. The same is true for non-GAAP information — directors want to understand where the information is coming from, how it has been verified and what controls exist.

Concerning what attributes of governance are most important to investors, Kruse said board composition — directors’ skills, experiences and how they function together — top her list, noting that a new Dutch corporate governance code requires that the board should have competencies with regard to digital and new business models. Communication is also critical, said Cunha.

“Companies need to develop engagement policies, make those public and make them systematic, so that investors will know what to expect,” he said, adding that the trend toward electronic meetings is worrisome as face-to-face meetings raise accountability.

Investors always look to see whether a subject is discussed at the board level and integrated in the risk assessment framework, said Herskovich, including gender diversity as a recent initiative for boards that has helped increase overall corporate diversity.

When it comes to governance, there needs to be a balance, said Bew. For her, it starts with board independence, but also includes education and transparency — with boards explaining to stakeholders what they do, their processes, and links between strategy and action.

“Culture is key,” added Kruse. “The Dutch code specifically requests the supervisory board to oversee what kind of culture the management is establishing within the company and whether it is the appropriate one to run the company, in the interest of long-term value creation. Similar things are happening in France and the UK.”

The cybersecurity conversation has also reached a fevered pitch in governance circles.

Herskovich said investors consider various factors, including whether the company has a cybersecurity policy and, if so, its scope, coverage, and how cyber risks are assessed.

Cunha and Bew agreed that cybersecurity needs to be on the recurring board agenda; however, there is a massive cybersecurity talent shortage at the management (and board) level. Consequently, they said, boards need to find alternative ways to obtain cyber risk information — whether through an experienced director, or regular briefings from third parties or government agencies.


Mauro Rodrigues da Cunha, ‎Chief Executive Officer, Associação de Investidores no Mercado de Capitais (AMEC); Scott Marcello, Vice Chair, Audit, KPMG in the US; Mark Vaessen, Global Head of IFRS, KPMG International.

 “We’re seeing more and more boards doing war-gaming and tabletop exercises, simulations of a cyber breach, where the whole team [board and management] is involved,” said Bew, suggesting that boards ask their existing advisors about trends.

For the board, investors and external auditor, “Open, transparent communication, disclosure and discussion is critical for shaping how investors view risk,” said Marcello.

“Risk affects how we audit. And our processes and inquiries can help companies in how they think about communicating risk through various metrics,” said Marcello.

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