An Overview of the SASB Sustainability Disclosure Standards for Issuers and Investors ADVANCED CSR AND SUPPLY CHAIN COMPLIANCE SERIES

Transcription

1 An Overview of the SASB Sustainability Disclosure Standards for Issuers and Investors ADVANCED CSR AND SUPPLY CHAIN COMPLIANCE SERIES March 7, 2018

2 About Michael Littenberg Michael Littenberg is a partner at Ropes & Gray. As part of his practice, for more than 25 years, Michael has been active in advising leading public and private companies on supply chain compliance, ESG and corporate social responsibility matters, including with respect to conflict minerals, and he is widely viewed as the leading practitioner in this emerging area. In this subject area, Michael advises clients on, among other things: Michael R. Littenberg Partner T F Michael.Littenberg@ropesgray.com Compliance with a wide range of enacted, pending and proposed regulatory requirements; soft law instruments; and industry and NGO codes of conduct, standards, frameworks and guidance Due diligence Risk and impact assessments Structuring and implementation of tailored compliance policies, procedures, programs and codes of conduct Public benefit corporations Training Benchmarking Regulatory and voluntary disclosures and other communications Stakeholder engagement Grievance mechanisms

3 Essential market infrastructure SASB

4 2 11/13/17

5 3 11/13/17

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8 Evolving financial market infrastructure

9 Evolving financial market infrastructure

10 Standardized market data at your fingertips

11 Mesopotamia: Pacioli: Industrial tax records Revolution on double-entry gives stone tablets bookkeeping rise to the corporate form Accounting profession organizes, tries to standardize audit process Securities Exchange Commission (SEC) established Accounting Principles Board (APB) established Financial Accounting Standards Board founded 3000 b.c a.d. 1800s 1900s 30s 50s 70s No standards or principles; only research bulletins Only APB opinions Generally Accepted Accounting Principles (GAAP) introduced in 1973

12 Before financial reporting requirements and standards

13 You think, then, that when a corporation offers stock to the public the public has no right to know what its earning power is or to subject them to any inspection whatever, that the people may not buy stock blindly?

14 Yes, that is my theory. Let the buyer beware...you cannot wet-nurse people from the time they are born until the day they die. They have got to wade in and get stuck and that is the way men are educated and cultivated.

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16 Billions of people Actual UN Low UN Medium UN High

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18 Components of S&P 500 market value Intangible Assets Tangible Assets 100% When GAAP was recognized, the market value of S&P 500 companies was >80% tangibles <20% intangibles 75% 50% today, <20% of S&P 500 market value is tangible; >80% is intangible 25% 0%

19 17 11/13/17 Changing Investor Views in a Changing World Today, 90% of the world s top 100 asset managers have committed to evaluating ESG factors in ALL their investment decisions Back in the 70s, the SEC deemed percentage of investors interested in sustainability disclosure to be insignificant Natural Resources Defense Council v. SEC

20 We have three key paths for ESG integration: Product investment strategies focused on sustainability and impact outcomes Stewardship engagement with investee companies focused on improving the long-term performance of companies Investment integration of ESG factors into investment analysis We strongly believe in the promise that full integration of ESG holds sustainable long-term value creation, not just for our clients, but for society as a whole We need to ask for the data and solutions that illuminate and enable material factors for investing and build models based on these data. ESG Integration We provide training for all new equity analysts on our approach to incorporating ESG factors as part of a long-term investment strategy. We also offer all our research analysts access to ESG data in order to incorporate material ESG analysis across our sector investment research. I ve never seen anything as effective as ESG characteristics when it comes to anticipating future earnings and volatility of U.S. corporations. Savita Subramanian Head of U.S. Equity and Quantitative Strategy, BofA Merrill Lynch Global Research

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22 % S&P 500 companies issuing sustainability reports 53% 72% 75% 81% 63% 82% 67% % shareholder proposals that are esg-related 40% 40% 45% 55% 20%

23 INVESTORS CORPORATES 29% 100% Source: PwC, ESG Pulse 2016, October Base: 28

24 % Investors Dissatisfied 93% Disclosure of ESG-related risk/opportunity that could affect business models 82% How sustainability risks/opportunities are identified and quantified in financial terms 92% Ease of comparing peer companies based on ESG data disclosed 68% Key performance indicators related to each identified material issue 71% Lack of standards for disclosure of ESG data to investors (50% want industry-specific)

25 Corporate Sustainability (ESG) Rating Products Market Composition Owners Issues Coverage Environmental Researchers and Owners Research and Data Providers Social Governance ESG Combined 648 Products 155 Organizations Primary Audience Product Type GISR has compiled data on hundreds of corporate environmental, social and governance (ESG) ratings, rankings and indices from across the globe. Investors Consumers Companies Rating Ranking Index

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27 Sustainability issues impact financial performance in specific ways that vary by topic and industry.

28 Sustainability issues impact financial performance in specific ways that vary by topic Issuers and industry. and investors have a shared problem in the absence of a market standard, using tools poorly-suited to the task of evaluating performance on ESG factors. A market standard is needed to improve communication between issuers and investors on ESG performance.

29 SASB is an independent 501(c)3 that develops and disseminates sustainability accounting standards that help companies disclose material, decision-useful information to investors in a cost-effective way. SASB adheres to a transparent, rigorous process that includes evidence-based research and broad, balanced stakeholder participation.

30 The SASB Foundation Board Michael R. Bloomberg Chair Philanthropist, Founder of Bloomberg LP, and three-term Mayor of New York City Mary Schapiro Co Vice Chair Promontory Advisory Board Vice Chair Former Chairman SEC Robert K. Steel Co Vice Chair Partner & CEO Perella Weinberg Partners Alan Beller Senior Counsel Cleary Gottlieb Steen & Hamilton Rudi Bless Chief Accounting Officer Bank of America Audrey Choi CEO Institute for Sustainable Investing, Morgan Stanley Jack Ehnes CEO CalSTRS Steven O. Gunders, CPA, MBA Partner Deloitte & Touche LLP (Retired) Robert H. Herz Former Chairman FASB Shawn Lytle President Delaware Management Holdings, Inc. Jim McIntire Former Treasurer, State of Washington Clara Miller President The F.B. Heron Foundation Catherine Odelbo, MBA Executive Vice President Corporate Strategy and Partnerships Morningstar Inc. Kevin Parker CEO SICM Curtis Ravenel Global Head, Sustainable Business and Finance Bloomberg LP Laura Tyson, PhD Director, Institute for Business and Social Impact Berkeley Haas School of Business Elisse Walter, JD Former Chairman SEC Matthew Welch President SASB (Ex-officio) Jay Willoughby CIO, TIFF Chuck Zegar Philanthropist, Co-Founder of Bloomberg LP

31 The Sustainability Accounting Standards Board Jean Rogers, PhD, PE The SASB Chair Founder and CEO of SASB Sector Chair for Infrastructure Jeffrey Hales, PhD The SASB Vice Chair Professor, Georgia Institute of Technology Ernest Scheller Jr. College of Business Sector Chair for Financials Verity Chegar Vice President and ESG Strategist, BlackRock Sector Chair for Extractives & Minerals Processing Robert Hirth, Jr. Chairman, Committee of Sponsoring Organizations of the Treadway Commission (COSO) Senior Managing Director, Protiviti Sector Chair for Technology & Communications Kurt Kuehn Former CFO, UPS Sector Chair for Transportation Lloyd Kurtz, CFA Senior Portfolio Manager, Head of Social Impact Investing, Wells Fargo Private Bank Sector Chair for Health Care & Resource Transformation Daniel (Dan) L. Goelzer, JD Senior Counsel, Baker & McKenzie LLP, Inc. Sector Chair for Services Elizabeth Seeger Director, KKR Sector Chair for Consumer Goods Stephanie Tang, JD Senior Corporate Counsel and Assistant Corporate Secretary, the Clorox Company Sector Chair for Food & Beverage and Renewable Resources & Alternative Energy

32 SASB Standards bridge this divide as a shared solution to a shared problem. Harvard Business School research shows firms focused on material sustainability factors outperform peers who don t Using SASB s framework, Harvard researchers found that firms with good performance on material sustainability issues and concurrently poor performance on immaterial sustainability issues enjoy the strongest financial returns. They also found that 80 percent of disclosures are immaterial, having no correlation to positive performance. SASB

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34 Sustainability issues impact financial performance in specific ways that vary by topic and industry.

35 Your company s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural Sustainability issues impact trends from slow wage growth to rising automation to financial performance in specific climate change affect your potential for growth. ways that vary by topic and industry.

36 Sustainability issues impact financial performance in specific ways that vary by topic and industry.

37 Think of SASB as DNA Fingerprinting

38 SASB Standards: Filter hundreds of sustainability topics Disclosure Topics Examples Drug safety and side effects License to Operate Energy-efficient chemicals production Operational safety of gas pipelines Stranded coal assets map sustainability topics to value drivers Types of Financial Drivers Demand for Core Products and Services Market Share and Long-Term Growth Operational Efficiency/Cost Structure Governance, Volatility and Risk Factors Tangible and Intangible Assets and Liabilities translate these issues into data desired by and investors Financial Impact REVENUE COST COST OF CAPITAL ASSETS & LIABILITIES

39 Complementary efforts Financially Material Information Sustainability factors reasonably likely to affect the financial condition or operating performance of a company Relevant Information All environmental, social, and governance topics of interest Annual Report Sustainability Report Investors Broadest Range of Stakeholders

40 SASB Metrics Illustrative Enabling peer comparison In consistent units Enabling benchmarking Providing complete data sets

41 TOPIC: Product Safety TOPIC: Discharge Management U.S indicts three Takata executives, fines company $1 billion in air-bag scandal Carnival Princess to pay record $40 million for pollution cover-up TOPIC: Professional Integrity TOPIC: Data Privacy Moody s Reaches $864 Million Subprime Ratings Settlement Data Could be the Next Tech Hot Button for Regulators FBI arrests top Volkswagen executive in emissions scandal TOPIC: Fuel Economy TOPIC: Affordability & Fair Pricing How Valeant Cashed in Twice on Higher Drug Prices Chipotle Customers Haven t Forgotten the Chain s Food Safety Crisis TOPIC: Food Safety McDonald s agrees to $3.7M deal with California workers TOPIC: Fair Labor Practices 2017 SASB 39

42 Accounting metrics for each disclosure topic Industryspecific disclosure topics Technical protocol for compiling data; activity metrics for normalization

43 Infrastructure Transportation SASB standards average 5 topics and 13 metrics (78 percent quantitative) per industry. Renewable Resources & Alternative Energy Consumer Goods Extractives & Minerals Processing Technology & Communications SASB metrics are aligned with over 200 existing frameworks, regulations, and certifications. Resource Transformation Food & Beverage Services Financials Health Care

44 A network dedicated to supporting a market standard for material sustainability information A credential to master the link between sustainability and financial performance A platform to access standards, evidence, and disclosure data The central repository of guidance and insights on sustainability accounting

45 SASB Timeline Organizational Milestones Publication of Harvard IRI paper, From Transparency to Performance Jean Rogers founded SASB and started as CEO SASB incorporated in California as 501(c)(3) nonprofit Board of Directors formed, Bob Eccles named as inaugural chair First operating grant received from Bloomberg Philanthropies SASB s public launch of standards-setting activities Jeff Hales appointed as chair of Standards Council Accreditation received from the American National Standards Institute (ANSI) Release of Conceptual Framework Industry Working Group participants reach 1,000 Michael Bloomberg and Mary Schapiro appointed as Chair and Vice Chair Harvard Business School published case on SASB Standards Navigator, a digital tool to access the Standards, launched Industry Working Group participants exceed 2,000 Data Provider Partner Program launched to give investors access to high-quality sustainability information Fundamentals of Sustainability Accounting (FSA) Credential launched Published Implementation Guide for Companies Industry Working Group participants exceed 2, Published SASB Engagement Guide for Investors Published inaugural Annual State of Disclosure Report Held inaugural Symposium Launched SASB Library Published ESG Integration Insights Guide Established two-tier governance structure Published Field Guide of Industry Standards Published Joint Paper with CDSB Held Legal Forum at Harvard Launched public comment period for changes to the standards 2017 Provisional Standards Issued 6 industries in Health Care sector 7 industries in Financials sector 6 industries in Technology & Communication sector 5 industries in Resource Transformation sector 15 industries in Consumption sector 8 industries in Infrastructure sector 8 industries in Non-Renewable Resources sector 6 industries in Renewable Resources & Alternative Energy sector 8 industries in Transportation sector 10 industries in Services sector

46 The SASB Oversight and Decision-Making Quarterly meetings of the Sustainability Accounting Standards Board Board meetings are public. Board meeting information is available on Standards will evolve based on evidence and market feedback 3 YEAR PROCESS from Q Changes to Standards Research Consultation Technical Agenda Exposure Draft Public Comment Period 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Quarterly board meetings

47 SASB Standards SASB provides new market infrastructure to meet investor and corporate needs, improving communication on sustainability performance benefitting companies, investors, and society.

48 QUESTIONS & ANSWERS