Sustainability Accounting Standards Board

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1 Sustainability Accounting Standards Board Industry-Based Standards for Effective Disclosure of Material Sustainability Information to Investors Eli Reisman, Director of Partnerships

2 A Growing Demand for Effective Sustainability Disclosure Global megatrends, economic evolution create challenges for companies, investors LEGISLATIVE PRESSURE Mandates in multiple markets (E.U., China, India, etc.) Exchange listing requirements and guidance Financial Stability Board (FSB) Task Force SEC Regulation S-K Concept Release INVESTOR PRESSURE Shareholder resolutions Questionnaire fatigue Calls for divestment Increasing engagement ECONOMIC PRESSURE Resource constraints and volatility Financial impacts of climate related risk Changing valuations and the rise of intangibles Transition to low carbon economy STATE OF DISCLOSURE Proliferation of boilerplate disclosures Inability to discern material information or benchmark performance Inconsistent quality of data Selective disclosure risk 2 8/25/2016

3 Investors Care about Sustainability A rapidly increasing share of global assets are managed with ESG issues in mind Key sustainability-related investor initiatives: U.S. Sustainable & Responsible Investing (in billions) Initiative United Nations Principles for Responsible Investment Carbon Disclosure Project International Corporate Governance Network Investor Network on Climate Risk AUM (US $) $59 trillion $95 trillion $26 trillion $13 trillion $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 9 % 11% 12% 11% $ Source: Forum for Sustainable and Responsible Investment 18% In 2014, sustainable and responsible investment strategies applied to more than one out of every six dollars under professional management in the U.S. 3 8/25/2016

4 The Pain Point for Investors Investors lack the tools needed to integrate sustainability into investment decisions Focusing specifically on US-listed companies, how satisfied are you with the information currently being provided by these companies on the following topics? How risks and opportunities are identified and quantified in financial terms Comparability of sustainability reporting between companies in the same industry Relevance and implications of sustainability risks/issues Key performance indicators related to each identified material issue Process used to identify material sustainability issues Source: PwC Sustainability Goes Mainstream, May 2014 Satisfied Dissatisfied 4 8/25/2016

Increasing Reporting Burden for Companies Multiple ESG Questionnaires consume corporate resources and provide little value to the market Large-cap companies receive hundreds of information requests

On a recent Institute of Management Accountant (IMA) webinar survey of 100 members, 7.5% of respondents reported completing more than 250 ESG surveys per year.

5 Increasing Reporting Burden for Companies Multiple ESG Questionnaires consume corporate resources and provide little value to the market Large-cap companies receive hundreds of information requests each year, leading to questionnaire fatigue and information asymmetry. Because questionnaires and surveys lack a materiality focus, they also add noise to the mix, masking what matters. On a recent Institute of Management Accountant (IMA) webinar survey of 100 members, 7.5% of respondents reported completing more than 250 ESG surveys per year. At GE, responding to over 650 ESG questionnaires involved more than 75 people at GE and took several months, with virtually no value to (GE s) customers or shareholders and even less impact on the environment. Ann R. Klee, The Environmental Forum, May/June 2015 A market standard could eliminate the need for this common practice. 5 8/25/2016

6 The SASB Mission Improved sustainability disclosure enhances market efficiency The mission of SASB is to develop and disseminate sustainability accounting standards that help companies disclose material, decisionuseful information to investors in a cost-effective way. That mission is accomplished through a rigorous, transparent process that includes evidence-based research and broad, balanced stakeholder participation. Facts about SASB Independent 501(c)(3) non-profit Develops & maintains industry-specific standards for 79 industries in 10 sectors Intended for use in mandatory SEC filings such as the Form 10-K and 20-F 6 8/25/2016

7 Strong Support for SASB Vision SASB Board of Directors: Informed by experience, character, and commitment Michael R. Bloomberg Chair Philanthropist, Founder of Bloomberg LP, and the 108 th Mayor of New York City Mary Schapiro Vice Chair Promontory Advisory Board Vice Chair Former Chairman SEC Alan Beller Senior Counsel, Cleary Gottlieb Steen & Hamilton Audrey Choi CEO Institute for Sustainable Investing, Morgan Stanley Jack Ehnes CEO CalSTRS Steven O. Gunders, CPA, MBA Partner Deloitte & Touche LLP (Retired) Dan Hanson, CFA Partner and Director of U.S. Equities Jarislowsky Fraser USA Robert H. Herz Former Chairman FASB Erika Karp, MBA CEO Cornerstone Capital Inc. Shawn Lytle President Delaware Management Holdings, Inc. Ken Mehlman Member & Global Head of Public Affairs, KKR Clara Miller President The F.B. Heron Foundation Catherine Odelbo, MBA Executive Vice President, Corporate Strategy and Partnerships Morningstar Inc. Kevin Parker CEO SICM Aulana Peters, JD Former Commissioner SEC Arnie Pinkston, JD General Counsel, Allergan (Retired) Curtis Ravenel Global Head, Sustainable Business and Finance Bloomberg LP Jean Rogers, PhD, PE Chief Executive Officer & Founder SASB (Ex-officio) Laura Tyson, PhD Director, Institute for Business and Social Impact Berkeley Haas School of Business Elisse Walter, JD Former Chairman SEC Edward D. White, JD Managing Partner Fahr LLC 7 8/25/2016

8 The SASB Difference SASB standards are created for the market, by the market Material Decision-Useful Cost-Effective Industry-Specific Evidence-Based Market-Informed 8 8/25/2016

9 Definition of Materiality from an Investor s Perspective SASB is guided by the U.S. Supreme Court definition in identifying disclosure topics Material information is defined by the U.S. Supreme Court as presenting a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) Other sustainability disclosure frameworks use definitions of materiality that are broader and inclusive of the interests of additional stakeholders. 9 8/25/2016

fair representation of performance on material factors SASB Disclosure Topics and

10 Designed for Integration into Mandatory Public Filings An integrated reporting environment without regulation US GAAP governs presentation of the financials True and fair representation of performance on material factors SASB Disclosure Topics and Metrics designed for integration into MD&A, risk factors, and other sections as appropriate 10 8/25/2016

11 Complementary Efforts Mandatory and voluntary reporting serve different purposes for different audiences Relevant Information All environmental, social, and governance topics of interest Stakeholders Alignment is key (e.g., consistent use of the description material ) Material Information Sustainability factors likely to effect the financial condition or operating performance of a company Investors 11 8/25/2016

12 A Market-Driven Approach SASB addresses needs of all market participants both investors and issuers Issuers A minimum set of disclosure topics that are likely to have material impacts on companies in an industry Cost-effective disclosures using industry-standard metrics Ability to benchmark performance against competitors and set targets for improving performance A way to satisfy the requirements of Regulation S-K in the U.S. and Directive 2014/95/EU in Europe Investors Standardized, publicly available information on material sustainability factors Comparable data for benchmarking and evaluating company performance Reliable information in a trusted channel subject to internal controls (i.e., 10-K and 20-F) Metrics to guide more focused corporate engagement efforts 12 8/25/2016

13 Identifying Material Sustainability Issues by Industry SASB s research and prioritization starts with a broad set of sustainability issues Environment GHG emissions Air quality Energy management Fuel management Water and wastewater management Waste and hazardous materials management Biodiversity impacts Social capital Human rights and community relations Access and affordability Customer welfare Data security and customer privacy Fair disclosure and labeling Fair marketing and advertising Human capital Labor relations Fair labor practices Employee health, safety, and wellbeing Diversity and inclusion Compensation and benefits Recruitment, development, and retention Business model and innovation Lifecycle impacts of products and services Environmental and social impacts on assets and operations Product packaging Product quality and safety Leadership and governance Systemic risk management Accident and safety management Business ethics and transparency of payments Competitive behavior Regulatory capture and political influence Materials sourcing Supply chain management Leadership and governance Environment UNIVERSE OF SUSTAINABILITY ISSUES Business model and innovation Social capital Human capital 13 8/25/2016

Rigorous Process Drives SASB Standards Standards for each industry are rooted in evidence and shaped by market input Industry Research SUSTAINABILITY UNIVERSE OF ESG ISSUES Industry Working Groups

14 Rigorous Process Drives SASB Standards Standards for each industry are rooted in evidence and shaped by market input Industry Research SUSTAINABILITY UNIVERSE OF ESG ISSUES Industry Working Groups Process begins With ~ 30 issues Vetting Evidence Standards Council Sub-Committee on Metrics Quality Public Comment 12 months Provisional Standard Average of 5 topics and 13 metrics Final Revisions Standards maintenance Ongoing 14 8/25/2016

Accounting metrics for each disclosure topic Industryspecific disclosur e topics

15 Robust Standards Designed to Provide Decision-Useful Information SASB standards contain industry-specific disclosure topics, metrics, and guidance SASB Standard Accounting metrics for each disclosure topic Industryspecific disclosur e topics Technical protocol for compiling data; activity metrics for normalization 15 8/25/2016

16 Expected Value Drivers SASB s process identifies disclosure topics with evidence of impact on financial condition, operating performance or risk Financial Impact REVENUE COST ASSETS & LIABILITIES COST OF CAPITAL Types of Financial Drivers Demand for Core Products and Services Intangible Assets and Long-Term Growth Operational Efficiency/Cost Structure Valuation of Core Assets and Liabilities Governance, License to Operate and Risk Disclosure Topics Examples Drug safety and side effects Diverse workforce in technology Energyefficient chemicals production Stranded coal assets Operational safety of gas pipelines 16 8/25/2016

Materiality Approach Validated by External Research Harvard research supports SASB s standards-development process Corporate Sustainability:

SASB s framework, Harvard researchers found that firms with good performance on material sustainability issues and concurrently poor

These results speak to the efficiency of firms sustainability investments, and also have implications for asset managers who have committed

17 Materiality Approach Validated by External Research Harvard research supports SASB s standards-development process Corporate Sustainability: First Evidence on Materiality, Working Paper by Mozaffar Khan, George Serafeim, and Aaron Yoon Harvard Business School, 2015 Findings: 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. These results speak to the efficiency of firms sustainability investments, and also have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions. They also found that 80 percent of disclosures are immaterial, having no correlation to positive performance. 17 8/25/2016

18 SASB Materiality Map A first view of exposure to material sustainability risks across a diversified portfolio 18 8/25/2016

19 Current State of Disclosure Opportunity to transform disclosure from boilerplate to metrics-based Infrastructure (80 companies) Renewable Resources & Alternative Energy (47 companies) Consumption II (79 companies) Consumption I (68 companies) Resource Transformation (50 companies) Services Sector (93 companies) Transportation Sector (63 companies) Non-Renewable Resources Sector (81 companies) Technology & Communications Sector (59 companies) Financials Sector (63 companies) Health Care Sector (58 companies) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% No Disclosure Boilerplate Industry Specific Metrics 19 8/25/2016

Making an Impact SASB standards draw wide interest across the global capital markets >60,000+ STANDARDS DOWNLOADS by >6,000 USERS in >110 COUNTRIES 4% 50% 4% 4% 32% Other Countries 6% Top Equity

20 Making an Impact SASB standards draw wide interest across the global capital markets >60,000+ STANDARDS DOWNLOADS by >6,000 USERS in >110 COUNTRIES 4% 50% 4% 4% 32% Other Countries 6% Top Equity Markets 1. U.S. ($26.1T) 2. E.U. ($7.6T) 3. China ($6.3T) 4. Japan ($4.5T) 5. India ($3.3T) Equity Market Source: WFE, January 2016 Figures represent percentage of total standards downloads by region 20 8/25/2016

Regulation S-K Concept Release Comments On April 13, 2016, the SEC issued Concept Release: Business and Financial Disclosure Required by Regulation S-K as part of its Disclosure Effectiveness Project.

21 Regulation S-K Concept Release Comments On April 13, 2016, the SEC issued Concept Release: Business and Financial Disclosure Required by Regulation S-K as part of its Disclosure Effectiveness Project. The Concept Release solicited comment on a broad range of issues, including a request for comment on sustainability disclosures in SEC filings. SASB analyzed non-form comment letters that address sustainability matters NON-FORM LETTERS (274 letters as of August 24, 2016) Two-thirds of all non-form letters through August 24, 2016, discuss sustainability disclosures 52% of these letters support improved sustainability disclosure, and mention SASB as a solution, among other frameworks 40% of these letters support improved sustainability disclosure, but do not mention any disclosure framework 38% of sustainability-related letters are from investors and investor groups Only 8% of sustainability-related letters oppose changes to SEC oversight of sustainability-related disclosures 21 8/25/2016

Support for SASB As a long-term investor, CalSTRS needs to know which sustainability issues would be considered material SASB Standards identify sustainability topics at an industry level which may

SASB Standards are intended to provide guidance to company management, which is ultimately responsible for determining which information is material and should therefore be included in its Form 10-K

22 Support for SASB As a long-term investor, CalSTRS needs to know which sustainability issues would be considered material SASB Standards identify sustainability topics at an industry level which may constitute material information depending on a company s specific operating context for a company within that industry. SASB Standards are intended to provide guidance to company management, which is ultimately responsible for determining which information is material and should therefore be included in its Form 10-K or 20-F and other periodic SEC filings as appropriate. "Sustainability information on company websites usually addresses multiple stakeholders, and as such, it could obscure information specifically relevant to shareholders. If the Commission were to adopt specific disclosure requirements involving sustainability or public policy issues, the Commission could use a sectorbased approach to elicit meaningful disclosure on these issues. The Commission and its staff could assess the existing sector-based guidelines by Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI) Given the extensive scope of the consultation we have not attempted to answer in detail every question asked. We are therefore focusing on some of the most important issues. We have had the opportunity to read SASB's response to the consultation and believe that the organisation has contributed through its work to a thoughtful approach that the SEC should consider adopting. We agree with its approach to supplement quantitative metrics with qualitative analysis because the assessment and management of ESG factors cannot be distilled into numbers in a spreadsheet. (T)here are a number of publicly available reporting frameworks available for the SEC to recommend as guidance for issuers, with the SASB accounting metrics being the most directly focused on investor relevant metrics. 22 8/25/2016

Helping Companies SASB s Implementation Guide helps companies focus and report on what matters SASB Implementation Guide for Companies Materiality Assessment Select topics for implementation

23 Helping Companies SASB s Implementation Guide helps companies focus and report on what matters SASB Implementation Guide for Companies Materiality Assessment Select topics for implementation Disclosure Analysis, Alignment & Benchmarking Assess readiness and alignment gaps Performance Evaluation & Benchmarking Identify strengths, weakness, opportunities and threats vs. industry peers Implementation Considerations Integrate into existing business processes Disclosure Considerations Develop narrative for MD&A 23 11/7/2016

24 Enterprise Resource Planning Partners Helping companies track robust reliable data 24 11/7/2016

SASB Navigator Surfacing underlying evidence,

Examine industry performance for all industry

financial impact Receive topic alerts on

25 SASB Navigator Surfacing underlying evidence, research, and disclosure Browse SASB Standards Examine industry performance for all industry metrics Understand evidence making the case for financial impact Receive topic alerts on emerging evidence Evaluate disclosure quality 25 8/25/2016

26 SASB Navigator Surfacing underlying evidence, research, and disclosure 4,300+ public filings Analyze disclosure quality Benchmark disclosure against industry peers Access disclosures on SASB topics 26 8/25/2016

Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR)

Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) 33rd SESSION 4-6 October 2016 Room XVIII, Palais des Nations, Geneva Wednesday, 5 October 2016 Morning