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© 2017 SASB™
The Evolution of SEC Disclosure –
The Materiality of ESG Information and its Use by Investors
Sustainability Accounting Standards Board & Workiva
March 14, 2017
• One hour of CPE credit
• Four attendance questions asked during webinar
• Logged in with correct contact information
Obtaining Your CPE Credit
Your Panelists
Janine Guillot Director of Capital
Markets Policy and
Outreach, SASB
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Robert HerzFormer Chairman,
FASB.
Board Member of
SASB, Workiva,
Fannie Mae, Morgan
Stanley
Rakhi KumarHead of ESG
Investments and
Asset Stewardship,
State Street Global
Advisors
Malcolm RyerseDirector, Responsible
Investment,
Columbia Threadneedle
Investments
Agenda For Today’s Webinar
• The SASB Perspective
(8 minutes)
• The Corporate Reporting and Regulatory Landscape
(8 minutes)
• The Investor Perspective
(15 minutes)
• Panel Discussion and Q&A
(30 minutes)
Learning Objectives:
• Gain a broader understanding of why investors care about ESG info and how
investors use the information.
• Learn about the current regulatory environment as it relates to corporate reporting
on sustainability issues.
• Understand the landscape and state of disclosure for climate-related risks.
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Polling Question #1
What is your role?
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Investors Care about SustainabilityA rapidly increasing share of global assets are managed with ESG issues in mind
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Initiative AUM (US $)
PRI $59 trillion
CDP $95 trillion
International
Corporate
Governance
Network
$26 trillion
Investor
Network on
Climate Risk
$15 trillion
Key sustainability-related
investor initiatives and
Assets Under Management:
Trends in U.S. Sustainable, Responsible, & Impact Investing 2005-2016
Adapted from US SIF Foundation
Today, 1 out of every 5 dollars under professional management in
U.S. managed under sustainable and responsible investment strategies.
© SASB
The SASB DifferenceSASB standards are created for the market, by the market
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Evaluation of the Materiality of Sustainability Issues in Each IndustrySASB’s research and prioritization starts with a broad set of sustainability issues
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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
• Diversity and inclusion
• Employee health, safety, and
wellbeing
• 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
Business model and innovation
Social capital
Human capital
Leadership and
governance
Environment
UNIVERSE OF SUSTAINABILITY
ISSUES
© SASB
UNIVERSE OF
ESG ISSUESSUSTAINABILITY
ISSUES
Industry Research
Industry Working Groups
Evidence VettingStandards Council
Sub-Committee on Metrics Quality
Public Comment
Final Revisions
Provisional Standard
Average of
5 topics and 13 metrics
Standards
maintenance
Ongoing
Rigorous Process Drives SASB StandardsStandards for each industry are rooted in evidence and shaped by market input
2800 Market Participants
Evidence of Financial Impacts
90 days
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Industry-
specific
disclosure
topics
Technical protocol for
compiling data; activity
metrics for normalization
Accounting metrics for
each disclosure topic
Robust Standards Designed to Provide Decision-Useful InformationSASB standards contain industry-specific disclosure topics, metrics, and guidance
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SASB Materiality MapA first view of exposure to material sustainability risks across a diversified portfolio
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Complementary EffortsMandatory and voluntary reporting serve different purposes for different audiences
Material Information
Sustainability factors likely to
affect the financial condition or
operating performance of a
company
Relevant Information
All environmental, social, and
governance topics of interest
Investors
All
Stakeholders
Alignment is key (e.g., consistent approach to determining and disclosing “material”
information, presentation of results)
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10-K or
20-F
© SASB
Polling Question #2
How would you characterize your sustainability disclosures?
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The Corporate Reporting
and Regulatory Landscape
The Pain Point for InvestorsInvestors lack tools needed to integrate sustainability into investment decisions
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Source: PwC, ESG Pulse 2016, October 2016. Base: 28
Issuer ReportingInvestor Needs
vs.
29%
Issuer confidence in the quality
of the ESG information reported
Investor confidence in the quality of the
ESG information received from issuers
100%
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 57%
82%
79%
74%
68%
High degree of investor dissatisfaction with the current state of ESG disclosure
Source: PwC, Sustainability Goes Mainstream, May 2014
% Investors Dissatisfied
© SASB
Reporting Burden for CompaniesMultiple ESG questionnaires consume corporate resources and provide little value
A market standard could
reduce the burden and
risk of selective disclosure.
• Large-cap companies receive hundreds of
information requests each year, leading to
“questionnaire fatigue” and information
asymmetry.
• On a 2016 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
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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
US GAAP governs
presentation of the
financials
Designed for Integration into Mandatory Public FilingsAn integrated reporting environment without regulation
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Definition of Materiality from an Investor’s PerspectiveSASB is guided by U.S. securities law in identifying disclosure topics
MD&A Disclosure Rules
• Item 303 of Reg SK requires disclosure of certain known trends and uncertainties
• Companies must evaluate:
Likelihood of occurrence
Effect on a company’s financial condition or results of operations
US Supreme Court Definition
“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)
2
1
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Current State of DisclosureOpportunity to transform disclosure from boilerplate to metrics-based
Source: SASB Annual State of Disclosure Report 2016
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STATE OF DISCLOSURE IN SEC FILINGS
19 © SASB
4,300+ public filings
Analyze disclosure quality
Benchmark disclosure against
industry peers
Access disclosures on SASB topics
Demo available at
navigator.sasb.org
Tools for InvestorsDisclosure Intelligence tool in the SASB Navigator provides insight into disclosure
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Polling Question #3
Do your investors ask you about the impact of environmental, social and governance
factors on your business?
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SASB Standards –
Use by Investors
Institutional Investor Support for Improved ESG Disclosure SASB’s Investor Advisory Group
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IAG members:
Encourage companies to disclose material and decision-useful ESG information to investors
Believe standards would improve the quality and comparability of sustainability-related
information
Believe SASB’s approach—which is industry-specific and materiality-focused —will help
provide investors with relevant and decision-useful information
Agree to participate in SASB’s ongoing standards development process, so that outcomes
best reflect investor needs
Agree to encourage companies to participate in SASB’s ongoing standards development
process, so that outcomes reflect both issuer and investor viewpoints
Believe that SASB standards can inform integration of sustainability factors into investment
and/or stewardship processes, such as corporate engagement and proxy voting
The SASB Investor Advisory Group (IAG) comprises leading asset owners and asset
managers who recognize the need for consistent, comparable and reliable disclosure
of material, decision-useful ESG information.
SASB Investor Advisory GroupIAG Statement
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Rakhi KumarHead of ESG Investments and Asset Stewardship, State Street Global Advisors
Malcolm RyerseDirector, Responsible Investment, Columbia Threadneedle Investments
What is the biggest obstacle to achieving a greater level of
sustainability disclosure to your investors in your organization?
Polling Question #4
Your Panelists
Janine Guillot Director of Capital
Markets Policy and
Outreach, SASB
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Rakhi KumarHead of ESG
Investments and
Asset Stewardship,
State Street Global
Advisors
Malcolm RyerseDirector, Responsible
Investment,
Columbia Threadneedle
Investments
Robert HerzFormer Chairman,
FASB.
Board Member of
SASB, Workiva,
Fannie Mae, Morgan
Stanley