Jan 13, 2015
Extrafundamental Analysis
Sustainability Reporting in XBRL
16th XBRL International Conference at the Sheraton Wall Center, Vancouver Canada, December 5th 2007v1.10
Disclaimers
First, disclaimers.
Disclaimers
#1 : We love the English language.
But our hearts speak French.Please excuse the bad accent.
Disclaimers
#2 : There should be a sustainability track.We chose the taxonomy track because an
interoperable sustainability reporting taxonomy is the current challenge in extrafundamental analysis. But
otherwise, there is so much to say about extrafundamental analysis, and sustainabilism in
particular. 30 minutes is not enough. Prepare your questions.
Disclaimers
#3 : Two new words today.
“Sustainabilism” and “Extrafundamental”We’ll start with explaining those in a moment.
Objectives
This presentation’s objectives.
• Define “extrafundamental” and “sustainabilism”;
• Expose the taxonomy and XBRL issues;
• Look at what’s ahead.
Definition
How does this all fit together?
Definition | Axioms
Axioms of extrafundamental
analysis.
Definition | Axioms
Axiom #I : Arbitrage is everywhere.
It’s there to stay and that’s good. Arbitrage does not only occur because of discrepancy of information. It is
also caused by the variation in which financial knowledge is derived from the said information. Extrafundamental
analysis, in finance, is the management of arbitrage exploitation. Exploitation of arbitrage somehow also
implies its minimization…
Definition | Axioms
Axiom #2 : Arbitrage is consistently minimized.Once it is possible to coherently monetize performance over a given metric for which data is publicly available,
the said metric is gradually incorporated into fundamental analysis. It then ceases to be considered part
of the extrafundamental domain. Metrics subjected to this process may or may not originally be of financial
nature. When not, we say they have extrafinancial origins.
Definition | Fundamental Theorem
Extrafundamental Analysis’ Fundamental
Theorem.
Definition | Fundamental Theorem
Yes, we know.
Definition | Fundamental Theorem
Finance is Negentropic.More and more metrics taken into account. More and more elegant models. Wealth creation always more and more complicated. Arbitrage is the difference in pricing
model performance.
Definition | Historical Evidence
Historical evidence of the extrafundamental metric and analysis
necessity.
Definition | Historical Evidence
17th & 18th centuries : Capitalism
Private property & public trading. Infancy. David Hume.
Definition | Historical Evidence
19th & 20th centuries : Liberalism
Inflation, limited liability, corporate personalism, privacy, speculation & GAAP. Teenage. Max Weber & Milton
Friedman.
Social
Environment EconomicViable
Sustainable
Bearable Equitable
Definition | Historical Evidence
21st century : SustainabilismInformation, reputation, due
diligence, globalization & chaos theory. Adulthood. Herman E.
Daly.
Definition | The Real World
How does it all live, in the real world?
Definition | The Real World
The current main focus of extrafundamental
analysis :sustainabilism, sustainability reporting, etc. and both terms will be used interchangeably from now on.
Definition | The Real World | Why & Who (Production)?
Why are extrafundamental
reports produced and who produces them?
Definition | The Real World | Why & Who (Production)?
5 reasons. For each, a specialty :
• Consultative and normative reporting;
• Declarative reporting;
• Editorial reporting;
• Analytical reporting;
• Decisional & executive reporting.
Definition | The Real World | Who & Why (Consumption)?
Who uses extrafundamental
reports?
Definition | The Real World | Who & Why (Consumption)?
Potentially anyone. Many reasons. Examples :• Trustees & other asset managers;
• Beneficiaries;
• Private individual investors;
• Analysts;
• Companies themselves;
• Regulatory commissions.
Current Issues
Current Issues.Extrafundamental reporting. Sustainability taxonomies.
XBRL interoperability.
Current Issues | GRI | Caveats
The GRIGRI is the most recognized standardization body for
sustainability reporting with an established development process. GRI's G3 guidelines are the most widely used
standard today.
Current Issues | GRI
The GRI G3 XBRL Taxonomy.
• Its XBRL taxonomy serves as a starting point for future developments;
• Demonstrates that sustainability reporting does belong to XBRL;
• Gives something concrete as a starting point for broader advocacy of XBRL technologies within the sustainability reporting community.
Current Issues | GRI | Caveats
What’s wrong with the GRI taxonomy?
…and not the GRI itself…
Current Issues | GRI | Caveats
Excellent proof of concept. Lacks mass deployability :• Stops at indicator level, doesn't define metrics;
• Lacks calculation and definition linkbases;
• Lacks corporate governance indicators;
• Lacks wide internationalization of the guidelines themselves and of the label linkbase in particular;
• Lacks the notion of policy and sensitivity;
• Presentation linkbase only provide for "normative reporting policy" and "declarative performance statement" reports;
• Reference linkbase most definitely incomplete;
• Does not provide guidelines for participation to the DTSes;
• Lacks extensibility guidelines and policies.
Current Issues | GRI | GRI In Numbers
Taxonomies Compared
GRI GIR Vigeo
Root Levels
Indicators
Metrics
Users
4 3 6
121 230 37
0 562 >1000
~500 ~30 ~70
Current Issues | Solutions
So what, now?
Current Issues | Solutions
Extrafundamental XBRL Roadmap.
Ontological Negotiation
Ontological Formalization
Taxonomy Development
Internationalization
XBRL Representation
Advocacy
Current Issues | Solutions | Ontology
What’s with this ontological stuff?
Current Issues | Solutions | Ontology
Ontology & Ontological Engineering.
Study of things in themselves. Ontology as formal dictionary. Concepts and relationships between them. Ontology vs. Taxonomy. In XBRL, it roughly equates to
the XSD schema part of the taxonomy.
Current Issues | Solutions | Ontology | Examples
Really?
Industry
Instrument
Company InstrumentType
InstrumentFeature
Installation Meeting
Motion
BoardCandidacy
BoardMemberCandidacy
Manager VerificationFirmCandidacy
VerificationFirm
TreatmentPlan
Current Issues | Solutions | Ontology | Examples
Company
Issue
Dimension
Aspect
Indicator
Metric
IssueNormalizationRule
IssueSensitivity
IssueWeight
Current Issues | Solutions | Ontology | Examples
Issue
ShareHolderPolicy
Issue
IssueNormalizationRule
IssueSensitivity
IssueWeight
Current Issues | Solutions | Ontology | Examples
Sensitivity
Indicator Metric
IssueNormalizationRule
DiscreteMetric
CummulativeMetric
FreeUndeterminedMetric
SimpleUndeterminedChoiceMetric
MultipleUndeterminedChoiceMetric
NumericMetric
MetricUOM
MetricFormat
DateMetric
Current Issues | Solutions | Ontology | Examples
Metric
Company
Installation
Motion
BoardCandidacy
BoardMemberCandidacy
VerificationFirmCandidacy
IncentivePlan
Manager
VerificationFirm
MetricValue
Metric
Current Issues | Solutions | Ontology | Examples
Value & Context
Current Issues | Solutions | Ontology
Extrafundamental Performance Quote.
Qp =�
i
wip · fip(−→mi)
p ∈ Policy, i ∈ Indicator,m ∈ Metric
What’s Ahead
What lies ahead.
What’s Ahead
GRI Announcement :Work on the 2nd version of the XBRL taxonomy
starting in January 2008.
What’s Ahead
The Future of Sustainability Reporting.• Sustainability Knowledge Management
Systems (KMS) and a workable, interoperable XBRL taxonomy;
• Sustainability data disclosure incorporated to regulatory filing obligations;
• Sustainability regression models and quantitative analysis frameworks integrated with trading and analysis platforms.
www.globalreporting.orgwww.investissementresponsable.com
www.nbourbaki.ca
Thanks! Questions?
Thanks!