Sustainability Accounting Standards Board

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2 Sustainability Accounting Standards Board Industry-Based Standards to Guide Disclosure and Action on Material Sustainability Information Presentation to the Task Force on Climate-Related Financial Disclosure London, UK February 9, 2016 Jean Rogers, PhD CEO and Founder 2016 SASB

3 The SASB Mission Improved non-financial disclosure results in enhanced market efficiency The mission of SASB is to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. That mission is accomplished through a rigorous process that includes evidencebased research and broad, balanced stakeholder participation. Facts about SASB Independent 501(c)3 non-profit American National Standards Institute (ANSI) accredited standards developer Developing industry-specific standards for 10 sectors and 80+ industries Guided by the U.S. Supreme Court s definition of materiality, SASB prioritizes material sustainability factors for disclosure to investors 117 2/9/ SASB

4 The Materiality Method SASB s approach grew out of research done at Harvard University From Transparency to Performance Industry-Based Sustainability Reporting on Key Issues July, 2010 Steve Lydenberg Domini Social Investment and IRI Fellow, Harvard University Jean Rogers, PhD SASB, formerly Arup and Loeb fellow, Harvard University David Wood, PhD Initiative for Responsible Investment, Harvard University 118 2/5/ SASB

5 The SASB Difference SASB standards are created for the market, by the market Material Decision-Useful Cost-Effective Industry-Specific Evidence-Based Market-Informed 119 2/5/ SASB

6 Comparing Fundamentals, Competing on Performance SASB standards enable peer-to-peer comparisons and foster competition SASB Metrics Peer comparison Consistent units Complete data set Benchmarking 120 2/9/ SASB

7 Sustainable Industry Classification System SICS industries are grouped by resource intensity and sustainability impacts Health Care Biotechnology Pharmaceuticals Medical Equipment & Supplies Health Care Delivery Health Care Distributors Managed Care Technology & Communications Electronic Manufacturing Services & Original Design Manufacturing Software & IT Services Hardware Semiconductors Telecommunications Internet Media & Services Renewable Resources & Alternative Energy Biofuels Solar Energy Wind Energy Fuel Cells & Industrial Batteries Forestry & Paper Transportation Automobiles Auto Parts Car Rental & Leasing Airlines Air Freight & Logistics Marine Transportation Rail Transportation Road Transportation 121 Non-Renewable Resources Oil & Gas Exploration & Production Oil & Gas Midstream Oil & Gas Refining & Marketing Oil & Gas Services Coal Operations Iron & Steel Producers Metals & Mining Construction Materials Infrastructure Electric Utilities Gas Utilities Water Utilities Waste Management Engineering & Construction Services Home Builders Real Estate Owners, Developers & Investment Trusts Real Estate Services Services Education Professional Services Hotels & Lodging Casinos & Gaming Restaurants Leisure Facilities Cruise Lines Advertising & Marketing Media Production & Distribution Cable & Satellite 2/9/2016 Resource Transformation Chemicals Aerospace & Defense Electrical & Electronic Equipment Industrial Machinery & Goods Containers & Packaging Financials Commercial Banks Investment Banking & Brokerage Asset Management & Custody Activities Consumer Finance Mortgage Finance Security & Commodity Exchanges Insurance Consumption Agricultural Products Meat, Poultry & Dairy Processed Foods Non-Alcoholic Beverages Alcoholic Beverages Tobacco Household & Personal Products Multiline and Specialty Retailers & Distributors Food Retailers & Distributors Drug Retailers & Convenience Stores E-Commerce Apparel, Accessories & Footwear Building Products & Furnishings Appliance Manufacturing Toys & Sporting Goods 2016 SASB

8 Designed for Integration Into Mandatory Filings A de facto mandatory reporting environment without regulation US GAAP True and fair representation of performance on material factors SASB Accounting Metrics 122 2/5/ SASB

9 A Market-Driven Response 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, and a model for disclosing information on those factors in a decisionuseful way to investors A method to understand and improve performance on ESG-related value drivers A way to better satisfy the requirements of Regulation S-K in the U.S. and Directive 2014/95/EU in Europe Investors Comparable data for benchmarking and evaluating performance Standardized, decision-useful information in a trusted channel (i.e., 10-K and 20-F) Tools and resources to analyze and understand sustainability risk at the portfolio level Guidance for more focused corporate engagement efforts SASB INDUSTRY WORKING GROUPS REFLECT BROAD-BASED INTEREST >2,800 $23.4T $11.0T PARTICIPANTS ASSETS UNDER MANAGEMENT MARKET CAP 123 2/9/ SASB

10 Balanced Participation SASB s standards-setting process is inclusive and informed by industry expertise Sample of participants 3M Alaska Airlines Alcoa Allianz Global Investors Anheuser-Busch InBev Apache Applied Materials ArcelorMittal AT&T Atlas Copco Autodesk BAE Systems Bain & Company Baker Hughes Bank of America Barrick Gold BASF Bloomberg LP Blue Cross Blue Shield BNY Mellon Boeing Booz Allen Hamilton Caesars Entertainment CalPERS CalSTRS CBRE Chrysler CISCO Citigroup ConocoPhillips Credit-Suisse Crowell & Moring Deloitte Dell Delta Airlines Denaher Deutsche Bank Diebold Dow Chemical DuPont Eastman Chemical ebay EMC Encana EY Fannie Mae FedEx FMC Ford Motor Company General Electric General Motors Gerdau Ameristeel Goldman Sachs Google Greif Groupon Harley-Davidson Hertz Hess Hewlett Packard Hill & Knowlton (WPP) HSBC Illinois Tool Works ING Ingersoll Rand Intel JetBlue Airlines JLL JP Morgan Johnson and Johnson Kaiser Permanente KLA-Tencor KPMG Lear Lockheed Martin MeadWestvaco MetLife Microsoft Monsanto Morgan Stanley Morningstar MSCI NASDAQ Newfield Exploration Nielsen Noble Energy Novo Nordisk NYSE Euronext NVIDIA Owens Corning Patriot Coal Pax World Investments Petronas Pfizer Pirelli PwC IWG Participation 31% Corporate Professionals Prudential Range Resources Raytheon RBC Rio Tinto Sasol Schlumberger Siemens Solvay Spectra Energy Statoil 37% Public Interest & Intermediaries 31% Investors Sunoco Symantec Talisman Energy Teck Resources Thomson Reuters Tyco UBS Visa Wyndham Worldwide Weyerhaeuser Yahoo 124 2/9/ SASB

11 Percentage Shaped By Consensus SASB topics must achieve a high level of consensus among all stakeholder types 100 Stakeholder-specific feedback on likely materiality of all proposed disclosure topics (% of respondents, by interest group, who think suggested topics are likely to constitute material information) Health Care Financials Technology & Communications Non-Renewable Resources Transportation Services Resource Transformation Consumption 1 Consumption 2 Renewable Resources & Alternative Energy Infrastructure All % Corporations % Investors/Analysts % 125 2/9/ SASB

12 Rigorous, Transparent Process SASB standards are rooted in evidence and shaped by consensus UNIVERSE OF ESG ISSUES Industry Research Vetting Standards Development Evidence-based discovery Industry working group engagement and evaluation Disclosure topics and metrics consensus and definition Public Comment Provisional Standards Release Codification Feedback and refinement Road testing by companies 2016: Deep consultation with issuers, internal review, cost-benefit analysis 2017: Code and basis for conclusion 126 2/9/ SASB

13 Known Value Drivers SASB standards address business issues known to impact value creation Financial Drivers REVENUE COST ASSETS & LIABILITIES COST OF CAPITAL Types of Financial Impact 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 127 2/9/ SASB

14 Robust Standards SASB standards contain more than just metrics Accounting metrics SASB Standard Disclosure topics Technical protocol 128 2/9/ SASB

15 Cost-Effective Disclosures SASB provides a cost-effective way to report on material sustainability factors 74 percent of SASB topics are already being addressed in SEC filings. SASB standards average 5 topics and 14 metrics (78 percent quantitative) per industry /9/ SASB

16 Major Themes from Standards Setting Interesting patterns have begun to emerge after 10 sectors and 79 industries CLIMATE CHANGE Event readiness in health care delivery, carbon intensity of reserves in oil and gas, emissions from refining, vulnerability of real estate and insurance, impact on crop yields Market cap of companies affected $33.8T Percentage of U.S. equity market 93% PRODUCT ALIGNMENT & SAFETY Counterfeit drugs, food quality and nutrition, car and airline safety, responsible gambling and drinking, product design and take-back RESOURCE INTENSITY & SCARCITY 24/7 health care facilities and data centers, fuel management in transport rare earth minerals in manufacturing, water consumption in beverages, oil and gas, agriculture $29.1T $26.9T 80% 75% ACCESS & AFFORDABILITY OF SERVICES Consumption II Renewable Orphan Energy drugs and pricing, access to medicine and coverage, transparency in Infrastructure procedures and billing, financial inclusion and capacity building FINANCING & RESPONSIBLE LENDING Responsible lending and transparency of terms in mortgages, consumer finance, and education, financial literacy initiatives $8.3T $3.9T 23% 11% 130 2/9/ SASB

17 Climate Change: Ubiquitous but Differentiated Climate change affects majority of capital markets, but industry impacts are unique CLIMATE CHANGE Impacts 72 of 79 industries Event readiness in Health Care Delivery Carbon intensity of reserves in Oil & Gas Exploration & Production Emissions from refining in Oil & Gas Refining & Marketing Vulnerability of real estate in Insurance Impact on crop yields in Agricultural Products Financed emissions in Commercial Banks 93% Percentage of U.S. equity market impacted $33.8T Market cap of companies affected 131 2/9/ SASB

18 SASB s Climate Risk Framework SASB frames the impacts of the climate change in a way that is relevant to investors 132 2/9/ SASB

19 Channels of Impact Across Industries SASB has mapped climate risk for all industries of the economy 133 2/9/ SASB

20 Carbon Footprint is Not Enough GHG emissions are important, but other more prevalent risks are poorly disclosed Type of risk Affected market cap % of U.S. equity market State of Disclosure on Climate Risk in 10-K and 20-F OVERALL CLIMATE RISK $27.5T 93% Physical Effects $18.1T 61% Transition to a Low- Carbon Economy $26.3T 89% Climate Regulation $6.3T 21% 0% 20% 40% 60% 80% 100% Capital markets data from Jan. 4, 2016; figures for U.S.-listed, non-otc securities; figures include impacts from both primary and secondary risk types; disclosure data from FY K and 20-F filings of the top 10 U.S.-listed companies by revenue for each industry, resulting in a total of 690 companies /9/ SASB

21 Cost-Effective Alignment Sample of how SASB climate metrics align with a variety of approaches already in use 135 2/9/ SASB

22 SASB and Climate Risk A look at investor exposure to climate risk and an analysis of corporate disclosure Climate risk is systemic in nature Climate risk manifests differently in each industry Understanding climate risk requires specialized disclosures Climate risk has tangible, identifiable financial implications Climate risk is not adequately disclosed 136 2/9/ SASB

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