Sustainability Reporting in a Changing World

Jeffrey Hales, PhD

Chair of the SASB Standards Board

Sustainability Accounting International Seminar

January 27, 2020

© SASB
Business and Sustainability

Businesses operate in a world that is facing unprecedented

risks. These risks cover a wide range of issues and are
interrelated.

Consider the following…

What Science Tells Us

https://climate.nasa.gov/evidence/
Climate Effects are Highly Interrelated
US Fourth National Climate Assessment

4
Extreme Weather Events
Increased likelihood of “100-year” hurricanes

5 © SASB™
 Hot, Humid, and More
Not all regions face the same risk profiles

6 Patterns of Expected Change

6 © SASB™
Climate Risk Among Top Global Risks
For third consecutive year in WEF survey

CLIMATE-RELATED RISKS:

• Three of the top

five global risks –
both in terms of
likelihood and impact

• Highly inter-related
with other risks,
such as food and
water security, social
instability, and
involuntary
migration.

Source: World Economic Forum, The Global Risks Report 2019, 14th Edition
Tackling Big, Important Problems
Competing Views on the Social Responsibility of Business

Neoclassical Economics
 ―The social responsibility of business is to increase its profits.‖

- Milton Friedman

Sustainable Development
 ―Sustainability development is development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.‖
- Our Common Future (WCED 1987)
Evolution in the Social Responsibility of Business

Aug 2019 Statement

―While each of our individual companies serves its own corporate purpose, we share a
fundamental commitment to all of our stakeholders. We commit to:
• Delivering value to our customers.
• Investing in our employees.
• Dealing fairly and ethically with our suppliers.
• Supporting the communities in which we work.
• Generating long-term value for shareholders

―Each of our stakeholders is essential. We commit to deliver value to all of them, for the
future success of our companies, our communities and our country.‖

Most of the BR CEOs signed…

Some of the 181 CEOs Who Signed

And many more…

Evolution in the Social Responsibility of Business

Aug 2019 Statement

―While each of our individual companies serves its own corporate purpose, we share a
fundamental commitment to all of our stakeholders. We commit to:
• Delivering value to our customers.
• Investing in our employees.
• Dealing fairly and ethically with our suppliers.
• Supporting the communities in which we work.
• Generating long-term value for shareholders

―Each of our stakeholders is essential. We commit to deliver value to all of them, for the
future success of our companies, our communities and our country.‖

Is their statement inconsistent with the neoclassical perspective?

Measuring What Matters
Trends in Reporting

Sustainability reporting is voluntary in some parts of the

world, but it is increasingly seen as standard practice
everywhere.
Sustainability Reporting Has Become Commonplace
Sustainability Reporting Continues to Increase
Most major companies report

S&P 500 Companies Sustainability Reporting

Source: Governance & Accountability Institute Inc. 2018 Research

Pain Points for the Capital Markets

Company Reporting vs. Investor Needs

Company confidence in the quality Investor confidence in the quality of ESG
of ESG information reported information received from companies
100% 29%
Source: PwC, ESG Pulse, 2016.

Why?
It could be because sustainability
reporting tends to look like this… …but most investors consume
information like this…
Standards and the ESG Ecosystem

Corporate reporting is a complicated, interrelated

disclosure ecosystem. Reporting standards play an
integral part by improving rigor and comparability.
Information Links in the Investment Chain
Traditional ESG reporting was not developed with this chain in mind

19 © SASB™
SASB’s Value Proposition

SASB standards are designed to meet investors’ need

for relevant and comparable ESG information.
The SASB Approach to Financial Materiality
Standards targeted to the needs of investors for financially relevant ESG information

SASB Standards

Identify ESG factors reasonably likely to affect the

financial condition or operating performance
of companies within an industry

REQUIRE Evidence of Investor Interest AND Evidence of Financial Impact

The SASB Difference
SASB standards are created for the market, by the market

Financially Material

The Goal Decision-Useful

Cost-Effective

Industry-Specific

Evidence-Based The Path

Market-Informed
Evaluation of Materiality of Sustainability Issues in Each Industry
SASB’s research process starts with a broad universe of sustainability issues

Environment Social Capital

• GHG Emissions • Human Rights &
• Air Quality Environment Social Community Relations
Capital
• Energy Management • Customer Privacy
• Water & Wastewater • Data Security
Management • Access & Affordability
• Waste & Hazardous UNIVERSE OF
• Product Quality & Safety
Materials Management SUSTAINABILITY
Leadership ISSUES Human • Customer Welfare
• Ecological Impacts &
Capital
Governance • Selling Practices &
Product Labeling

Leadership &
Business Model
Governance & Innovation Human Capital
• Business Ethics • Labor Practices
• Competitive Behavior • Employee Health &
• Management of the Legal & Safety
Regulatory Environment • Employee Engagement,
• Product Design & Lifecycle Management
• Critical Incident Risk Diversity & Inclusion
Management • Business Model Resilience

• Systemic Risk Management • Supply Chain Management

• Materials Sourcing & Efficiency
• Physical Impacts of Climate Change
Industries Grouped by Resource Intensity & Sustainability Impacts
Sustainable Industry Classification System (SICS®): 77 industries within 11 sectors
Consumer Goods Food & Beverage Resource Transformation
 Apparel, Accessories & Footwear  Agricultural Products  Aerospace & Defense
 Appliance Manufacturing  Alcoholic Beverages  Chemicals
 Building Products & Furnishings  Food Retailers & Distributors  Containers & Packaging
 E-Commerce  Meat, Poultry & Dairy  Electrical & Electronic Equipment
 Household & Personal Products  Non-Alcoholic Beverages  Industrial Machinery & Goods
 Multiline and Specialty Retailers &  Processed Foods
Distributors  Restaurants Services
 Toys & Sporting Goods  Tobacco  Advertising & Marketing
 Casinos & Gaming
Extractives & Minerals Processing Health Care  Education
 Coal Operations  Biotechnology & Pharmaceuticals  Hotels & Lodging
 Construction Materials  Drug Retailers  Leisure Facilities
 Iron & Steel Producers  Health Care Delivery  Media & Entertainment
 Metals & Mining  Health Care Distributors  Professional & Commercial Services
 Oil & Gas - Exploration & Production  Managed Care
 Oil & Gas - Midstream  Medical Equipment & Supplies Technology & Communications
 Oil & Gas - Refining & Marketing  Electronic Manufacturing Services &
 Oil & Gas – Services Infrastructure Original Design Manufacturing
 Electric Utilities & Power Generators  Hardware
Financials  Engineering & Construction Services  Internet Media & Services
 Asset Management & Custody  Gas Utilities & Distributors  Semiconductors
Activities  Home Builders  Software & IT Services
 Commercial Banks  Real Estate  Telecommunication Services
 Consumer Finance  Real Estate Services
 Insurance  Waste Management Transportation
 Investment Banking & Brokerage  Water Utilities & Services  Air Freight & Logistics
 Mortgage Finance  Airlines
 Security & Commodity Exchanges Renewable Resources &  Auto Parts
Alternative Energy  Automobiles
 Biofuels  Car Rental & Leasing
 Forestry Management  Cruise Lines
 Fuel Cells & Industrial Batteries  Marine Transportation
 Pulp & Paper Products  Rail Transportation
 Solar Technology & Project Developers  Road Transportation
 Wind Technology & Project Developers
SASB Materiality Map
Sustainability issues likely to be financially material in each industry

25 © SASB™
 Accounting metrics
Industry- Technical protocol
specific for compiling data
disclosure
topic

Activity metrics
for normalization

28 © SASB
Efficient and Cost-Effective Disclosures
SASB provides a cost-effective way to report on material sustainability topics

SASB standards average 6 topics SASB metrics are aligned with

and 13 metrics (74 percent over 200 existing frameworks,
quantitative) per industry. regulations, and certifications.

Biotechnology & Pharmaceuticals Industry

Market Support for SASB

Market support for SASB has grown through formal and

informal relationships.
SASB Governance, Membership and Advisory Bodies
Governing Bodies

The SASB Foundation Board of Directors

ROLE Responsible for governance of

Appointments
The Sustainability Accounting
the organization (fiduciary duty),
funding
Standards Board

COMPOSITION Up to 21 Directors Oversight/Appeals ROLE Responsible for standards

content and process, technical
7 Board Committees agenda, standards approval

COMPOSITION 5-9 policy and markets experts

Membership and Advisory Bodies

SASB Alliance Investor Advisory Group (IAG) Standards Advisory Group (SAG)

SASB’s membership Leading investors who publicly SAG to advise Standards Board on
organization: provides support improved ESG disclosure standards content
education and resources to
members for an annual fee  48 global asset owners and  Diverse industry experts representing
asset managers companies, investors and other
 Corporate, investor and  Engage with companies to
stakeholders
individual members support material ESG  Advise on implementation and emerging
 Explore ESG best practices disclosures issues for Standards development
 Member events and  Advise on SASB strategy as
networking needed
 Institutional Investors Supporting Improved ESG Disclosure
SASB’s Investor Advisory Group includes investors with over USD 33 trillion in assets

Asset Owner IAG Members

32
 Institutional Investors Supporting Improved ESG Disclosure
SASB’s Investor Advisory Group includes investors with over USD 33 trillion in assets

Asset Manager IAG Members

33
SASB Governance, Membership and Advisory Bodies
Governing Bodies

The SASB Foundation Board of Directors

ROLE Responsible for governance of

Appointments
The Sustainability Accounting
the organization (fiduciary duty),
funding
Standards Board

COMPOSITION Up to 21 Directors Oversight/Appeals ROLE Responsible for standards

content and process, technical
7 Board Committees agenda, standards approval

COMPOSITION 5-9 policy and markets experts

Membership and Advisory Bodies

SASB Alliance Investor Advisory Group (IAG) Standards Advisory Group (SAG)

SASB’s membership Leading investors who publicly SAG to advise Standards Board on
organization: provides support improved ESG disclosure standards content
education and resources to
members for an annual fee  48 global asset owners and  Diverse industry experts representing
asset managers companies, investors and other
 Corporate, investor and  Engage with companies to
stakeholders
individual members support material ESG  Advise on implementation and emerging
 Explore ESG best practices disclosures issues for Standards development
 Member events and  Advise on SASB strategy as
networking needed
Standards Advisory Group
SASB holds regular meetings and engagements with SAG members

SASB has created the Standards Advisory Group that comprises volunteer industry experts from leading companies, investors, and third-
party experts. These individuals will provide feedback to SASB on issues that should be considered in the standards maintenance
process.

Members include the following individuals:

SAG Member Highlights
Associate General Counsel, Global Corporate, M&A and Securities and
Corporate 14% Deputy Corporate Secretary, Uber Technologies
Manager ESG Communication Group, Tokyo Electric Power Company
Investor Holdings, Inc.
Head of Finance- Group Projects & Transformation, Tesco
Subject Matter
Expert
Director, Responsible Investment, Alberta Investment Management
Corporation
24% Director, Investor Relations, LyondellBasell
Global Lead Integrated Reporting Novo Nordisk
VP Technical Accounting & SEC Reporting Salesforce
Senior Analyst and Portfolio Manager, Schroders
61% Partner, Capital Group
Head of Accounting Policy, Bank of America
176 members, representing a broad range of ESG Manager, Public Investment Corporation
industries, and 23 countries. 36% represent
Materiality and Stakeholder Engagement Lead, Target
companies domiciled outside the US.
Overview of 2019 SAG Activities
SAG members provided invaluable feedback and perspectives

• Investor Perspectives on ESG Data and Analysis

Webinars + • Project-based Approach for Standards Update
Web Panel • Financials Sector - Implementation Challenges and
Discussions Practical Solutions
• Extractives - Navigating Implementation and Investor
Perspectives on ESG Data

• SAG Member Survey and Follow-up Conversations

Feedback + • Implementation Primer Feedback
Surveys • TCFD Implementation Guide Feedback
• Corporate Sustainability Reporting and ESG Disclosure Survey
• Metric Data Collection Activity

• SF + NYC Networking Happy Hours

Networking +
• Individual and Small Group Briefings on
Group/1-on-1
Elements of the SASB Standards
Conversations
• SAG Workshop

36
Market Use of SASB

After launching the standards in Nov 2018, SASB saw a

significant increase in market support and use in 2019.
Global Interest in SASB Standards

>300,000
STANDARDS
DOWNLOADS Canada
by
6%
>27,000 Europe
USERS United States
in 49% 24%

>160
COUNTRIES
Asia Pacific
Middle East
& Africa 16%
2%
Latin America &
the Caribbean
4%

Updated October 2019

 Significant Growth in SASB References in Disclosures
SASB’s Materiality Map is commonly used for materiality assessments

Growth in Number of SASB References by Region

Middle East & Africa SASB References YTD 2019

Latin America & Caribbean

Asia Pacific

US Non-US
Europe

North America

TYPES OF REFERENCES 2019

63%
Non-US 60% Materiality Assessments
21% Metrics Reporting
14% General Reference
 More than 1200 references since 2017 5% Participation
 More than 500 references in 2019

39
Increasing Signs of Corporate Adoption See the disclosures and more:
sasb.org/company-use
Sampling of SASB disclosures in “public reports”

* Reports published between 2015 and 2019; Includes partial use of standards
Firms Make SASB Disclosures through Various Reporting Channels
Location is less important than information quality
Regulatory Filing

SASB Report Integrated Report

Sustainability Report
41 © SASB
Significant Growth in SASB Reporters
A shift towards disclosure of industry-specific ESG data in mainstream reports

After codifying the

standards in late 2018,
nearly 200% increase in
reporters in 2019

36%
Outside
U.S.

1st 4 Years Now

6% Regulatory Filings 12% Regulatory Filings
13% Annual Reports, Other 27% Annual Reports, Other
81% CSR Reports 61% CSR Reports
What about investor use?

Investors are not a monolith. Different investment

strategies require different types of information.

Consider the following…

Different Strategies May Require Different Information

44 1/27/2020 © SASB™
Examples of How Different Types of Investors Use SASB

• The ESG Integration Insights series now includes 18 investor-written case studies in
three compilations, demonstrating how investors use SASB standards across multiple
asset classes.

45
SASB’s Role in the Reporting Ecosystem

SASB standards are rapidly becoming a key piece of

market infrastructure to enable integration of ESG
factors into investment and voting decisions.

Consider the following…

Licensing: Integrating SASB IP into Market Infrastructure

Disclosure standards are

necessary, but not sufficient
We’re working to get the standards into
systems and analytics to ensure that
information disclosed is also used

Analytics

Decision
-making

Disclosure
Integrating SASB IP into Market Infrastructure
SASB standards provide a structured framework to report, filter, and analyze sustainability data.

Corporate Reporting Data and Ratings

Software Firms

Report data Analyze data

Companies Investors
Public Domain

Proxy Advisors
With SEC & EU mandating iXBRL based reporting, we are exploring ways
SASB’s taxonomy can slide into GAAP & IFRS taxonomy to enable users to
automate data capture and analysis.
Growing use of SASB in Products

Asset Managers and Asset Owners Software Platforms

 Public Equity & Corporate Credit  Portfolio Reporting Software
- Bottoms up security analysis  Corporate Reporting Software
- Developing custom ESG scoring in conjunction with 3rd party Analytics Providers
raters
 Unstructured Data
- Top down Sector Allocation & Risk Management
 Country Risk
 Private Equity & Hedge Funds
 Reputational Risk
- Due Diligence
Proxy Voting
- LP Reporting & Marketing

Licensees
 65 entities
 42% domiciled outside the US (15 countries)

49
Examples of SASB Use and Integration

Integrated SASB into Product

Materiality
Comparison of Truvalue Labs Data Volume by SASB Sector (2009)

51 1/27/2020 © SASB™
Use of SASB in Market Indices

• SASB contributes the industry standards, but SASB does not rate company performance
on the standards. Rating, ranking, and scoring is the role of licensees.
• SASB works with multiple providers, each of which makes its own judgments about applying
the standards in investment decisions.
• SASB encourages licensees to build products based on company performance – not
transparency alone.

52 1/27/2020 © SASB™
UN Sustainable Stock Exchanges Initiative
UN SSE progress, 2015-19, and the range of intervention on ESG

53 © SASB™
Use of SASB in Stock Exchange Guidance

50%
of global stock
exchanges which have
publicly released ESG
disclosure guidance for
their publicly listed
companies reference
SASB as a resource,
along with other
frameworks, for
reporting companies
The Capital Markets as a Driver of Change

55 © SASB™
Alignment and Complementarities in Reporting

Existing reporting standards grew out of specific market

needs and serve important, complementary roles.

Consider the following…

Different Guidance for Different Purposes

Disclosure of
Disclosure of ESG Information
Financial Information

Climate-specific
Investor-
Oriented
• Public equities
• Fixed income
• Private equity

Stakeholder-
Oriented
Above plus…
• Employees
• Customers
• Suppliers
• Governments
Taskforce for Climate-Related Financial Disclosure
Convened by the UK Financial Stability Board, formally endorsed in 2017

Source: TCFD 2019 Status Report

 SASB Enables Robust TCFD Implementation
Industry-specific metrics and targets provide actionable information on climate risk

Governance

Strategy

Risk
Management

Metrics
& Targets

Metrics and targets

SASB metrics are are critical to more
among the frequently effective governance,
referenced tools strategy, and risk
cited by TCFD for management – the
implementing TCFD “outer layers” of the
Recommendations. TCFD ”onion”.

59 © SASB
Best Practices from Leading Companies
SASB.org provides resources, guidance for companies

TECHNICAL GUIDES

CASE STUDIES

WEBINARS

© SASB

60 1/27/2020 © SASB™
A Call for SASB and TCFD Reporting in 2020

61 © SASB™
Different Guidance for Different Purposes

Disclosure of
Disclosure of ESG Information
Financial Information

Climate-specific
Investor-
Oriented
• Public equities
• Fixed income
• Private equity

Stakeholder-
Oriented
Above plus…
• Employees
• Customers
• Suppliers
• Governments
 GRI and SASB: Complementary Efforts
Target sustainability information to specific audiences for specific purposes

Relevant Information Financially Material Data

All environmental, social, Sustainability factors reasonably
and governance topics of likely to affect the financial
interest to a wide range of condition or operating
stakeholders performance of a company

Sustainability Investor
Report Communications

Broadest Range Investors

of Stakeholders
63 © SASB
Accounting for Sustainable Business
The <IR> Framework and SASB Standards are complementary
SASB provides KPIs at the industry level, helping provide investors with the comparability on ESG information
they seek

6 CAPITALS

5 SASB SUSTAINABILITY DIMENSIONS

26 GENERAL SUSTAINABILITY ISSUES

Containing 400+ Industry-Specific* Disclosure Topics and related metrics

SASB standards enable robust integrated reporting, providing comparability sought by investors.

© SASB Discussion
UN Sustainable Development Goals
Role of the Capital Markets in Addressing the SDGs

― When capital market signals align with public

policy goals on sustainable development,
gains for one can catalyze gains for all.
‖
Mary Schapiro, Former SEC Chair, 2018

• Capital markets can play a significant role in achieving the SDGs.

• Given the scale and urgency of many of the challenges embedded

in the goals, private-sector capital will be essential to transform
global ambition into global action.
Theory of Change
Mobilizing capital at this scale requires alignment of business and investor interests

COMPANIES
Allocate capital and resources to
SDG’s that are aligned with business
strategy and financial goals

INSTITUTIONAL INVESTORS
Finance SDG-related activities
that are aligned with investment
strategy and return targets
SDG Reporting is an Emerging Practice

 No standards and little guidance at the moment.

SASB standards: An industry-specific, financially relevant lens on the SDGs
Offer companies and investors a tool for decision-making on the SDGs

Investors
• Identify financially relevant SDG targets by industry
• Inform engagements with companies regarding the
links between specific SDGs and financial
performance
• Inform allocation of capital to industries based on
potential to impact specific SDG targets

Companies

• Identify financially relevant SDG targets by industry

• Prioritize activities to address the SDGs that are
aligned with industry-specific drivers of value
• Gather decision-useful performance information on
company-specific activities related to key SDGs
Existing Efforts to Link SASB with the SDGs
Research and Guides to help Investors understand the link between SASB & SDGs

In The Relationship Between Investor Materiality

and the Sustainable Development Goals,
academic researchers found SASB’s approach
enables investors to contribute to the SDGs
without harming their financial returns

In Investing with the Sustainable Development Goals,

TruValue Labs demonstrates how SASB standards
can be applied to track progress on the SDGs

Asset manager Calvert explained how its own

analysis found 71% of SASB’s performance metrics
map to the SDGs and their related targets
Mapping SDGs to SASB GICs

72 © SASB™
Standards Development and Maintenance

SASB standards were developed over a six-year period

with extensive research, outreach, and public comment.
Market Feedback was Essential for Standards Development

120

79 2018

2012

159 consultations with 141 companies

271 consultations with 38 institutional investors
212 19 consultations with industry associations

SASB’s due process has evolved with each new stage of

standards development.

74 © SASB™
SASB Governance, Membership and Advisory Bodies
Governing Bodies

The SASB Foundation Board of Directors

ROLE Responsible for governance of

Appointments
The Sustainability Accounting
the organization (fiduciary duty),
funding
Standards Board

COMPOSITION Up to 21 Directors Oversight/Appeals ROLE Responsible for standards

content and process, technical
7 Board Committees agenda, standards approval

COMPOSITION 5-9 policy and markets experts

Membership and Advisory Bodies

SASB Alliance Investor Advisory Group (IAG) Standards Advisory Group (SAG)

SASB’s membership Leading investors who publicly SAG to advise Standards Board on
organization: provides support improved ESG disclosure standards content
education and resources to
members for an annual fee  48 global asset owners and  Diverse industry experts representing
asset managers companies, investors and other
 Corporate, investor and  Engage with companies to
stakeholders
individual members support material ESG  Advise on implementation and emerging
 Explore ESG best practices disclosures issues for Standards development
 Member events and  Advise on SASB strategy as
networking needed
The Sustainability Accounting Standards Board
Independent board responsible for all aspects of standards setting

Jeffrey Hales, PhD

Chair
Professor, University of Texas at Austin
Sector Chair for Financials and for Renewable Resources & Alternative Energy

Verity Chegar Robert Hirth, Jr.

Co-Vice Chair Co-Vice Chair
Director, BlackRock Sustainable Investing Senior Managing Director, Protiviti
Sector Chair for Extractives & Minerals Processing Chairman Emeritus, COSO
Sector Chair for Technology & Communications

Kurt Kuehn Elizabeth Seeger

Former CFO, UPS Director, Sustainable Investing, KKR
Sector Chair for Transportation and for Infrastructure Sector Chair for Consumer Goods

Lloyd Kurtz, CFA Marc Siegel

Senior Portfolio Manager, Head of Social Impact Investing, Partner, EY
Wells Fargo Private Bank Sector Chair for Resource Transformation
Sector Chair for Health Care
Stephanie Tang, JD
Daniel L. Goelzer, JD Director of Legal, Corporate Securities, Stitch Fix
Retired Partner, Baker & McKenzie LLP Sector Chair for Food & Beverage
Sector Chair for Services

76 © SASB™
SASB’s Agenda

Effective and efficient reporting standards need to be

responsive to market feedback in a dynamic world.
Market Feedback Remains Essential
Decision Usefulness and Cost Effectiveness in a Changing World

Key aspect of the current stage is effective identification and

prioritization.

78
 Criteria for Standard-Setting Prioritization

Mission alignment Scope/prevalence

‣ Is there an opportunity to ‣ Is the issue pervasive,
significantly improve including scope of industries
communication by companies or geographies impacted.
to investors of decision-useful
sustainability information

Capacity
Feasibility ‣ Does Staff (and the Board)
have sufficient capacity to
‣ What is the likelihood that formally address the issue;
there would be a proposed and does the issue warrant
solution to put to the Board in prioritization of resources
a timely fashion. over alternatives.

79
Standards Enhancement Projects Underway
Seven projects were approved in the Q3 and Q4 2019 Board meetings

 Conceptual Framework
• Clarify and strengthen the core principles and concepts that govern SASB’s Standards.

 Rules of Procedure
• Ensure that the operations and Standard-setting processes detailed in the document reflect SASB’s procedures today

 Human Capital
• Assess the scope and prevalence of various human capital management themes across SASB’s industries to develop a solid evidenced-
based view on this cross-cutting theme.

 Content Moderation on Internet Platforms

• Evaluate technology companies’ management of user-generated content, advertisements, and other third-party content to assess
implications related to social capital.

 Plastics Risks and Opportunities (Pulp & Paper, & Chemicals Industries)
• Assess investor interest in risks and opportunities associated with plastics use in the two industries.

 Systemic Risk in Asset Management

• Evaluate the Systemic Risk Management topic in the Asset Management & Custody Activities industry standard, including scope and
accounting metrics

 Tailing Management in Extractives

• Evaluate the issue of tailings facility management in the Metals & Mining and Coal Operations industry standards, including scope and
accounting metrics
80
 Human Capital
Strong Signals of Market Interest & Engagement

Key shifts in market prioritization

Fundamental • Human Capital Management Coalition
shifts in (HCMC) rulemaking petition to the SEC
market • SEC Modernization of Regulation S-K
perspective
prioritizing
Rulemaking Proposal
HCM issues • 2019 Business Roundtable

Milestone regulatory/policy action

• ISO 30414
• ShareAction Workforce Disclosure Initiative Strong
• EU Commission Directive 2014/95/EU signals of
• 2015 UK Modern Slavery Act market SASB Market Feedback
• California Gig Economy Bill (AB-5)1 • External market feedback on HCM
interest & • IAG: Polled as #1 ranked priority issue
engagement • SAG: Reoccurring theme in recent SAG
survey
Increasing SASB
regulation and feedback
policy globally network

1 Passed California State Senate on September 10, 2019

81
Human Capital Management
Second most frequently occurring issue in the SASB Standards

Industries
• Out of 77 industry standards contain HCM topics
48
48 • Top Industries: Coal Operations, Oil & Gas – E/P; Metals & Mining

HCM-Related Disclosure Topics

125 125topics
• Out of 421 topics across all industries are HCM
• Examples: Recruiting & managing a global, diverse & skilled workforce; Health & safety; Labor conditions in the
supply chain; Employee diversity & inclusion

• Health & Safety, Supply Chain Management, Diversity & Inclusion, Labor Practices
Industry-specific HCM Metrics
• Out of 1,198 metrics across all industries are 143
HCM metrics
143 • Examples: Number of workers/contract workers; Incidence rate; Ethnic/gender diversity; Employee turnover; Employee engagement;
Percentage under collective bargaining

82 © SASB™
Preliminary Gap Analysis
Developing a Framework Focused on Financial Materiality

83 1Human capital categories based on July 2017 HCMC Rulemaking Proposal to the SEC © SASB™
 Human Capital Management
Framework

Human Capital Issues

Financial Materiality
Investor Interest | Financial Impact

Expected Timeline: ~18 months

84 © SASB™
All active projects are posted to the SASB website
Ensuring public transparency of standards-setting process
Stay Informed and Engaged

Comment anytime – especially during public comment periods.

86 © SASB™
87 1/27/2020 © 2014 SASB™ CONFIDENTIAL & PROPRIETARY
European Union
European Commission’s NFR Directive

Directive 2014/95/EU (issued in 06/2017*)

 firms are required to produce a non-financial report
- must cover environmental, social/employee matters, human rights, anticorruption
- business model, policies for the above, outcomes of policies, principal risks, KPIs
- can rely on a national, EU, or international framework
 member states required to do rulemaking to enact provisions
- effective for companies as of 2018
- audit requirement is for an ―existence check‖ (member states can require more)
 applies ―large undertakings‖, public and private
- estimated to apply to the ~6,000 firms which have 500 plus employees

*New EU Commission is expected to reopen the NFR Directive.

88 © SASB
United States
Recent developments on the US landscape

Congress
 Hearings in the House on ESG disclosure and Senate on climate change disclosure
 H.R. 4329, the ESG Disclosure Simplification Act of 2019
- would require public companies to disclose ESG metrics and the impact they have
on long-term business strategy
- would also create a Sustainable Finance Advisory Committee at the SEC
- passed in committee

SEC
 Proposed update to Regulation S-K, including Item 101(c)
- include as a disclosure topic human capital resources and ―any human capital
measures or objectives that management focuses on in managing the business‖ if
―material to an understanding of the registrant’s business.‖
- may include ―attraction, development, and retention of personnel‖, depending on
nature of business and workforce.
 Two commissioners issued a statement suggesting that the proposals did not go far
enough

89 © SASB
Current State in the US

Current Regulatory Requirements

Regulation S-K, Item 303 (Management Discussion and Analysis)
• Issuers are required to disclose…
“any known trends or uncertainties that have had or that the [issuer] reasonably
expects will have a material favorable or unfavorable impact on net sales or
revenues or income from continuing operations” (emphasis added)
• Disclosure duty exists ―a trend, demand, commitment, event or uncertainty is both presently known to
management and reasonably likely to have material effects on the registrant’s financial condition or
results of operation‖

 Does this include ESG / CSR types of sustainability issues?

90
SEC’s Interpretative Guidance

In 2010, then SEC Chair, Mary Schapiro, said:

―[T]he Commission is not making any kind of statement regarding the facts as they relate to the
topic of ―climate change‖ or ―global warming.‖ And, we are not opining on whether the world’s
climate is changing; at what pace it might be changing; or due to what causes...
The Commission is also not considering amending well-defined rules concerning public company
reporting obligations, nor redefining long-standing interpretations of materiality…
If something has a material impact on a company then it is something that needs to be disclosed —
that has always been the case.‖ (emphasis in the original)

The SEC’s highlighted the following areas as examples of where climate

change may trigger disclosure requirements:
 impact of legislation and regulation
 impact of international accords
 indirect consequences of regulation or business trends
91
 physical impacts of climate change
High Level Statistics
EM0101-01
EM0101-02
Climate change, EM0101-03
water consumption

EM0101-15
EM0101-16

EM0101-04

EM0101-17
EM0101-18
EM0101-19

EM0101-05
EM0101-06

1 EM0101-09
EM0101-10
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Systemic Risk Management
Accident and Safety Management 1 1 1 1 1
Leadership and
Governance

Business Ethics and Transparency of Payments 1 1 1

Competitive Behavior 1 1 1
Regulatory Capture and Political Influence C C C
Materials Sourcing C
Supply Chain Management 1
5
Energy Management in the Mining Industry

Emissions (CO2e)
Energy (BTU)

Energy (kJ)
Produced Copper (kg) Overburden Extracted (tons) Aluminum Smelted (pounds)
Fuel Consumed (kg)

Grid Energy (MW)

Energy (MWh)
Renewable

Gold Extracted (tonnes) Revenue ($) Ore Extracted (kg)

6
Energy Management in the Mining Industry

Consumed (MWh)

Consumed (MWh)
Consumed (MWh)

Energy

Energy
Energy

Ore Extracted (tonnes) Ore Extracted (tonnes) Ore Extracted (tonnes)

Consumed (MWh)

Consumed (MWh)
Consumed (MWh)

Energy

Energy
Energy

Ore Extracted (tonnes) Ore Extracted (tonnes) Ore Extracted (tonnes)

7
Energy Management in the Mining Industry

Consumed (MWh)

Consumed (MWh)
Consumed (MWh)

Energy

Energy
Energy

Ore Extracted (tonnes) Ore Extracted (tonnes) Ore Extracted (tonnes)

Consumed (MWh)

Consumed (MWh)
Consumed (MWh)

Energy

Energy
Energy

Ore Extracted (tonnes) Ore Extracted (tonnes) Ore Extracted (tonnes)