Enhanced disclosures: Leading practices and current trends The Dbriefs Governance, Risk & Compliance series Deb DeHaas, Vice chairman, National Managing Partner, Deloitte Consuelo Hitchcock, Management Principal, Regulatory Affairs, Deloitte & Touche LLP Bob Lamm, Independent Senior Advisor to Deloitte & Touche LLP Kristen Sullivan, Partner, Sustainability Risk Advisory Services Leader, Deloitte & Touche LLP April 27, 2017
Agenda Overview of disclosure updates and trends Environmental/Sustainability, social, and governance (ESG) Audit committee Other disclosure initiatives and areas of focus Considerations and leading practices Questions and answers Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 2
Overview of disclosure updates and trends SEC initiatives Limited activity due to Commission/Staff departures Disclosure effectiveness: Progress, despite turbulent political atmosphere Most recent example is new requirement for hyperlinks to exhibits Pending initiatives include concept releases on audit committee disclosure, Regulation S-K and Series 400 rules, and disclosure simplification rule proposals, but no sense of timing Path forward unclear given some Congressional opposition and lack of signals from Trump administration EDGAR modernization, possibly including more web-based disclosure Next steps may depend upon full complement of Commissioners, Staff Scrutiny and more of non-gaap disclosures Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 3
Overview of disclosure updates and trends (continued) Investor initiatives Better disclosure on required matters, such as compensation More calls for non-required matters: Future compensation Strategy Management succession Shareholder engagement Board evaluations Issuer initiatives Focus on key messages, drivers, rather than form-driven disclosure Extensive streamlining, deletion of unnecessary information Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 4
Polling question #1 Does your company provide disclosures beyond what is required? Yes No Not sure/don t know Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 5
The current state of ESG disclosure Defining environmental, social and governance impacts Accident and safety management Business ethics Competitive behavior Regulatory capture and political influence Materials sourcing Supply chain management Human rights and community relations Access and affordability Customer welfare Data security and customer privacy Fair disclosure and labeling Fair marketing and advertising Social capital Leadership and governance Business model and innovation Lifecycle impacts of products and services Product packaging Environment Universe of sustainability issues Product quality and safety Human capital Greenhouse gas (GHG) emissions Air quality Energy and fuel management Water and wastewater management Waste and hazardous materials management Biodiversity impacts Labor relations Fair labor practices Employee health, safety, and wellbeing Diversity and inclusion Compensation and benefits Recruitment, development, and retention Source: Sustainability Accounting Standards Board (SASB) Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 6
The current state of ESG disclosure The landscape Paris Agreement Sets US GHG reduction targets and financial commitments Financial Stability Board s Task Force on Climate-related Financial Disclosure Issued guidelines and recommendations for disclosure of climaterelated risk in financial statements SASB launched an Investor Advisory Group to directly engage with companies EU Directive on nonfinancial reporting Requires mandatory reporting Demand CFO attention Global Reporting Initiative (GRI) Sustainability reporting standards, required for reports published on or after July 1, 2018 SEC attention 4% of the SEC s April 2016 Reg. S-K Concept Release addressed sustainability disclosure, yet 2/3 of non-form comment letters discuss sustainability disclosures 1. Stock Exchanges Of the world s largest 64 exchanges, 15 have issued ESG guidance while 23 have committed to providing such guidance 2. Investor interest Proxy season 2016: shareholders submitted 293 ESG proposals 3 1 SASB, SEC Comment Letters, 2 2016 World Federation of Exchanges Annual Sustainability Survey, 3 Deloitte LLP On the Board s Agenda US Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 7
The current state of ESG disclosure The landscape Investors Pressure Standards/ reporting frameworks Companies GRI: Global Reporting Initiative SASB: Sustainability Accounting Standards Board CDP: formerly, The Carbon Disclosure Project Regulators IIRC: International Integrated Reporting Council Nongovernmental organizations (NGOs) Report Audit firms In 2016, 77% of companies globally have their reports externally assured, up from 64% in 2013. Source: WBCSD 2016 Report, Reporting Matters Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 8
The current state of ESG disclosure S&P 500 companies sustainability reporting 100% 80% 60% 40% 20% 80% 47% 53% 28% 25% 72% 75% 19% 81% Dramatic growth of S&P500 companies issuing sustainability reports 2011 through 2015. 0% 20% 2011 2012 2013 2014 2015 Reporters Non-Reporters Source: Governance & Accountability Institute Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 9
The current state of ESG disclosure Sustainability disclosure in SEC filings Infrastructure Renewable Resources & Alt. Energy Consumption II Consumption I Resource Transformation Services Transportation Non-Renewable Resources Technology & Communications Financials Health Care 0% 20% 40% 60% 80% 100% No Disclosure Boilerplace Industry Specific Metrics 10 Source: SASB, analysis of 10-K documents FY 2012 - FY 2014 Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 10
The current state of ESG disclosure The role of the board of directors Significant areas where board members are often not aligned around ESG/sustainability: What is sustainability? What value does it bring to the company? What are the risks and opportunities? Who are the most important stakeholders? Does it add to or subtract from profit and innovation? Who cares? Who should care? Have the CEO, CFO bought in? If not, why not? What are some examples of successful engagement with the CFO and the board of directors around sustainability as a value driver? 11 Who are the key influencers? Who else needs to buy in? Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 11
Polling question #2 What do you believe is the biggest challenge for companies with respect to sustainability/esg information? Too many standards/frameworks/questionnaires It s not integrated with our company strategy Too hard to get the attention of executives to make the connection to value creation We can t decide on what sustainability is Don t know Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 12
Trends and audit committee reporting Recent focus on the audit committee reporting: Investors Regulators General trends in audit committee reporting Source: 2016 Board Practices Report, Deloitte LLP and the Society for Corporate Governance Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 13
Trends and audit committee reporting (continued) Key disclosure areas Audit committee composition and effectiveness Key areas of oversight Specific disclosure trends Roles and responsibilities Topics of meeting discussion Appointment of the external auditor Role in risk oversight Future considerations Regulatory focus Continued investor interest Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 14
Polling question #3 Short of new regulatory requirements, what do you think has or would cause your company to revisit its disclosure about the audit committee? Speeches or other unofficial statements by regulators Investor requests Board/Management requests More than one of the above Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 15
Other disclosure initiatives/areas of focus Strategy Don t assume that investors know or understand Monitoring progress against strategic plan Board composition, including diversity, tenure/refreshment Skills matrices State Street voting policy on boards with no women Engagement Not just that you engage, but how and with whom you engage Can be critical to get passing votes on say-on-pay Sample skills matrix Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 16
Considerations and leading practices Not just disclosure, but communication Clarity, simplification Use of branding Advocacy and story-telling Include things investors want to see, not just what s required Drafting techniques Infographics Tabular disclosure Better use of captions/headings Use of executive summaries Acceptance by SEC Risk of overuse (limit to one per proxy statement)? More personal disclosure to humanize the board Personal statements Videos What the board and its committees do vs. what they are Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 17
Considerations and leading practices For illustrative purposes Source: Pfizer 2017 proxy statement Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 18
Polling question #4 Has your company considered enhancing disclosures in the proxy statement in the last three years? Yes No, but we plan to next year No Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 19
Question & Answer Copyright 2017 Deloitte Development LLC. All rights reserved. Boardroom agenda 2017: Hot topics and the future landscape 20
Join us May 25 at 2 p.m. ET as our Governance, Risk & Compliance series presents: Extended enterprise risk management: New perspectives on a growing imperative Copyright 2017 Deloitte Development LLC. All rights reserved. Becoming board ready: Lessons learned for potential board candidates 21
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Contact information Deb DeHaas Vice chairman, National Managing Partner Deloitte ddehaas@deloitte.com Consuelo Hitchcock Principal Regulatory Affairs Deloitte & Touche LLP chitchcock@deloitte.com Bob Lamm Independent Senior Advisor to Deloitte & Touche LLP Deloitte Center for Board Effectiveness rlamm@deloitte.com Kristen Sullivan Partner, Sustainability Risk Advisory Services Leader Deloitte & Touche LLP ksullivan@deloitte.com Copyright 2017 Deloitte Development LLC. All rights reserved. Enhanced disclosures: Leading practices and current trends 23
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