The 11th Annual Park Plaza Victoria Hotel

London

Communications & Reporting

SummitOctober 17-18 2017

TOTAL IMPACT KEYNOTE: PORTRAYING YOUR TOTAL IMPACT

THROUGH YOUR REPORT

Marjella Alma

Dear Reader,

Datamaran was founded on 2 June 2014 by myself, and cofounders Jérôme Basdevant and Jean-Philippe Lecourt. We had a simple concept – use Artificial Intelligence (AI) to help companies identify the emerging issues that matter to them. We started with traditional CSR/ESG issues and built a data-centric software service that tracks the narrative across multiple stakeholder sources. The narrative analysis output makes non-financial issues objective and credible for decision-makers to act upon, because they are linked to regulatory, reputational or competitive impacts. The analysis of large data makes compelling arguments for why non-financial issues matter, highlighting tangible risks attached to these issues. The case for non-financial reporting is becoming a ‘must have’, and we see this reflected in the data. Through the data analysis process, we have witnessed the evolution of traditional CSR and ESG issues. Early adopters used non-financial reporting to differentiate themselves in the market, before gradually moving to more developed responsible business conduct and due diligence. Recently, this has evolved further to integrated risk management. Here, we see companies increasingly aware that non-financial issues offer strategic added value to their business. As we work with companies to align non-financial issues with their risk identification and monitoring processes, we evolve and expand our AI technology to capture more issues in greater detail, and users will see new topics and themes incorporated into our issues monitoring software as the narrative emerges. It’s a unique privilege to build technology driven by human expertise. As we evolve as an organization, our software becomes increasingly agile, and the understanding of emerging issues improves. We have our network to thank for continuously driving our technology forward with thoughtful questions and interaction with the data. Our mission as an organization is to help companies ensure resilience in a volatile market by having access to new insights enabled by technology. We can have a positive impact here by making information available to decision-makers through our Strategic Issues Monitoring approach. As we start our fourth year as an organization, I’m very proud to have built and continue to work with a dynamic and diverse team that makes this mission possible through their hard work and creativity. Kindest Regards,

Marjella Alma

5Global Insights Report 2017

Datamaran is a comprehensive and sophisticated data analytics platform, comprising of global corporate reports, regulatory initiatives, social media and online news sources capturing the latest trends that impact the business operating environment.

These databases cover:

• 50,000 corporate reports: including annual financial reports, SEC filings (10K and 20F), and annual sustainability reports from 2010 to present

• Over 3,000 regulatory initiatives, including soft and hard law, issued by different entities such as governments, market regulators, international organisations and industry associations

• More than 1,000 news sources tracked daily including the largest financial media sources and NGOs

• Social media analysis through Twitter

We cover all industries including: - Basic Materials, Consumer Goods and Services, Financial Services, Utilities, Healthcare and Pharmaceuticals, Industrials, Oil and Gas, Technology and Equipment Services.

We capture the latest sources in real-time to add to our growing databases and regularly analyze the latest inputs to provide critical insights, and keep business leaders at the cutting edge.

Time is Money. Knowledge is Power. Topic Analysis: Our ontology is a dictionary of topics, related key terms and relationships between terms for which the engine searches across the above-mentioned sources. It does this using techniques such as Natural Language Processing (NLP), semantic analysis, and machine learning; it includes a growing collection of topics. Our team of industry and legal experts developed the ontology in collaboration with our data scientists and Technical Advisory Committee. The results of the automated text analysis are manually reviewed by experts in the field at each step of the process against manually annotated reports (“golden records”).

Report scope

This report contains a comprehensive assessment of the key issues in the financial reporting landscape from 2010 to 2016 (the latest reporting year). Companies are increasingly including non-financial issues in annual financial reports, aligning mainstream financial risks with these intangible issues.

Non-financial issues tend to migrate from the traditional CSR or sustainability agenda, to align with mainstream business processes over time. Financial reports remain the most widely reviewed and audited reporting documents of a company's operating status. The issues disclosed in financial reports are the ones that stakeholders (investors, employees and the general public) take most seriously when linking non-financial issues to organisational risk management.

In these sections we are assessing the extent to which non-financial issues are emerging across financial reports, becoming increasingly mainstream, and where the demand for disclosure is clear.

The outcome of this assessment led us to identify three groups of issues:

1. Baseline issues - these are issues with highest level of representation in financial reports. These issues are the "new norm" - we would no longer consider these voluntary.

2. Next wave of baseline issues - these are issues that are widely recognised, across all regions and sectors. The mechanisms are not fully in place to enforce these issues yet, but there is growing attention paid by external stakeholders.

3. Emerging issues - these are the issues to pay attention to for those companies that want to be leading the way and demonstrating innovation in financial reporting and corporate risk management.

Key Non-Financial Issues in Financial Reporting

It is possible to carry out similar assessments as shown in this report, using Datamaran. Details of how to do it yourself are shown throughout the report, look out for the “Practical guidance” tool.

SPOTLIGHT ON DISCLOSURES

7Global Insights Report 2017

Analysis 1 - BASELINE ISSUES

A number of these non-financial issues, what we call baseline issues1, have already become mainstream in financial reports. These issues might be considered financially material due to ongoing attention from external stakeholders, or in response to key events that resulted in widespread damages.

Definitions of these topics can be found in Appendix 1 of this report.

2010

2011

2012

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2014

2015

2016

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82%

78%

77%

69%

67%

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54%

Geopolitical risk

Customer privacy & information security

Occupational health & safety

Disaster recovery & relief

Anti-corruption & bribery

Executive compensation

Board composition

Graph 1: Baseline issues in financial reports from 2010 - 2016. The line graph shows the proportion of companies disclosing details on each topic by year.

1. Baseline issues are the largest issues appearing across all financial reports from 2010-2016. These are defined as issues that have a high proportion of representation across all companies in the dataset, and are stable or growing steadily since 2010.

In 2010 the issues of Board composition, Executive compensation, Anti-corruption & bribery, Disaster recovery & relief, Customer privacy & information security, Occupational health & safety, and Geopolitical risk, were widely discussed in financial reports and this has continued to increase, as shown in Graph 1. These issues are financially relevant in business due to identified risk factors, associated costs and stakeholder drivers at play that enforce accountability.

Note: Disaster recovery and relief does not have consistent growth in the same way as other topics. This is because the topic tends to fluctuates after an event. In 2011 the earthquake in Japan caused a peak in disaster recovery reporting in 2012.

There are widely reported risks associated with each of these topics, and this is reflected in corporate disclosure. The majority of companies discuss these issues in the context of risk mitigation, which aligns with the regulatory context within which these issues are enforced.

Practical guidance:

Examples of corporate disclosures related to each of the topics shown are identified using Datamaran’s Benchmark module.

If you want to read more about how companies discuss these topics, you can use the ‘report highlighter tool’ to find examples on a company by company basis.

Alternatively, search the scope of the entire reports database using the Search module. A proximity search such as the following can be applied:

("security risk"~5) OR ("security protection"~5)*("terrorism risk"~5) OR ("terrorism protection"~5)("digital risk"~5) OR ("digital protection"~5)("data breach"~3) OR ("data loss"~3)

*Note that ~5 or ~3 means the two terms are within 5 or 3 words of each other in the document.

9Global Insights Report 2017

Over time, the expectations for managing these issues have become more complex and detailed. We see this in the way these issues are enforced, for instance:

• Anti-corruption and bribery has had a renewed focus in recent years. According to the latest Freshfields report2, US authorities had a record-breaking year in 2016 with enforcement cases under the Foreign Corrupt Practices Act (FCPA); and the trend in enforcement is heading towards increased coordinating from prosecutors across country borders.

• Geopolitical risks are on the rise in the wake of changing political conditions, terrorism and other international trade tensions. These risks are increasing rapidly in the wake of shifting political agendas where stability in the wake of unstable governments and other agencies is weak.

• Cybersecurity (Customer privacy and information security) has shifted significantly over the reporting period. The 'Internet of things’ is demonstrably impacting the tools used for social and business interaction. As early as 2008, it was reported that more devices were connected to the internet than there were people on earth, and the implications for data security is impacting all business sectors. The increase in digital information sharing has resulted in an overhaul of data privacy and security regulations globally in the last 10 years, and companies are adopting innovative cybersecurity and privacy safeguards to manage risks and achieve competitive advantages3.

Over time, understanding of the impacts associated with these issues has increased in complexity, particularly as companies look for growth opportunities in new markets. This requires additional risk mitigation processes under foreign legislation, and increased controls over outsourced third party providers, such as the companies that exist in your supply chain.

Investors are increasingly likely to look at these strategy-led mitigation measures as signals for corporate performance, and as differentiators for corporate performance within business activities, where clear measurable metrics are not available.

These established baseline issues provide a roadmap for the evolution of non-financial issues in corporate reporting.

1. The demand for material issues monitoring in corporate reports was applied to the International Accounting Standards Board (IASB) framework in 2010. It conceptualized non-financial issues as "material" to financial accounting, but with limited additional guidance.

2. Non-financial issues disclosures have been largely driven by voluntary external frameworks, such as GRI, SASB and IIRC. Consistency can be difficult to maintain, and companies are at various stages of incorporating non-financial issues into their corporate disclosure approach.

2. Freshfields Bruckhaus Deringer, 'Anti-bribery and corruption: global enforcement and legislative developments 2017' report, pg. 2. January, 20173. www.cisco.com - ‘The internet of things infographic’, July 15, 2011

Image 1. Principle of financial reporting disclosure

3. Industry specific reporting guidelines are applied through standards like the International Labor Organisation, CDP, UNGC and UNEP FI. These standards push for greater consistency and the application of these standards are seen as best practice at an industry level. The most recent of these that will have a demonstrable impact at a corporate disclosure level is the Sustainable Development Goals.

4. Once guidelines and industry standards are in place, enforcement practices are applied to issues, often coupled with agencies tasked with policing compliance. Enforcement via fines or other penalty-based mechanisms are highly applicable to the baseline issues outlined in Graph 1.

We recognize the trend in increased disclosure in the next wave of baseline issues (shown in Graph 2), that follows these same disclosure principles from the baseline issues in Graph 1.

Conceptually, these issues follow a similar pattern, where corporate disclosure shifts from voluntary guidelines, to industry standards, and eventually moving towards enforcement. The issues that are affected, and mechanisms impacting this disclosure shift are explored in Analysis 2.

We apply these corporate disclosure principles, from the demand for transparency to disclosure and enforcement, in the next assessment stage.

11Global Insights Report 2017

Analysis 2 - NEXT WAVE OF BASELINE ISSUES:

We see a selection of issues that have increased in reports over the period from 2010-2016 but have not shown substantial growth over the reporting period. The scope of these topics in the context of financial reports suggests this is caused by one of two reasons:

1. The issue is too sector specific to have widespread impacts across global financial reporting frameworks.

2. The mechanisms are in place to manage accountability at a corporate level, but these issues have not had the enforcement push that drives corporate disclosure. There are early signals that these disclosure mechanisms are on the way, the regulatory landscape shows issues transitioning from soft to hard law, and each of the topics shown in Graph 2 is impacted by these regulatory trends.

Graph 2: Next wave baseline issues in financial reports from 2010 - 2016. The line graph shows the proportion of companies disclosing details on each topic by year.

Practical guidance:

You can compare the extent to which issues have sector and/or regional relevance using the Datamaran Benchmark compare function

0%

20%

2010

2011

2012

2013

2014

2015

2016

60%

50%

40%

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54%

48%

44%

41%

Workforce diversity & inclusion

Responsible tax practices

Human rights

Climate change

Issues such as Workforce diversity & inclusion, Climate change, Responsible tax practices and Human Rights are increasingly appearing in public rhetoric.Institutional drivers such as the United Nations Sustainable Development Goals (the SDGs) are placing higher demands on companies to manage and disclose these issues.

When we look at these issues in more detail, at an industry and regional level, it is clear that although these issues have global relevance, industries with direct impacts face higher demands for disclosure, than industries with indirect impacts.

13Global Insights Report 2017

Analysis 3 - EMERGING ISSUES

The next stage of our analysis identifies the emerging issues appearing in financial reports. These are Digitalization, Forced labor, Grievance mechanisms, Stakeholder engagement and Supply chain management. These are non-financial issues appearing more recently in the reporting landscape. These differ from the more established reporting issues, where baseline and next wave issues are practically managed as a part of the the risk mitigation process.

Emerging issues are not yet established as ‘enforced’ issues but external stakeholders show increased interest in these issues. If emerging issues move along the same disclosure path as baseline issues, eventually these stakeholder factors will drive the demand for metrics and enforcement.

In the meantime, there is an opportunity for companies to influence the context in which these issues are discussed, and to demonstrate leadership and innovation in their respective sectors. Grievance Mechanisms

Digitalisation

Supply Chain Management

Forced Labour

Graph 4: Emerging issues in financial reports from 2010 - 2016. The line graph shows the proportion of companies disclosing details on each topic by year.

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36%

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15Global Insights Report 2017

DRIVERS OF EMERGING ISSUES DISRUPTION: RISK OR OPPORTUNITY?

Arguably, digitalization is one of the more interesting emerging issues in financial reports, due to the way the ‘Fourth Industrial Revolution’ is transforming business processes, and driving strategic opportunities by changing the way people work.

The telecommunications, financial services and manufacturing industries are the first industries to embrace the opportunities and impacts associated with Digitialization, but it’s clear that companies across all industries are engaged in digitalization projects as a way of enhancing existing business processes. Companies recognize the opportunity to add value and insights where previously it was not possible. This transition indicates that companies that are not focusing on strategic projects around digitalization risk falling behind the curve.

Big Data

Smart Home

Internet of Things

Digitaltransformation

ArtificalIntelligence

MobileWallet

VirtualReality

AugmentedReality Fintech Digital

Wallet

Bitcoin/block chain/Virtual currency

MobilePayments

ApplicationProgrammingInterface

DigitalBanking

DigitalCurrency

NaturalLanguage Processing

Big Data is the biggest term discussed in digitalization. It is applied to business activities related to targeting customers and optimizing business processes. These, amongst other applications, are seen as keen enhancements in financial performance.

The risk for companies that talk about Big Data in general terms is the appear-ance that they don't know what to do with the 4th wave, as Big Data is seen primarily as a buzzword that carries little value on its own. Companies that are ahead of the transformation are discussing actionable programs that feature new technologies like Blockchain or Mobile payments.

Companies that want to demonstrate innovation in the digitalization space should be aware of the changing perceived meanings that come with these terms. To ensure clarity, companies can look at how these issues are being discussed in external corporate reports to explore the context in which these topics are discussed.

Practical guidance:

You can view how big data or any of the alternative digitalization topics shown are discussed in corporate reports using the Datamaran Search module. Simply search the term “big data” to view extracts from corporate reports, including the region and industry breakdown.

Alternatively, you can use the Datamaran Benchmark report browser to highlight where in reports the Digitalization topic appears.

Algorithmic Trading

Branchless

Digital Reach

Virtual advisor

Virtual banking

Virtual wallet

Digitalization is discussed in a number of ways in financial reports. In Graph 5, we break down the key terms applied in the digitalization topic. This analysis is based on 2016 financial reports.

Graph 5: Digitalization topic by terms. The bubble graph provides a breakdown of each topic discussed in reports. The size of the bubble represents the frequency of mentions.

17Global Insights Report 2017

Non-financial issues are affecting how companies do business. Companies that want to maintain a competitive advantage, need to rethink how they carry out risk management processes, in order to be more resilient to these changing business impacts and opportunities. These issues are often not on the companies radar, simply because it is not part of someone's job description. We ask companies these questions to help them identify where they are in their risk management maturity process:

• Are you applying the right lens to your value chain risk management? • Are non-financial issues embedded in the DNA of your risk management processes? • How do you stay relevant and resilient in a changing risk management landscape? • Are you using technology to enable your non-financial issues analysis?

"Determining and monitoring priority issues in an increasingly complex and interconnected world can be a resource intensive activity. New technologies, like artificial intelligence and big data analytics can help identify, understand and monitor trends more quickly.

Santander has made inroads in benefiting from these new developments incorporating the Datamaran business intelligence platform at the center of processes in prioritizing sustainability issues".

Etienne Butruille Deputy Head of Global Responsibility - Banco Santander

HOW TO USE THIS REPORT?

Baseline issues:

- Does your company cover the baseline issues identified in this report? - Where are they mentioned (financial report, SEC filings, sustainability report)?- How mature are you on these topics? Would you like to go further?- Are your peers or sustainability leaders implementing strategies that can be applicable or adaptable to your company?

Emerging issues:

- Do you cover any of the emerging issues?- Are all of these issues relevant to your sector or to your value chain?- How are they currently addressed by your organization and your value chain?

Implementing Continuous Risk Monitoring

NEXT STEPS:

Internal business processes are largely supported by data. Whether internally or externally sourced, the gathering and analysis of information is crucial to support decision-making related to strategic business processes.

Among these business processes, the materiality assessment and enterprise risk management (ERM) process - on which our team of experts are focusing on - can benefit from an exhaustive review of different sources to capture trends and patterns. These data outputs provide signals that warrant attention from companies who want to be proactive and increase the resilience to those external factors.

We offer a combination of data analytics and managed service solutions. Companies in 12 countries use Datamaran’s evidence-based approach to integrate non-financial issues into corporate strategy.

Get in touch if you would like more information on how Datamaran can add to your material risk monitoring and enterprise

risk management processes.

SERVICESPlatform access plus expert support

PRODUCTSDo It Yourself

platform access

19Global Insights Report 2017

Appendix 1 - Topic descriptions

ANTI-CORRUPTION & BRIBERYReferences to dishonest or fraudulent conduct, such as the offering, giving, receiving, or soliciting of something of value for the purpose of influencing an action

BOARD COMPOSITIONReferences to the composition of highest executive body of an entity

CUSTOMER PRIVACY & INFORMATION SECURITYReferences to customer and other confidential information protection, integrity and availability

DISASTER MANAGEMENT, RECOVERY & RELIEFReferences to social and/or political crises and/or natural disasters

EXECUTIVE COMPENSATIONReferences to financial and/or non-financial compensation to highest level of senior management

GEOPOLITICAL RISKReferences to national or regional instability due to political conditions, terrorism, international tensions

OCCUPATIONAL HEALTH & SAFETYReferences to health, safety and welfare of employees and others in the workplace

CLIMATE CHANGEReferences to human induced changes in the distribution of weather patterns

HUMAN RIGHTSReferences to internationally shared fundamental rights ensuring basic conditions for individuals to live in dignity

RESPONSIBLE TAX PRACTICESReferences to tax-related matters

WORKFORCE DIVERSITY & INCLUSIONReferences to heterogeneity of an entity's workforce and equal opportunity for employees of different backgrounds

DIGITALIZATIONReferences to the transformation of business activities, processes, and models through the use of digital technology

FORCED LABORReferences to work or services which people are forced to do against their will under the threat of some form of punishment

GRIEVANCE MECHANISMSReferences to systems to address formal (legal or nonlegal) complaints of individuals or parties engaged in business, legal, or societal relationships

SUPPLY CHAIN MANAGEMENTReferences to supply chain activities, including upstream and downstream flows of resources and information

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2017