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Corporate Responsibility and Market Valuation of
Financial and Non-Financial Performance
Presented by Paolo Nazzaro Head of Group
Sustainability Telecom Italia
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Toolbox Tuesdays and Thursdays
On the 4th of December 2008 CSR Europe launched
20 CSR Tools which were the compilation of 18
months of work by CSR Europe, its Members and
Partners and the European Alliance for CSR. CSR
Europe has now launched Toolbox Tuesdays and
Thursdays as a new service to its Members and
National Partner Organizations. The purpose of
these conference calls is to give CSR Europe
Members and NPOs a light informal training on
the individual CSR Tools launched as part of CSR
Europe's Toolbox in December 2008.
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Priority areas of the Alliance

• innovation and entrepreneurship in sustainable
  technologies, products and services
• fostering sustainable growth of SMEs
• assist integration of CSR in the business,
  especially the supply chain
• skills for employability
• diversity equal opportunities taking into
  account European demographic changes
• improved working conditions
• innovation in environmental performance,
  integrating eco-efficiency
• reinforcing businesses CSR practices outside the
  EU, particularly in developing economies
• transparency and communication

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A quiet revolution.

• Allow me nevertheless to single out one
  laboratory whose work has particularly caught my
  attention the laboratory on the valuation of
  financial and non-financial performance. I hope
  that the work of this laboratory can contribute
  to a quiet revolution in the way that enterprises
  who wish so can measure and communicate their
  non-financial performance, allowing investors and
  other stakeholders to use such information in
  their decision making processes. There is hardly
  a more powerful incentive to consider the
  strategic role of corporate responsibility than
  an investor able to value the role that it plays
  for the future prosperity and sustainability of a
  business.
• Gunter Verheugen
• Vice President, European Commission
• 4th December 2008

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Some participants

• Istitutions and Accademy
• DG Enterprise, DG Employment Social Affairs,
  DG Market, Cranfield, Bocconi, Vlerick Leuven
  Gent.
• Companies and Investors
• Intesa SanPaolo, FIAT, ENEL, ENI, Monte dei
  Paschi di Siena, Caisse des Depots, VIGEO, Gruppo
  Hera, Epson Europe, Jupiter Asset Management,
  Italia Lavoro, Accenture, PWC, KPMG, Lucciola
  Partners, Fortis, Tomkins, CSE Associates, SNS
  Reaal, Radley Yeldar, Banca Akros, Etica SGR,
  Eurizon Etico, UBI Pramerica, BNP-BNL, AKC Rad
  AB, Svea Skog, Aviva Investors, Ethix, AP1, SEB,
  Ernst Young, Astrazeneca, Vattenfall, KPA
  Pension, IBM, Swedbank Robur.
• Associations and NGOs
• European Federation of Financial Analysts,
  Confindustria SIT, Greenpeace, WWF, Legambiente,
  Fondaca, ABI, AIAF, Investor Relations Society,
  Sodalitas, Enhanced Analytics Initiative.

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Milestones

• Autumn 2008 / Winter 2009 EFFAS Focus Groups
• Rome
• Frankfurt
• Paris
• Stockholm
• Utrecht
• December 4 2008 European CSR Alliance conference
• February 2009 Multistakeholder Forum
• September 2009 Final delivery of the Research
  Report

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Reporting Gap
Discount mainly due to the difficulty in
evaluating and communicating internally generated
intangibles (reporting gap)
Internally generated intangibles
Not booked intangibles
Intrinsic value
Book Value US GAAP
Market Value
Acquired intangibles
Book Value Local GAAP
Market price
Value
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Core proposition

• Non-financial performance is regarded as
  important by both senior executives and investors
• Companies are slow to integrate non-financial
  performance measurements in the mainstream
  business strategy internally and to communicate
  these externally
• Investors are slow to incorporate non-financial
  indicators into valuation models
• Corporate responsibility factors are a key driver
  of non-financial performance

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What causes this information asymmetry?

• Companies
• Perceived lack of expertise in NFP issues and
  reticence to discuss unless intrinsic to core
  business strategy
• Concern over the robustness of NFP management
  information and internal methodologies for
  delivering it
• Lack of confidence in ability to manage NFP to
  deliver forecast numbers
• Scepticism at investors interest in NFP
• Worries about impact on personal credibility of
  promoting non-core financial messages.

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What causes this information asymmetry?

• Investors
• Inadequate evidence of causal link between NFP
  and financial performance
• Lack of robust inter-company or sectoral
  frameworks for NFP comparison
• Interest often limited to assessment of NFP
  directly impacting on strategy or leadership
  competence
• Protection of proprietary analytical
  tools/approaches and market differentiation
  creating lack of transparency in NFP assessment
  methodologies
• The relative importance of NFP issues differing
  between risk and regulatory environments.

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Outputs

• A comprehensive review of the critical areas of
  non-financial performance and the contribution to
  financial performance as an evidence base for the
  work of the LAB
• A framework for proposed metrics and strategies
  for management and communication of key areas of
  non-financial performance highlighting the link
  with financial performance
• A declaration of principles and recommendations
  on communications between companies and investors
  around meaningful indicators of value created
  through non-financial performance
• An outreach programme including final report, CSR
  Europe toolkit, web portal, and key conference
  platforms through 2009

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Key challenges

• To identify the core areas of non-financial
  performance that contribute to the financial
  performance of companies across markets and
  sectors
• To establish the corporate responsibility drivers
  of the core non-financial performance areas
• To engage investors mainstream analysts, fund
  managers and their trade bodies companies and
  other stakeholders in identifying and rigorously
  testing the importance of identified core areas
• To deliver a compelling case for business to
  incorporate key areas in investor communication
  and dialogue

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The full interim report is available on
www.investorvalue.org
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European Toolbox Road show
From February 2009-January 2010, CSR Europe will
be coordinating in cooperation with National
Partners, national sessions in various geographic
areas in Europe as part of a wider European
Toolbox Road show. The objective is to further
disseminate the laboratory tools, as well as to
equip companies and stakeholders participating in
national sessions with relevant, useful and
practical CSR tools. Further Information
www.csreurope.org/page/en/roadshow.html
.CR and MV Tool
The Tool will be presented at the following
National Sessions Netherlands Norway
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Corporate Responsibility and Market Valuation of
Financial Non Financial Performance Contact
Details
Paolo Nazzaro Telecom Italia paolo.nazzaro_at_telecom
italia.it
Colleen M. Fletcher CSR Europe cf_at_csreurope.org