>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUSTAINABILITY A Bloomberg Professional Service Offering
ESG DISCLOSURE IN BRAZIL: STATE OF THE MARKET EXECUTIVE SUMMARY
In 2014 and 2015, investor inquiries about corporate - The minimum Bloomberg Governance Disclosure Score for governance, company exposure to extreme water the group increased 18 points since 2010, partially driven stress, corporate health and safety performance and by the governance disclosure requirements of the Reference SITAWI is a Brazil-based organization working to advance social environmental, social and governance (ESG) reporting Form, a regulatory filing required by Brazil’s Securities and and environmental outcomes through finance and investing. SITAWI in Brazil more broadly increased dramatically. With Exchange Commission (CVM). major controversies on multiple fronts – the Petrobras/ - The distribution of the ESG Disclosure Score by market cap manages philanthropic funds for large donors, develops financial Lava Jato corruption scandals, the drought in São Paulo shows that larger companies are more transparent. This is solutions to social enterprises and advises financial institutions and state and the catastrophic collapse of Samarco’s mine consistent with global reporting trends. tailings dam – investors, both domestic and foreign, investors on integrating ESG issues into strategy, risk management - The Materials, Consumer Staples and Utilities sectors are the started to more actively consider the potential for leaders in disclosure of emissions and energy use, while the and investment analysis. With offices in Rio de Janeiro and analysis of this type of information as a window into laggards are Consumer Discretionary and Energy sectors. fundamental company analysis and risk management. São Paulo, but operating across Latin America, SITAWI works - The level of disclosure of water use is low and has not with the region’s leading players in social and sustainable finance, In response, Bloomberg conducted a full review of its ESG improved over time. Given the severe water crisis in Brazil data coverage of the Brazilian market, which consists of the during 2014-2015, investors should monitor for improved and is piloting innovative concepts for the region such as Social main Bovespa Index, and then partnered with SITAWI to water disclosure in coming years. Impact Bonds and Green Bonds. analyze the universe and identify themes relevant for investors - The level of disclosure of waste was also low despite and other stakeholders in the Brazilian market. Reviewing all regulation on waste management. The sectors for which the companies in the universe yielded useful insights into the this issue is more material (Consumer Discretionary, Energy state of ESG reporting in Brazil, especially in relationship to and Materials) report very little on waste management. issues with both long-term relevance and near-term urgency. - The most frequently reported environmental policies are This white paper represents that work and Bloomberg’s Water Policy (81%) and Waste Reduction Policy (79%). commitment to elevating the visibility of sustainable investing and ESG integration into fundamental company analysis. - In contrast with low quantitative reporting on water use, the most water-sensitive sectors, Utilities, Materials and The analysis in this white paper focuses on the level of Energy, were the best Water Policy reporters (89% or disclosure of Brazilian listed companies on ESG issues. It more companies disclosing). investigates the degree of corporate transparency on issues - The Utilities sector’s 50% increase in disclosure of water such as energy intensity, water intensity, carbon footprint, policies from 2010 to 2014 reflects the increasing importance health and safety, and diversity using Bloomberg’s ESG data. of water management to hydroelectric generators. We found overall that increased disclosure since 2010 was - The Consumer Discretionary sector featured a 45% driven by factors such as corporates’ adoption of the GRI increase in disclosure of waste policies in the period and CDP frameworks; the UN Global Compact’s disclosure analysed, which is most likely a result of the 2010 requirements; increased interest from companies to join the National Policy of Solid Waste. Corporate Sustainability Index (ISE) and the Brazilian GHG Protocol Program; and the influence of BM&FBovespa’s - On diversity, the most frequently reported data points are Report or Explain initiative. percentage of women employees (74%) and percentage of disabled employees in the workforce (46%), the latter of The white paper’s main findings are as follows: which is subject to Law 8213/1991 that establishes quotas. - From 2010 to 2014, the median level of ESG disclosure of - In general, the sectors for which health and safety are Ibovespa companies, as measured by Bloomberg’s ESG more material (Consumer Discretionary, Consumer Staples, Disclosure Score increased 20%. Energy and Materials) are not reporting well on accidents - Utilities, Consumer Staples and Materials sector companies and fatalities. showed the highest levels of ESG disclosure, while Energy and - Recent corruption scandals and the new Anti-Corruption Consumer Discretionary illustrated the lowest transparency. Law have driven more disclosure. Business Ethics Policy - Although Bloomberg’s Environmental Disclosure Score is the most frequently reported social policy. Disclosure of among Ibovespa companies increased 36% from 2010 Whistle Blower Policies increased 23% and Anti-Bribery to 2014, only 11% of them feature better than median Ethics Policies 18% between 2013 and 2014. CONTENTS environmental disclosure. - Overall, although regulatory requirements may mandate 02 METHODOLOGY & MARKET BACKGROUND - On the other hand, even though the Social Disclosure Score Brazilian companies to manage environmental and social 03 BLOOMBERG DISCLOSURE SCORES of Ibovespa companies increased only 10% from 2010 to issues, company ESG reporting often does not reflect the 2014, 32% of companies present higher than median social company’s response to those mandates. 07 ENVIRONMENTAL ISSUES disclosure with examples of strong corporate leadership, a 10 SOCIAL ISSUES reflection of the regulatory environment in Brazil on labour 13 APPENDIX 1 and health and safety. 14 APPENDIX 2 15 APPENDIX 3 METHODOLOGY & MARKET BACKGROUND The level of these companies’ ESG disclosure was assessed The sample of this study comprises the 57 Brazilian companies in the Bovespa Index (Ibovespa), the widely used benchmark using company-reported ESG data available on the Bloomberg tracking the Brazilian stock market’s performance. Professional Service over the period 2010-2014. Bloomberg collects sustainability information from more than 11,000 The assessed companies belong to eight different sectors, as shown in Table 1. The majority of the companies are from companies globally and presents executive compensation the Financials (19%), Consumer Discretionary (16%) and Materials (16%) sectors. information for more than 16,000 companies. This information is collected from company reports such as Corporate Social SECTOR % OF SAMPLE # OF COMPANIES COMPANIES Responsibility and Sustainability reports, annual reports, Communications 7% 4 Telecom: Oi*, Telefônica*, Tim* company websites and Bloomberg’s proprietary survey. Media: Smiles Bloomberg standardizes company reported sustainability Consumer 16% 9 Consumer Services: Estacio, Kroton information to make this data more comparable and to improve Discretionary Commercial Services: Qualicorp Retail: Hering, Lojas Americanas*, Lojas Renner*, Localiza comparability across companies, but no company ESG data Home & Office Products1 : MRV*, Cyrela* is estimated. In addition, every data point features transparency Consumer Staples 14% 8 Consumer Products: BRF*, JBS, Marfrig, Natura*, Ambev, Hypermarcas2 to a company document. Retail: Pão de Açúcar*, Raia Drogasil Finally, this paper also highlights ESG disclosure relative Energy 5% 3 Oil, Gas & Coal: Cosan, Ultrapar, Petrobras* to relevant and business material factors by sector. The ESG Disclosure Map — Bloomberg’s ESG Disclosure Score Financials 19% 11 Banking: Banco do Brasil*, Santander*, Bradesco*, Itaú Unibanco* concept of materiality recognizes that certain information is by Country Coverage Insurance: BB Seguridade Institutional Financial Services: BM&FBovespa*, CETIP important to investors in making investment decisions. While Real Estate: BR Malls, Multiplan the legal framework for publicly listed companies to disclose Brazil’s relatively high ESG Disclosure Score reflects the Specialty Finance: Cielo* material information may vary, the analysis in this paper evolution of sustainability information in Brazil, as well as Asset Management: Itausa draws on the following resources to determine the sector an improved enabling environment, thanks to domestic and Industrials 9% 5 Engineering & Construction Services: CCR*, Ecorodovias* materiality of certain reporting themes. These are: international efforts across governments, corporate reporters, Aerospace & Defense: Embraer* Transportation & Logistics: Rumo Logística - Sustainability Accounting Standards Board (SASB) investors and exchanges. The Global Reporting Initiative (GRI) Machinery: WEG* (2016). Materiality MapTM. Available at this link. established a Focal Point in 2007, which stimulated companies Materials 16% 9 Iron & Steel: Vale*, CSN, Gerdau, Usiminas*, Bradespar3 Accessed 21 March 2016. to report according to the GRI framework. With increased Chemicals: Braskem* corporate participation in the UN Global Compact, companies - PRI & SITAWI (2015). Materiality of ESG KPIs: Forest & Paper Products: Fibria*, Klabin*, Suzano* also adopted the GRI and CDP frameworks for reporting. More a Perspective from Brazil. Available at this link. Utilities 14% 8 Utility Networks: CEMIG*, Copel*, CPFL*, Energias do Brasil*, Equatorial, recently, investor engagements coordinated by the Principles for Tractebel, SABESP* - Sustainalytics (2015). Sector Report: Utilities – Responsible Investment (PRI) with Brazilian listed companies Power Generation: CESP The Great Transformation Begins. Available at this link. have also advanced reporting practice. Table 1 – List of Ibovespa companies by sector Accessed 21 March 2016. The BM&FBovespa has played a pivotal role in driving ESG TM The SASB Materiality Map is used to identify and disclosure. The Bovespa’s Report or Explain initiative has compare likely material sustainability issues across different organized data on reporting by public companies in Brazil, industries and sectors. Combined with the Brazil-specific encouraged companies to disclose information about their view of materiality analyzed in the joint PRI/SITAWI report, ESG performance and has provided greater transparency we believe that this report takes into account both domestic to market participants. Both the Bovespa’s Corporate and global thinking on materiality. Sustainability Index (ISE) and its Carbon Efficient Index (ICO2) have likewise raised the visibility of companies with BLOOMBERG DISCLOSURE SCORES good sustainability practices and transparency, as has the Bloomberg has developed four proprietary Disclosure entry of the Dow Jones Sustainability Index (DJSI). Scores that summarize the extent of the companies’ ESG disclosure relative to a set of key ESG fields. While the ESG That said, Brazil’s high overall disclosure standard represents Disclosure Score evaluates the overall level of corporate large public companies, which are a high percentage of the transparency on ESG issues, the Environmental, Social country’s overall public market capitalization. Bloomberg’s and Governance Disclosure Scores evaluate the degree ESG Disclosure Score does not reflect disclosure by debt of transparency on each of the three ESG themes. issuers or private companies. Countries like the United States have lower average ESG Disclosure Scores because of the Disclosure of ESG information in Brazil is relatively advanced size of the market represented and covered by Bloomberg compared with other markets, both emerging and developed. and the market cap bias inherent in ESG reporting. Bloomberg’s ESG Disclosure Score, a composite that summarizes reporting on ESG themes, for Brazil is almost Finally, it’s worth emphasizing that ESG reporting offers 30 aggregated at the country market level. Companies who investors and other users of this information only one of many score over 30 tend to have more meaningful ESG information windows into how companies create value and manage risks. quantified in their reports, while a score less than 20 indicates Quantitative data must be put into context. It is best used to reporting focuses primarily on governance information. identify outliers, trends, value creation opportunities, risk factors 1Please note that, for the purposes of this analysis, MRV Engenharia and Cyrela are both categorized into the Consumer Discretionary sector. On the Bloomberg Professional Service according to the Bloomberg Industry Classification system (BICS), Cyrela is categorized in the Financial Services sector as a real estate owner and developer. Because MRV and Cyrela share the sustainability risks and points for deeper research and company engagement. of a homebuilder, Cyrela has been classified as a Homebuilder in this analysis. This white paper aims to advance these goals for users of 2For the purposes of this analysis, Hypermarcas is categorized into the Consumer Staples sector. On the Bloomberg Professional Service according to the BICS, Hypermarcas is categorized in the Health Care sector as a Biotech & Pharma company. Given that Hypermarcas’ main products are over-the-counter medicine, the company shares the sustainability risks of a Household Products company. sustainability information. Therefore, Hypermarcas has been classified into the Consumer Staples sector in this analysis. 3For the purposes of this analysis, Bradespar is categorized into the Materials sector. On the Bloomberg Professional Service according to the BICS, Bradespar is categorized in the Financial Services sector as an Asset Management company because it is an investment holding company. Because Bradespar has over 80% of its assets invested in mining company Vale through Valepar, the company 4The UN Global Compact is a UN initiative that supports companies to do business responsibly by aligning their strategies and operations with Ten Principles related to human rights, labor, environment shares the sustainability risks of a mining company. Therefore, Bradespar has been categorized into the Materials sector in this analysis. and anti-corruption; and take strategic actions to advance broader societal goals, such as the UN Sustainable Development Goals, with an emphasis on collaboration and innovation.
SUSTAINABILITY 02 // 03 Bloomberg ESG Disclosure Score Shows Positive Trend Overall ESG disclosure among the sample companies in the On the other hand, the Energy and the Consumer Discretionary Ibovespa increased 20% since 2010, as measured by the sectors showed the lowest degrees of transparency. Nonethe- median Bloomberg ESG Disclosure Score (Graph 1). In less, we are careful to note that there are only three companies addition, 65% of companies in the index have robust or in the Energy sector in this sample: one company with a high moderate disclosure (Graph 2). Even though the minimum ESG Disclosure Score of over 60 points and two smaller values of the ESG Disclosure Scores increased more than companies, one of which is diversified across energy and seven times between 2010 and 2014, the low threshold is non-energy business lines, with scores under 30 points. driven by governance disclosures rather than environmental and social data.
Graph 4 – Bloomberg Environmental Disclosure Score (out of 100) – Graph 6 – Bloomberg Environmental Disclosure Score (out of 100), 2010-2014. Source — Bloomberg total and by sector. Source — Bloomberg
Good Social Disclosure Driven by Compliance The Bloomberg Social Disclosure Score assesses a company’s level of disclosure of social issues, including issues related to health and safety, human capital, diversity, employee training, relationship with customers and community and supply chain management. Graph 3 – Bloomberg ESG Disclosure Score (out of 100), total and Bloomberg collects a total of 42 social data points. by sector. Source — Bloomberg The Bloomberg Social Disclosure Score of Ibovespa Graph 1 – Bloomberg ESG Disclosure Score (out of 100) – 2010-2014. Source — Bloomberg Environmental Disclosure: A Few Leaders companies increased modestly (10%) from 2010 to 2014 But Room to Improve but with higher median and the maximum disclosure The Bloomberg Environmental Disclosure Score analyses values than for environmental and governance issues a company’s level of disclosure on various environmental (Graph 7). Brazil has a high level of regulation on employee issues, including greenhouse gas (GHG) and other health and safety, which may be encouraging public emissions, energy use, water use, waste, environmental Graph 5 – Bloomberg Environmental Disclosure Score – disclosure tiers reporting on measures in place for compliance reasons. fines and environmental policies. Bloomberg collects a (as of % of # of companies). Source — Bloomberg In line with that, 83% of Ibovespa companies had robust total of 164 environmental data points. or moderate social disclosure (Graph 8). The median Environmental Disclosure Score increased The environmental reporting landscape by sector is similar 36% for the Ibovespa since 2010 (Graph 4)5. Although to the ESG Disclosure Score (Graph 6). Utilities, Consumer few companies illustrate the highest levels of transparency, Staples and Materials sectors continue to be the most 65% of companies disclose robust or moderate levels transparent on environmental issues in 2014 — more of environmental data and information (Graph 5). An Consumer Staples and Materials than Utilities, in this increasing number of Brazilian companies report GHG case. Energy and Consumer Discretionary sectors are emissions through CDP’s framework (from 35 companies the laggards. in 2010 to 40 in 2014). In addition, 27 of Ibovespa Brazil’s Consumer Discretionary sector, comprised of companies are members of the Brazil GHG Protocol homebuilders, apparel retailers, educational services and Graph 2 – Bloomberg ESG Disclosure Score – disclosure tiers (as of % of # of companies. Source — Bloomberg Program, which encourages companies to produce and health services providers, may disclose less environmental publish inventories of GHG emissions. Finally, 50% of information because of the perception that environmental the sample companies were included in BM&FBovespa’s In 2014, the Utilities, Consumer Staples and Materials sectors performance is less material to their business risks ICO2 Index in 2014 vs. 22 companies in 2010, recognizing showed the highest levels of ESG disclosure (Graph 3), as and opportunities and, as such, less likely to have Graph 7 – Bloomberg Social Disclosure Score (out of 100) – 2010-2014. corporate commitment to reporting carbon emissions. Source — Bloomberg measured by the median value. The leadership of the Utilities an impact on their financial returns. sector comes largely from legal mandates to disclose additional All of these initiatives have stimulated further environmental Relative to a global sample based on the Bloomberg information – including ESG data to the public – because of disclosure, particularly of emissions. Global commitments World Index, this low environmental disclosure compares regulation from the Electricity Regulatory Agency (ANEEL). from business, the financial sector and the investment poorly. Globally, Financials, Health Care and Industrials Moreover, sector associations such as Abradee (Brazilian management industry made at the Paris COP21 climate show the lowest levels of environmental disclosure while Association of Electricity Distributors) are also stimulating talks may spur further efforts. Consumer Discretionary performs in line with the median. voluntary disclosure by providing guidelines and promoting The Energy sector’s environmental disclosure is pulled recognition through awards and other promotion of down by the lack of disclosure of two out of sector leaders. three companies.
5Note that 86 fields in the environmental data base are sector-specific fields covering 5 sectors, such as gas flaring, for instance. As a result, the total number of fields is relevant as a benchmark, not as an absolute gauge for all sectors.
SUSTAINABILITY 04 // 05 Regulation was probably the main driver for changes Market Capitalization Bias in Disclosure Scores SECTOR TOTAL GHG GHG GHG between 2011 and 2012. The Brazilian Securities and In general, the larger the company the more transparent it EMISSIONS SCOPE 1 SCOPE 2 Exchange Commission’s (CVM) issuance of Instruction is (Graph 13) – a global phenomenon. Median scores for (TH TONNES) 480 in 2009 required all listed companies to publish an small-cap, mid-cap and large-cap companies6 illustrate that Consumer Staples 75% 63% 63% annual Reference Form with selected corporate information. the market cap bias is more pronounced for Bloomberg’s Energy 67% 33% 33% By mandating that companies disclose corporate governance Social and Environmental Disclosure Scores while regulatory Industrials 60% 60% 80% data, such as number, age and level of independence of mandates ensure a floor on reporting on governance, Materials 67% 67% 67% members of Boards of Directors and Fiscal Councils, CVM as discussed. helped to raise the bar on governance disclosure. Utilities 75% 75% 75% Total 61% 58% 60%
Source — Bloomberg. Note: Sectors in this table are those for which emissions were identified as a material factor by SITAWI’s survey with PRI, SASB’s Materiality Map and Sustainalytics’ utilities report. Graph 8 – Bloomberg Social Disclosure Score – disclosure tiers (as of % of # of companies). Source — Bloomberg
Poor reporting on social factors among lagging industry constituents in Consumer Discretionary and Energy sectors should be a concern for investors given the relevance of certain social issues for the two sectors (Graph 9). Employee diversity, training and supply chain management, for instance, are considered material issues for Consumer Discretionary Graph 13 – Bloomberg ESG Disclosure Scores by market capitalization sector companies, while health and safety is a sensitive Graph 10 – Bloomberg Governance Disclosure Score (out of 100) – (median). Source — Bloomberg topic for Energy, especially given well-documented lapses 2010-2014. Source — Bloomberg in the industry. ENVIRONMENTAL ISSUES The level of disclosure of Brazilian companies on specific environmental issues – emissions, energy use, water use, Graph 14 – Median value of the total number of emissions-related data waste and environmental policies – yields a more detailed points disclosed (out of 23) – 2010-2014. Source — Bloomberg picture of transparency on ESG related issues. Within each of these themes, we examine the median number of data The best reporters on emissions in 2014 were Materials, points disclosed by Ibovespa companies between 2010 and Consumer Staples, Utilities and Industrials (Graph 15), which 2014, the median number of data points disclosed by sector are also sectors for which emissions are considered a material in 2014, and the percentage of companies per sector that issue. This means that information on emissions in these disclosed selected data points in 2014. sectors is important for investors in making investment Emissions: Relatively Widespread decisions because it may have an impact on companies’ But Uneven Disclosure financial results. Materials sector companies were most The majority of Ibovespa companies and the sectors for transparent about emissions in 2014, disclosing the median 7 value of 8 data points. Sustainability leaders in Forest & Graph 9 – Bloomberg Social Disclosure Score (out of 100), total and Graph 11 – Bloomberg Governance Disclosure Score – disclosure tiers which emissions are considered material (see Appendix 2) by sector. Source — Bloomberg (as of % of # of companies). Source — Bloomberg report on the most important fields related to emissions7. Paper and Iron & Steel industries drove this performance. Approximately 60% of Ibovespa companies report on total Consumer Staples followed with a median of 6 data points, Utilities and Industrials disclosing 5 data points. Governance Disclosure Driven by Listing Requirements GHG emissions (61%), GHG Scope 2 (60%) and GHG and Regulations Scope 1 (58%) (Table 2, Graph 14 and complete field list The Energy sector again stands out as a lagging exception The Bloomberg Governance Disclosure Score analyses a in Appendix 1). In fact, reporting on emissions has remained in disclosing a median of only one of the 23 emissions company’s level of disclosure of governance issues, including relatively constant at a median of 4 emissions-related data related data points. As noted earlier, this is due to the sector issues related to Board’s structure, independence and points from 2011 through 2014 after an increase in 2010 constituents. One company disclosed 13 emissions data diversity, and shareholder rights. Bloomberg collects a total due to improved disclosure of the Meat Products companies points, while the two other companies only report one of 90 governance data points. in 2011. emissions data point or no information. Governance disclosure mandates probably account for the pattern in Graph 10 with little change in either the median or the minimum over 2012 to 2014. In addition, most companies (93%) provided moderate levels of governance disclosure (Graph 11) across sectors with highly regulated Financials, Graph 12 – Bloomberg Governance Disclosure Score (out of 100), Utilities and Communications companies disclosing best total and by sector. Source — Bloomberg (Graph 12).
6To categorise the companies by market capitalisation, the following criteria were used: small companies had less than US$2 billion in market cap (data from the first quarter of 2016), medium companies had between U.S.$2 billion and U.S. $10 billion, and large companies had over US$10 billion in market cap. In total, there were 19 small-cap, 26 mid-cap and 12 large-cap firms in our 2014 sample. 7In total, 23 emissions-related data points include GHG Scopes 1, 2 and 3 emissions, and total greenhouse gases (GHG), CO2, nitrous oxide, nitrogen oxide, SF6, methane and particulate emissions
SUSTAINABILITY 06 // 07 SECTOR TOTAL TOTAL WATER % WATER Waste: A Substantial Disclosure Gap WATER USE WITHDRAWAL RECYCLED Across Key Industries Consumer Staples 75% 50% 38% Most sectors for which waste is material (see Table 5) are not reporting well on this topic despite the National Policy on Solid Energy 33% 33% 33% Waste (Law 12.305/10) issued in 2010, which establishes Materials 67% 56% 33% increased corporate responsibility for the life-cycle of products Utilities 63% 75% 25% and for reverse logistics9. While this law may have increased the Total 61% 46% 19% relevance of waste management by Brazilian companies, it may not have been understood as a reporting priority. Here again, Table 4 – % companies reporting selected water-related data points, total this suggests the gap between regulation and sustainability and by sector. Source — Bloomberg. Note: Sectors in this table are those for which water was identified as a material factor by SITAWI’s survey with reporting bears examination. PRI, SASB’s Materiality Map and Sustainalytics’ utilities report. The most commonly reported data point out of Bloomberg’s Graph 15 – Median value of the total number of emissions-related data Graph 16 – Median value of the total number of energy use-related data five waste-related data points in 2014 was total waste points disclosed (out of 23), total and by sector. Source— Bloomberg. Note: points disclosed (out of 7) – 2010-2014. Source — Bloomberg Sectors for which emissions were identified as a material factor are marked (disclosed by 61%), followed by waste recycled (49%) with an asterisk (*) and a green line. and hazardous waste (39%) (Table 5).
Energy Use: Inconsistent Disclosure SECTOR TOTAL HAZARDOUS WASTE with Points of Concern WASTE WASTE RECYCLED Although there was good disclosure among sectors for which (TH TONNES) (TH TONNES) (TH TONNES) energy use is a material issue (see Appendix 2 and Table 3), Consumer 44% 22% 33% reporting on energy use has changed little over time (Graph Discretionary 16). Bloomberg’s seven energy use-related data points Energy 33% 33% 33% include total energy consumption, total electricity use and Materials 56% 33% 44% renewable energy use (see Appendix 1 for field list). Also, lack Total 61% 39% 49% of disclosure on energy use in the Consumer Discretionary nor Energy sectors was notable given the materiality of the issue Table 5 – % companies reporting waste-related data points. Source — Graph 18 – Median value of the total number of water use-related data Bloomberg. Note: Sectors in this table are those for which waste was (Graph 17). More than half of companies reported on total points disclosed (out of 19) – 2010-2014. Source — Bloomberg identified as a material factor by SITAWI’s survey with PRI, SASB’s energy consumption (60%) and electricity use (53%) in Materiality Map and Sustainalytics’ utilities report. Graph 17 – Median value of the total number of energy use-related data 2014. Finally, companies appear to be as yet unaccustomed points disclosed (out of 7), total and by sector. Source — Bloomberg. Forest & Paper leaders were highlighted in Materials, reporting to reporting on renewable energy use: only 28% of Ibovespa Note: Sectors for which emissions were identified as a material factor at least 6 data points each in 2014, which is appropriate given companies report on this theme. are marked with an asterisk (*) and a green line. the water intensity of paper products. At a minimum, investors should look and ask for improved disclosure on water from Water Use: Room for Improvement SECTOR TOTAL ELECTRICITY RENEWABLE Consumer Discretionary and Energy sectors, which disclosed ENERGY USED — MWH ENERGY to Meet Investor Demand essentially no data, despite the materiality of water for these CONSUMPTION USE (MWH) Brazil’s drought in 2014-2015 drove a substantial increase in industries (Graph 19). (MWH) investor interest in information about companies’ water use and Communications 50% 75% 0% efficiency. Brazilian industry has room to improve on this issue Consumer 44% 44% 11% that has garnered high investor interest. Median disclosure is Discretionary low at one of 19 data points8 reported in most years (Graph 18). Consumer 75% 50% 63% Furthermore, only 19% of companies disclosed the percentage Staples of water recycled. Energy 33% 33% 0% Most sectors for which water use is a material issue (see Industrials 80% 80% 40% Graph 20 – Median value of the total number of waste-related data points Appendix 2) featured good levels of disclosure of the two disclosed (out of 5) – 2010-2014. Source — Bloomberg Materials 56% 33% 33% most reported data points, which are total water use Utilities 75% 75% 50% (disclosed by 61% of companies) and total water withdrawal As in other themes, Consumer Discretionary and Energy Total 60% 53% 28% (46%) (Table 4). Unfortunately, outside of leaders in the companies were least transparent, essentially reporting no Materials, Industrials and Consumer Staples sectors, the information on waste, a concern given the materiality of waste Table 3 – % companies reporting selected energy-related data points, total overall level of transparency about water use has remained for these sectors. Industrials were most transparent in 2014, and by sector. Source— Bloomberg. Note: Sectors in this table are those low and has not improved over time (Graph 18). reporting a median of 4 out of 5 data points (Graph 21). for which energy was identified as a material factor by SITAWI’s survey with PRI, SASB’s Materiality Map and Sustainalytics’ utilities report. Graph 19 – Median value of the total number of water use-related data points disclosed (out of 19), total and by sector. Source — Bloomberg. Note: Sectors for which emissions were identified as a material factor are marked with an asterisk (*) and a green line.
8Bloomberg’s 19 data points related to water use, including total water use, total water withdrawal and % water recycled (list in Appendix 1). 9Reverse logistics refers to a set of actions and procedures that enable the collection and returning of solid waste to the business sector for reutilization or another environmentally adequate disposal.
SUSTAINABILITY 08 // 09 In 2014, the Utilities and Materials sectors were the most SOCIAL ISSUES transparent, disclosing a median of six policies, while the This section analyses the level of disclosure of Brazilian listed Consumer Discretionary sector was least transparent with companies on selected social issues: accidents & fatalities, three (Graph 23). diversity and social policies. Health and Safety Disclosure Very Low Even for industries with substantial health and safety issues, the overall degree of disclosure of accidents and fatalities across companies is still low in Brazil. Out of Bloomberg’s total 11 data points related to health and safety, companies generally report on only a median of 2 data fields (Graph 24). These fields may include total fatalities, total employee accidents and total recordable incident rate (list in Appendix 1). Less than half of companies (44%) reported on total fatalities, the most commonly Graph 21 – Median value of the total number of waste-related data points Graph 25 – Median value of total number of accident-related data points disclosed (out of 5), total and by sector. Source — Bloomberg. Note: disclosed data field (Table 7). Reporting by Utilities and disclosed (out of 11), total and by sector. Source — Bloomberg. Note: Sectors for which emissions were identified as a material factor are Communications companies was higher while Consumer Sectors for which emissions were identified as a material factor are marked marked with an asterisk (*) and a green line. Discretionary and Energy sectors low transparency on health with an asterisk (*) and a green line. and safety underrepresents the materiality of these issues Environmental policies: Improved Disclosure Graph 23 – Median value of the total number of environmental policies Diversity: Not There Yet (Graph 25). Driven by Surveys disclosed (out of 7), total and by sector. Source — Bloomberg Although investors are becoming more interested in diversity Users of sustainability information sometimes rely on qualitative in the workforce – especially, women, minority and disabled A high percentage of companies reported on a Water Policy disclosures like policies as an indicator of companies’ SECTOR FATALITIES WORKFORCE TOTAL employees – and in management in developed markets, in 2014 (81% of companies) with the most water-sensitive TOTAL ACCIDENTS RECORDABLE commitment and institutionalization of sustainable operations reporting on the key indicators of diversity in the workplace sectors, Utilities, Materials and Energy, the best reporters EMPLOYEES INCIDENT RATE and management principles. In turn, companies are disclosing has not yet become mainstream in Brazil. Out of Bloomberg’s (89% or more companies disclosing) (Table 6). Compared Consumer 11% 33% 11% more information about their environmental policies, up 6 diversity data points (list in Appendix 1), most companies with weaker quantitative disclosure on water use, this Discretionary to five environmental policies in 2014 (out of Bloomberg’s have reported on a median of 2 data points since 2010 with illustrates consideration of the 2014-2015 water crisis Consumer 38% 50% 38% seven environmental policy fields) from 3 in 2010 (Graph Staples no improvement over time (Graph 26). and its effect on the hydroelectric companies, especially 22). Policies include those related to waste, water, climate among Utilities. Energy 33% 33% 33% change and energy efficiency (list in Appendix 1). Of these, Materials 56% 11% 0% Water Policy was the most reported among companies in the Waste Reduction Policy was the second most frequently Total 44% 39% 30% Ibovespa, a response to the 2014-2015 water crisis. disclosed environmental policy, with Utilities and Energy leading reporters (100% reporting). As noted earlier, the This increased transparency may come from participation in Table 7 – % companies reporting accidents and fatalities-related data National Policy on Solid Waste (Law 12.305/10) likely points. Source — Bloomberg. Note: Sectors in this table are those for which the BM&FBovespa’s Sustainability Index (ISE), in which 26 of spurred the improvement in policy disclosure, especially health & safety was identified as a material factor by SITAWI’s survey with the sample companies are members. The ISE’s questionnaire PRI, SASB’s Materiality Map and Sustainalytics’ utilities report. among consumer-facing sectors. asks specifically for environmental and climate change-related policies, which has incentivized development and disclosure ENVIRONMENTAL % COMPANIES BEST of these policies. Other reporting and index frameworks, such POLICIES REPORTING REPORTERS as the UN Global Compact’s Communication on Progress, Water Policy 81% Utilities, Energy (100%) GRI10 and DJSI also request environmental policy disclosures. Materials (89%) Waste Reduction 79% Utilities, Energy (100%) Graph 26 – Median value of the total number of diversity-related data Policy Financials (82%) points (out of 6) – 2010-2014. Source — Bloomberg Industrials (80%) Although 74% of companies reported on percentage of women Energy Efficiency 72% Utilities (88%) Policy Financials (82%) in the workforce in 2014, initiatives aimed at employing women in Industrials (80%) management roles have not yet taken off. Beyond gender, Brazil Climate Change 63% Utilities, Energy (100%) does have mandates (Law 8213/1991) that aim at increasing the Policy Materials (78%) proportion of disabled employees hired at companies with more Environmental 53% Materials (89%) Graph 24 – Median value of the total number of accident-related data than 100 employees. Almost half of companies (46%) report on Quality Management Utilities (88%) points disclosed (out of 11) – 2010-2014. Source — Bloomberg the percentage of disabled workers. Moreover, the Ministry of Policy Labour and Employment claims that it has increased company Biodiversity Policy 49% Utilities (100%) oversight since 2015 aiming to maintain the current disabled Industrials (80%) workforce employed, which attracts additional corporate Graph 22 – Median value of the total number of environmental policies Green Building 19% Financials (45%) attention to the issue. disclosed (out of 7) – 2010-2014. Source — Bloomberg Policy Table 6 – % companies reporting environmental policies. Source — Bloomberg
10GRI’s G3.1 framework requested companies to disclose policies related to the company’s commitment to environmental aspects, while the G4 framework does not specifically request the disclosure of policies.
SUSTAINABILITY 10 // 11 SOCIAL % COMPANIES BEST APPENDIX 1 POLICIES REPORTING REPORTERS Environmental Issues Waste-related data points Business 93% Consumer Discretionary, Emissions-related data points - Hazardous Waste (Th Tonnes) Ethics Policy Utilities, Materials, Energy - Total Waste (Th Tonnes) and Communications (100%) - Total GHG Emissions (Th Tonnes) - GHG Scope 1 - Waste Recycled (Th Tonnes) Training Policy 88% Consumer Discretionary, - % Recycled Materials Utilities, Energy, Communications - GHG Scope 2 (100%) - GHG Scope 3 - Waste Sent to Landfills Policy Against 88% Utilities, Energy (100%) - Total CO2 Emissions (Th Tonnes) Environmental policies Child Labor Consumer Discretionary, - Direct CO2 Emissions (Th Tonnes) - Energy Efficiency Policy Materials (89%) - Indirect CO2 Emissions (Th Tonnes) - Green Building Policy Equal 86% Energy, Communications (100%) - Direct Methane Emissions in CO2 Equivalent Opportunity Materials (89%) - Waste Reduction Policy Policy - Direct Nitrous Oxide Emissions in CO2 Equivalent - Environmental Quality Management Policy Graph 27 – Median value of the total number of diversity-related data points - Direct HFC Emissions in CO2 Equivalent - Climate Change Policy disclosed (out of 6), total and by sector. Source — Bloomberg. Note — Anti-Bribery 86% Utilities, Materials, Energy and Sectors for which emissions were identified as a material factor are Ethics Policy Communications (100%) - Direct PFC Emissions in CO2 Equivalent - Biodiversity Policy marked with an asterisk (*) and a green line. Human Rights 84% Utilities, Energy (100%) - Direct SF6 Emissions in CO2 Equivalent - Water Policy Policy Consumer Staples (88%) - Travel Emissions (Th Tonnes) Social Policy Reporting Good Across the Board Employee 79% Energy and Communications - Nitrogen Oxide Emissions (Th Tonnes) SOCIAL ISSUES Many “social” policies in Bloomberg’s data set are in fact Protection/ (100%) - Sulphur Dioxide Emissions (Th Tonnes) Accident-related data points Whistle Blower Materials (89%) - VOC Emissions (Th Tonnes) - Workforce Accidents - Employees more related to good governance. Under pressure from Policy corruption scandals and new regulation, reporting on these - Carbon Monoxide Emissions (Th Tonnes) - Lost Time from Accidents Health and 77% Utilities, Energy (100%) - Fatalities — Contractors policies, such as on business ethics and anti-bribery policies, Safety Policy Consumer Staples (88%) - Methane Emissions (Th Tonnes) was consistently high in the last two years, with companies - ODS Emissions (Th Tonnes) - Fatalities — Employees Fair Remunera- 11% Utilities (38%) reporting on a median of 8 out of 9 Bloomberg social policy tion Policy - Particulate Emissions (Th Tonnes) - Fatalities — Total data fields (Graph 28 and list in Appendix 1). - Sulphur Oxide Emissions (Th Tonnes) - Lost Time Incident Rate Table 8 – % companies reporting social policies. Source — Bloomberg - Direct Nitrous Oxide Emissions - Fatalities — Third Party The most commonly reported social policy in 2014 was - Direct Sulfur Hexafluoride Emissions - Total Recordable Incident Rate Business Ethics Policy (93% of companies), followed by Other policies focus on talent retention and human capital, - Total Accidents — Contractors Training Policy and Policy Against Child Labour (88%) Energy use-related data points such as training, equal opportunity, and human rights. - Lost Time Incident Rate — Contractors (Table 8). Many of these reporting trends, particularly Business - Total Energy Consumption (MWh) Participation in the ISE’s benchmark portfolio, the UN Global - Total Recordable Incident Rate – Contractors Ethics Policy, are driven by guidance from the Brazilian Institute - Renewable Energy Use (MWh) Compact (UNGC) and GRI reporting framework has helped of Corporate Governance (IBGC) as well as listing requirements - Fuel Used (Th Liters) Diversity-related data points advance reporting of this information. ISE’s questionnaire, from the BMF&Bovespa and the New York Stock Exchange. - Electricity Used — MWh - Employee Average Age for instance, asks about company policies related to child - Fuel Used — Coal/Lignite - % Women in Management With pressure from recent corruption scandals, companies labor, relationship with communities, right to freedom of - Fuel Used — Natural Gas - % Women in Workforce reporting Anti-Bribery Ethics Policies have also increased association and collective bargaining. The UNGC and GRI - Fuel Used — Crude Oil/Diesel - % Minorities in Management dramatically in the past year (86% in 2014), reflecting the guidance likewise request disclosure related to labour, - % Minorities in Workforce new Anti-Corruption Law (Lei 12.846/13). Issued in 2013, human rights and society. Water use-related data points - % Disabled in Workforce the law establishes stringent penalties for corrupt acts against - % Water Recycled the government. In conjunction, most companies now also - Water per Unit of Production Social Policies disclose Whistle Blower Policies (79% in 2014). Given - Total Water Use - Health and Safety Policy recent attention to scandals involving companies with - Process Water Use - Equal Opportunity Policy government contracts, disclosure of business ethics-related - Surface Water Withdrawals - Human Rights Policy policies will likely increase in the near future. - Groundwater Withdrawals - Training Policy - Salt Water Withdrawals - Business Ethics Policy - Municipal Water Use - Fair Remuneration Policy - Reclaimed Water Use - Employee Protection/Whistle Blower Policy - Total Water Recycled - Anti-Bribery Ethics Policy - Cooling Water Inflow - Policy Against Child Labor - Cooling Water Outflow - Total Water Withdrawal Graph 29 – Median value of the total number of social policies disclosed - Discharges to Water (out of 9), total and by sector. Source — Bloomberg - Total Water Discharged - Chemical Oxygen Demand of Discharges - Biological Oxygen Demand of Discharges - Nitrogen Discharges - Phosphorous Discharges Graph 28 – Median value of the total number of social policies disclosed (out of 9) – 2010-2014. Source — Bloomberg
SUSTAINABILITY 12 // 13 APPENDIX 2 APPENDIX 3
MATERIAL ENVIRONMENTAL ISSUES BY SECTOR LIST OF IBOVESPA COMPANIES THAT PUBLISH A SUSTAINABILITY AND/OR AN INTEGRATED REPORT
SECTOR EMISSIONS ENERGY WATER WASTE N COMPANY LINK TO REPORT USE USE 1 AMBEV http://www.ambev.com.br/relatorio-anual-2013/port/index.htm Communications X 2 Bradesco http://www.bradescori.com.br/site/conteudo/download/Download.aspx?file=%7e%2fuploads%2f63 Consumer X X 5627972313348490-bradesco-rs- Discretionary 3 Banco do Brasil http://www.bb.com.br/docs/pub/siteEsp/ri/pt/dce/dwn/relan2013.pdf Consumer X X X Staples 4 Santander http://www.ri.santander.com.br/Download.aspx?Arquivo=iV00g55XldeaWyL8lzPJPQ== Energy X X X X 5 BMFBOVESPA http://ri.bmfbovespa.com.br/ptb/ http://ri.bmfbovespa.com.br/ptb/2s-20-ptb-2014.html301/RA2014_Portugues.pdf Financials 6 Braskem http://rao.braskem.com/ Industrials X X 7 BRF http://ri.brf-global.com/download_arquivos.asp?id_arquivo=A91A64F5-1473-4FF9-A95E-8761C6BCC4D7 Materials X X X X 8 CCR http://www.grupoccr.com.br/ri2014/ Utilities X X X 9 CESP http://ri.cesp.com.br/wp-content/uploads/2013/05/RelatorioSUS_CESP_BX11.pdf 10 Pão de Açúcar http://relatorioanual2013.gpabr.com/wp-content/uploads/2014/05/GPA_Simplificado_2013.pdf MATERIAL SOCIAL ISSUES BY SECTOR 11 CEMIG http://ri.cemig.com.br/static/sustentabilidade-2014/pt.html
SECTOR ACCIDENTS & DIVERSITY TRAINING COMMUNITY POLITICAL COLLECTIVE SUPPLY CUSTOMER 12 Cielo http://cielo.riweb.com.br/Download.aspx?Arquivo=+I8AvQ7Th4ka/zRvYDc0/Q== FATALITIES RELATIONS SPENDING AGREEMENT CHAIN SATISFACTION 13 Cia. Hering http://ri.ciahering.com.br/Download.aspx?Arquivo=4v7aIaKa8ZQNmanY2IVrEA== Communications 14 COPEL http://www.copel.com/hpcopel/root/sitearquivos2.nsf/arquivos/relatorio2014/$FILE/RelAnual14.pdf Consumer X X X X X 15 SABESP http://site.sabesp.com.br/uploads/file/sociedade_meioamb/RS_2014.pdf Discretionary 16 COSAN http://ri.cosan.com.br/error/404.asp?aspxerrorpath=/Download.aspx Consumer X X X X Staples 17 CPFL http://easywork.comunique-se.com.br/arq/160/arq_160_233917.pdf Energy X X X 18 Cyrela http://cyrela.riglobal.com.br/admin/gestor/arquivos/pt/Relatorio_Anual_Cyrela_2013.pdf Financials 19 Ecorodovias http://ri.ecorodovias.com.br/ecorodovias/web/download_arquivos.asp?id_arquivo=4937F6E6-8060-4675-9704- EC9BA52937AC Industrials X 20 EDP http://www.edp.com.br/conheca-edp/relatorios/Paginas/default.aspx Materials X X X 21 Embraer http://www.embraer.com.br/Documents/Relatorio-Anual/RELATORIO_ANUAL_2014_PORT.pdf Utilities X 22 Equatorial http://www.mzweb.com.br/cemar/web/download_arquivos.asp?id_arquivo=314651B5-1438-431C- A0C3-591013017077 SASB (2016). Materiality Map. Available at:
SUSTAINABILITY 14 // 15 N COMPANY LINK TO REPORT 39 Suzano http://suzano.infoinvest.com.br/services/siteri-1/redirect.asp?grupo=5002&idioma=ptb&arquivo=RELATRIODESUSTE NTABILIDADE2013.pdf&tipo=arquivo&protocolo_atual= 40 Telefônica http://www.sustentabilidadetelefonica.com.br/relatorio2013 41 TIM http://relatoweb.com.br/tim/13/ 42 Tractebel http://www.mediagroup.com.br/host/tractebel/rao/2014/pt/index.htm 43 Ultrapar http://www.ultra.com.br/Ultra/relatorio/2013/br/#/ 44 Vale http://www.vale.com/PT/aboutvale/sustainability/links/LinksDownloadsDocuments/relatorio-de-sustentabilidade-2014.pdf 45 WEG http://www.weg.net/ri/wp-content/uploads/2014/06/Relat%C3%B3rio-Anual-Integrado- 20131.pdf
Source — BM&FBovespa “Report or Explain for the Sustainability or Integrated Report” on http://www.bmfbovespa.com.br/en_us/bm-fbovespa/sustainability/ at-companies/report-or-explain/
LIST OF IBOVESPA COMPANIES THAT DO NOT PUBLISH A SUSTAINABILITY &/OR AN INTEGRATED REPORT & REASON FOR NON DISCLOSURE
N COMPANY REASON FOR NON DISCLOSURE 1 BB Seguridade “(...) BB Seguridade has not published a Sustainability Report. However, concern with responsible socio-environmental actions and sustainability applied to business are among the Company’s strategic priorities and for this reason it is structuring itself to draw up this report. (...)” 2 Bradespar “BRADESPAR does not publish an Environmental Report or similar document. (...)” 3 BR Malls No explanation provided 4 Cetip “Cetip does not a publish Sustainability Report or Integrated Report. (...) However, the company has been going through a process of profound transformation over the past few years (demutualization, IPO and the acquisition of GRV) and little by little has been developing and enhancing its actions in relation to this matter, but it does not yet have a complete and mature range of actions that allow it to publish a business sustainability report or integrated report.” 5 CSN “(...) The Company is currently in the phase of drawing up its first sustainability report in the GRI model.” 6 Kroton “the company does not publish a sustainability report or a similar document, but it plans to do so in the coming years.” 7 Localiza No explanation provided 8 Qualicorp “we do not publish a sustainability report or a similar document, as we do not have initiatives directly related to the matter.” 9 Raia Drogasil “We recognize the importance of the publication of the sustainability report and we are in the process of implementing and monitoring indicators for the production of the sustainability report in the medium term.” 10 Rumo Logística No explanation provided 11 Smiles “Management drew up a sustainability report for 2013, based on GRI principles. Bearing in mind that we only became operational in the 2013 fiscal year, we do not produce a sustainability report for previous periods. The sustainability report for the period of 2014 will not be drawn up for budgetary reasons.” 12 Usiminas “(...) the company did not issue a new report with sustainability information as it understands that there were no significant changes. In 2015, the company will resume publication of its Annual Report (2014 base), which will be available on the company’s website www.usiminas.com/ri in the middle of this year.”
Source — BM&FBovespa “Report or Explain for the Sustainability or Integrated Report” on http://www.bmfbovespa.com.br/en_us/bm-fbovespa/sustainability/ at-companies/report-or-explain/
SUSTAINABILITY 16 // 17 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> BEIJING FRANKFURT LONDON NEW YORK SÃO PAULO SYDNEY +86 10 6649 7500 +49 69 9204 1210 +44 20 7330 7500 +1 212 318 2000 +55 11 2395 9000 +61 2 9777 8600
DUBAI HONG KONG MUMBAI SAN FRANCISCO SINGAPORE TOKYO +971 4 364 1000 +852 2977 6000 +91 22 6120 3600 +1 415 912 2960 +65 6212 1000 +81 3 3201 8900 bloomberg.com The data included in these materials are for illustrative purposes only. ©2016 Bloomberg L.P. All rights reserved. S695419856 0816