ESG Roadmap: Observations and practical advice for boards, corporate secretaries and governance professionals.

ESG ROADMAP:
OBSERVATIONS AND
PRACTICAL ADVICE FOR BOARDS,
CORPORATE SECRETARIES AND
GOVERNANCE PROFESSIONALS
Society for Corporate Governance
and
BrownFlynn
June 2018

Acknowledgments
This report was funded through a sub-grant from Ceres. Ceres is a sustainability nonprofit organization
working with the most influential investors and companies to build leadership and drive solutions
throughout the economy. Learn more at www.ceres.org.
This project is generously funded by the Gordon and Betty Moore Foundation. This report is funded by a
collaboration established by the Gordon and Betty Moore Foundation among Ceres, World Business
Council for Sustainable Development, and the World Wildlife Fund, designed to reinforce corporate
commitments to eliminate specific practices broadly recognized as problematic; and put in place systemic
changes that will incent companies to be more proactive in addressing natural resource
risks/opportunities. The Gordon and Betty Moore Foundation fosters path-breaking scientific discovery,
environmental conservation, patient care improvements and preservation of the special character of the
Bay Area. For more information, please visit www.Moore.org or follow @MooreFound.
The report was co-authored by the Society for Corporate Governance and BrownFlynn, an ERM Group
Company. Report authors include Granville Martin, SVP & GC, at the Society for Corporate Governance,
and Margie Flynn, Senior Partner & Co-Founder, Mike Wallace, Partner, Sarah Corrigan, Senior
Consultant, and Katie Osborn, Analyst, at BrownFlynn. All views expressed in the brief are the
responsibility of the authors.
The Society and BrownFlynn would like to express our sincere appreciation for the contributions of Veena
Ramani and Hannah Saltman of Ceres, Yafit Cohn of The Travelers Companies, Inc. and Beth Ising and
Maia Gez of Gibson, Dunn & Crutcher LLP.
About the Society for Corporate Governance
Founded in 1946, the Society is a professional membership association of more than 3,600 corporate
secretaries, in-house counsel and other governance professionals who serve approximately 1,200
entities, including about 1,000 public companies of almost every size and industry across the U.S. Society
members are responsible for supporting the work of corporate boards of directors, their committees, and
the executive managements of their companies regarding corporate governance and disclosure. For
more information, please visit www.societycorpgov.org.
About BrownFlynn
Founded in January 1996 and acquired by ERM in March 2018, BrownFlynn is a leading corporate
sustainability and governance consulting firm. BrownFlynn partners with its clients so they can achieve
positive and tangible social, environmental, and economic impact—leading to sustained value. The Firm
advises Fortune 500 and privately held companies on Environmental, Social, and Governance (ESG)
issues, strategies, and disclosure. BrownFlynn understands and anticipates emerging sustainability
trends, stakeholder expectations, reporting frameworks, engagement tools, and best practices to keep its
clients ahead of the curve. BrownFlynn is the first U.S.-certified trainer for the Global Reporting Initiative
(GRI). The Firm has been training clients and guiding them through reporting using the GRI framework
since 2005 and also serves as an Advisory Partner to the Sustainability Accounting Standards Board
(SASB). In addition, BrownFlynn supports its clients by helping respond to the leading international
standards bodies, such as CDP (Climate, Forests, and Water), RobecoSAM (DJSI), EcoVadis, and a
range of the most influential ratings and rankings organizations. The Firm’s deep experience provides
clients with insights into performance/score improvement and identifies streamlining opportunities
between the various frameworks.
© 2018 Society for Corporate Governance
All rights reserved. Reproduction without permission is prohibited.
Trademarks and logos are copyrights of their respective owners.

Table of Contents
Executive Summary......................................................................................................................1
I. Introduction .......................................................................................................................5
A. Defining ESG.........................................................................................................5
II. Understanding Investors’ ESG Motivations.......................................................................6
A. Investor Demand for ESG Financial Products and Engagement ..........................6
B. United Nations Principles for Responsible Investment (UN PRI) ..........................7
C. ESG Risk Management as a Value Preserver/Creator .........................................9
i. Protecting Intangible Asset Value and Reputational Risk
Management............................................................................................11
ii. Long-Term Shareholders and Management Time Horizons....................12
III. ESG Financial Products, ESG Integration Strategies and Greater Shareholder
Engagement and Resolutions .........................................................................................13
A. Growth in ESG Financial Products......................................................................13
B. ESG Integration Strategies..................................................................................14
C. Examples of ESG Equity and Debt Products ......................................................15
D. ESG Shareholder Resolutions & Proxy Voting....................................................19
IV. ESG Research Firms ......................................................................................................20
A. Investor Use of ESG Research Firms Analysis and Ratings...............................22
B. Company Disclosures and ERF Methodologies..................................................23
C. Issuer Concerns Regarding ESG Research Firms..............................................24
V. Disclosure Challenges and Strategies ............................................................................24
A. Bridging the Disconnects with Investors and ESG Research Firms....................25
B. ESG Disclosure Platforms...................................................................................26
i. Sustainability Accounting Standards Board (SASB)................................27
ii. Task Force on Climate-related Financial Disclosure (TCFD) ..................27
iii. GRI (formerly Global Reporting Initiative)................................................28
VI. Conclusion ......................................................................................................................29

ESG Roadmap: Observations and Practical Advice for Boards, Corporate Secretaries
and Governance Professionals 1
Executive Summary
Company governance practices and failures have long been an important factor in investor
analysis of a firm’s short-term and long-term value. Over the last several decades—with an
acceleration in the last five years—the relevance to investors of a company’s environmental and
social impacts stemming from its practices, policies and products has increased substantially.
Effective oversight and management by boards, corporate secretaries and sustainability teams
of so-called “ESG” (environmental, social and governance) issues are increasingly important to
preserving and creating shareholder value. Driven by client demand, reputational risk
management and a supportive body of financial research, many investors are demanding that
companies think more broadly about their ESG impacts, take corrective action (if required) and
disclose their ESG-related efforts. In this brief, we will examine the drivers of the growth in
ESG-related investing and engagement, explore ESG’s impact on financial products and
strategies and suggest practical advice to assist boards, corporate secretaries and sustainability
teams.
What is ESG investing?: There are two components to the ESG phenomenon: (1) “ESG
integration,” which is the consideration of environmental, social and corporate governance
criteria in investment analysis and portfolio construction across a range of asset classes; and
(2) “ESG investor engagement,” which seeks to have shareholders communicate concerns
about ESG policies/practices, seek greater ESG disclosure and improve practices.
What are ESG issues?: Leading ESG issues with respect to both investment analysis and
shareholder engagement include climate change, diversity, gender pay equity, human rights,
human capital management, political spending and general sustainability/environmental issues.
ESG issues often: (1) derive from a risk or impact inherent in the core operations/products of a
particular company; (2) have the potential to meaningfully damage a company’s intangible
value/reputation/ability to operate; and (3) are accompanied by persistent media interest,
organized stakeholders and associated public policy debates that can magnify the impact of a
company’s existing position or practice and increase the reputational risk (or opportunity)
created by a change in company policy or practice.
Drivers of increased interest in ESG: Retail and institutional client demand for ESG-related
financial products is substantial and growing. One representative study in 2017 noted: 78% of
investors surveyed believe that sustainable investing is more important to them now than it was

five years ago; 32% said it was significantly more important and 46% said it was somewhat
more important; and 64% have “increased their investment in sustainable funds over the last
five years.” There is substantial evidence of demand for ESG products, and asset managers
are responding.
The United Nations Principles for Responsible Investment (UN PRI), which imposes obligations
on asset manager signatories regarding the acquisition and use of ESG information, has
become a de facto requirement for asset managers seeking institutional investor mandates. UN
PRI (now called “PRI”) will continue to drive investor demands for greater disclosure and
engagement on ESG issues because the Principles require asset managers to “incorporate”
ESG issues into investment decision-making, proxy voting and company engagement
processes. PRI signatories can be “de-listed” if they do not demonstrate their compliance,
which includes making efforts to “advocate for meaningful, forward looking and globally
comparable company disclosures and investor reporting, promote the inclusion of material ESG
information alongside other financial data, and convene investor engagement with companies
on climate risks and opportunities.”
Risk Management as a Value Preserver/Creator: Investors are aware of significant evidence
that effective ESG risk management can preserve or create shareholder value. A Deutsche
Bank study in 2015 found that of more than 2,200 studies since 1970, 63% found a positive link
between ESG performance and financial performance. Evidence that effective ESG
management builds value is significant enough to make many asset managers comfortable that
they can offer ESG products consistent with their fiduciary obligations. The increased value of
intangible assets such as brands, reputation and workforce that can be damaged by ESG risks
is a strong economic justification for investors to demand robust ESG oversight by boards and
effective management by senior executives. In addition, the rise of passive investors that
provide “permanent” capital creates a temporal mismatch between those investors and
management. ESG proponents argue that encouraging strong ESG risk management is in the
economic interests of these long-term shareholders because typical capital and operational
decisions by company management are often made with a time horizon that is shorter than the
relevant horizon for a range of E&S risks. Therefore, it is the permanent shareholders who are
exposed to those longer term E&S risks.
Financial Impact of ESG: ESG factors are now integrated into several types of financial
products including equity, debt and real estate investment considerations. According to

investment research firm Morningstar, ESG mutual funds and ETFs grew from 240 at the end of
2017 to 267 at the end of Q1 2018. There are a variety of investment strategies that include
ESG factors. Three strategies, ESG integration, Positive/best-in-class, and
Negative/exclusionary screening, are the most relevant to issuers because they comprise the
vast majority of the ESG assets under management. Each of these three approaches requires
investment managers to acquire, analyze and integrate information on companies’ ESG-related
risks and performance. The precise process of ESG integration and investor engagement
varies among investors, but it behooves corporate secretaries and others to understand the
relevant ESG issues, their weighting or importance to a particular investor and the bureaucratic
process that leads to either an investment or engagement decision. ESG issues have clearly
become more prominent among shareholder proposals, proxy voting and company engagement
with issuers. The prominence of ESG has provided further impetus (if any was needed) for
informed and systematic shareholder engagement. ESG Research Firms play a key role in
providing investors ESG ratings and analysis on issuers.
ESG Research Firms: Just as proxy advisors arose to fulfill asset managers’ need for
aggregated data and analysis on traditional proxy and governance topics, a coterie of ESG
Research Firms (ERFs) provide products to fulfill investors’ need for aggregated ESG data.
MSCI, Sustainalytics and ISS-Ethix are likely the most relevant for U.S. issuers. ERF ratings
and analysis are increasingly widely available and influential. Most investors use ERF as just
one input in their decision-making, but they are important and in some funds can determine
inclusion/exclusion of a company’s securities. This impact on capital allocation is worth
watching.
ERFs rely significantly on company ESG disclosures, but media, regulatory filings/information
and NGO research are critical inputs into ERF methodologies as well. There is significant
anecdotal information regarding ERF accuracy and interpretive practices. ERFs are aware of
these issues and are responding, but concerns remain. Reviewing ERF reports and ratings is
important to optimizing issuer ESG disclosures.
Disclosure Challenges and Strategies: There are a variety of challenges and barriers to
optimizing the disclosure relied on by investors and ERFs. Investors lack comparable ESG data
to facilitate comparison of risk management and commercial value of ESG issues or products
between companies and sectors. Most ESG disclosure beyond information required by
regulation or law (e.g., health, safety and GHGs) is unaudited, which further discourages

reliance by analysts. In addition, the misalignment of the timing between financial and
sustainability reporting makes incorporation of current ESG disclosures more difficult and time
consuming for analysts and teams who may cover dozens of public companies. As a result,
embracing best practices for disclosure becomes all the more important.
ERFs use human analysts and/or software agents or “bots” to scour company and other
websites for relevant and updated information. As a result, corporate secretaries and
sustainability teams need to speak the same language as the ERFs to ensure their disclosures
are efficiently recognized and incorporated into ERF analysis. A related concern is whether an
issuer receives “credit” for policies or actions that are disclosed to an ERF but not to the general
public. Practice varies among the ERFs with respect to giving “credit” only to publicly disclosed
policies or practices. An ERF requirement for public disclosure is critical information for a
corporate secretary trying to make the optimal disclosure decision.
ERFs have a company engagement process that tends to unfold year-round, although
anecdotal information suggests challenges in responsiveness remain. Building ERF
engagement into your company’s standing engagement strategy is increasingly appropriate for
many companies.
Selected ESG Reporting Platforms: There are literally hundreds of ESG surveys and
reporting platforms, but several deserve consideration from issuers because of their
sponsorship, profile and/or history of use. Sustainability Accounting Standards Board (SASB),
Task Force on Climate-related Financial Disclosure (TCFD) and GRI (formerly the Global
Reporting Initiative) each have a specific focus or approach that may be suitable for an
individual company. Broad adoption of SASB and/or the TCFD can provide investors the
comparable data they have been lacking. Relevant factors when considering an ESG reporting
platform include: a company’s specific E&S impacts and/or related products/services; the
intended audience of a particular disclosure; investor interests or demands; applicable
regulatory requirements; and company resources for ESG disclosure.

I. Introduction1
Boards, corporate secretaries and governance professionals operate in a dynamic landscape of
evolving environmental, social and governance (ESG) issues and risks, a growing importance of
ESG research and analysis, and high levels of ESG-related shareholder proposals and
engagement. Once limited to a small set of investors, ESG investing has expanded to the
mainstream of mutual funds, exchange-traded funds (ETFs), and even private equity. ESG
investing is not a new phenomenon, but its importance, as perceived by the most influential
asset managers and asset owners, has increased dramatically over the past five years.
This brief examines the drivers of the growth in ESG-related investing and engagement,
explores ESG’s impact on financial products and investors, and proposes questions to guide
boards, corporate secretaries and sustainability teams.
A. Defining ESG
A leading authority on ESG-related investing, the U.S. Sustainable Investment Forum (US SIF),
defines ESG (and its many synonyms)2 as “an investment discipline that considers
environmental, social and corporate governance criteria to generate long-term competitive
financial returns and positive societal impact.”3
According to US SIF, there are two components to “ESG investing”:
 “ESG incorporation” or “ESG integration” is the consideration of environmental, social
and corporate governance criteria in investment analysis and portfolio construction
across a range of asset classes; and
 “ESG investor engagement,” which seeks to have shareholders communicate concerns
about ESG policies/practices, seek greater ESG disclosure and improve practices.4
A good starting point for a list of current ESG issues are the leading topics addressed in the
1
In 2017, the Society for Corporate Governance established an Environmental and Social Working Group
(ESWG) intended to inform companies, foster dialogue among the different stakeholders and share best
practices regarding ESG. A survey of ESWG members indicated a knowledge gap regarding the drivers, impact
and participants in the ESG space. This primer is intended to help companies fill that gap.
2
“ESG investing” is often used interchangeably with “SRI” (socially responsible investing), “responsible
investment,” “values-based investing,” “mission-aligned investing,” and others.
3
Available at https://www.ussif.org/esg. See “Incorporating Sustainable, Responsible and Impact Investing Into
Your Practice: A Roadmap for Financial Advisors,” 2018 at 5. US SIF is financially supported by a range of
mainstream and ESG-type investors. See https://www.ussif.org/institutions.
4
Id. at 5-6.

recent proxy season:5 political spending, climate change, diversity, gender pay equity, human
capital management and general sustainability/environmental issues. A complete list is too
lengthy to include here, but investor-relevant ESG issues often:
 derive from a risk or impact inherent in the core operations/products of a particular
company;
 have the potential to meaningfully damage a company’s intangible
value/reputation/ability to operate; and
 are accompanied by persistent media interest, organized stakeholders and associated
public policy debates that can magnify the impact of a company’s existing position or
practice and increase the reputational risk (or opportunity) created by a change in
company policy or practice.
ESG issues don’t come out of nowhere, but their perceived relevance can be sudden.
II. Understanding Investors’ ESG Motivations: Investor Demand, PRI and Risk
Management
A. Investor Demand for ESG Financial Products and Engagement
Asset managers are offering more ESG products and strategies in significant part because of
retail and institutional client demand. Much of the impetus for ESG-related products comes
from EU-based institutional asset owners that tend to reflect the political sensibilities of their
home markets. One illustrative example: the investment manager Schroders found in 2017 that
“78% of respondents stat[ed] that [sustainable investing] is more important to them now than it
was five years ago; 32% said it was significantly more important and 46% said it was somewhat
more important.”6 Schroders also found that capital allocation to ESG strategies is increasing,
with 64% of investors saying that they “increased their investment in sustainable funds over the
last five years.”7 There are many other examples of investor preference for ESG strategies.8
5
In this brief, we focus on environmental and social issues because the rise in prominence of E&S issues is
driving much of the change confronting issuers and their investors.
6
Available at http://schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-
study-2017-sustainable-investing-on-the-rise/.
7
Id.
8
Further examples of investor preference for ESG strategies are discussed in articles available at:
http://www.investmentnews.com/article/20171202/FREE/171139982/which-investors-are-most-attracted-to-esg-
investments-and-why; https://www.fa-mag.com/news/interest-in-esg-investing-rises-around-the-world-
34999.html; and https://www.institutionalinvestor.com/article/b15130nkydbgxl/global-demand-grows-for-
sustainable-investment-strategies-americas.

While the empirical case for ESG out/underperformance is still contested, there is little doubt
that a significant number of retail and institutional clients of asset managers want ESG financial
products and strategies.
B. United Nations Principles for Responsible Investment (UN PRI)
The PRI, which imposes obligations on asset owner and asset manager signatories regarding
the acquisition and use of ESG information, is both a driver and reflection of ESG demand. PRI
signatories “commit”9 to six principles:
 Principle 1: incorporate ESG issues into investment analysis and decision-making
processes
 Principle 2: be active owners and incorporate ESG issues into ownership policies and
practices (Note: including company engagement)
 Principle 3: seek appropriate disclosure on ESG issues by the entities in which
signatories invest
 Principle 4: promote acceptance and implementation of the Principles within the
investment industry
 Principle 5: work together to enhance effectiveness in implementing the Principles
 Principle 6: report on activities and progress towards implementing the Principles
PRI’s announcement at the NYSE in 2006 was animated by concern over environmental and
social impacts globally. As then-Secretary General Kofi Annan said, the PRI “grew out of the
understanding that while finance fuels the global economy, investment decision-making does
not sufficiently reflect environmental, social and corporate governance considerations—or put
another way, the tenets of sustainable development.”10 In hindsight, the creation of the PRI was
an inflection point in the growth of ESG.
As the chart below shows, an increasing number of asset managers and asset owners in the
U.S., EU and Asian markets have adopted the PRI since they were introduced in 2006.
9
Available at https://www.unpri.org/signatories/become-a-signatory.
10
Available at https://www.un.org/press/en/2006/sg2111.doc.htm. The UN Sustainable Development Goals and
corporate alignment with them will continue to inform some investor and ESG Research Firm engagement with
companies. See https://sustainabledevelopment.un.org/sdgs.

Maintaining PRI signatory status has become an important point of brand management for
financial firms, particularly those seeking institutional clients. As a practical matter, many RFPs
for asset owners (i.e., EU and U.S. pension funds) effectively require PRI signatory status by
asset managers. Without it, asset managers may find it difficult or impossible to demonstrate
their ESG bona fides and receive new mandates from a substantial number of large institutional
investors.
Looking Ahead: While signatories have always been required to report annually on
implementation practices, PRI’s 2017 “Blueprint for Responsible Investment”11 articulated more
demanding expectations and is threatening to delist asset managers who fail to meet those
increased expectations. Of particular interest to boards and corporate secretaries, PRI’s
enhanced expectations include:
 Establish that asset owners’ duties to their beneficiaries extend beyond the risk/return
profile of their investments to include making decisions that benefit the world
beneficiaries live in.
 Promote alignment of proxy voting practices with responsible investment beliefs.
 Define a minimum standard of activity that signatories must achieve.
 Monitor and engage with those that are not meeting this standard and delist any that fail
to do so over a two-year period.
11
Available at https://www.unpri.org/download?ac=1916.
$7
$10
$13
$18
$21
$24
$32
$34
$45
$59
$62
$68
63
185
361
523
734
890
1,050
1,186
1,251
1,384
1,501
1,714
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
$-
$10
$20
$30
$40
$50
$60
$70
$80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Assets under management (US$ trillion) Number of Signatories

 Achieve penetration rates in North America never previously seen outside Europe.
 Advocate for meaningful, forward-looking and globally comparable company disclosures
and investor reporting.
 Promote the inclusion of material ESG information alongside other financial data.
 Convene investor engagement with companies on climate risks and opportunities.
PRI is a significant reason that asset manager and asset owner focus on ESG-related
disclosure and engagement is likely to continue to intensify. In addition, PRI has committed to
aligning its expectations for signatories with the UN Sustainable Development Goals (SDG),12
which are likely to result in company engagement by some investors that focuses on SDG
concerns,13 including environmental sustainability, gender equality, income inequality, climate
change and others.
Questions Presented: Do your investors offer ESG products? Do any ESG funds own your
shares (perhaps as part of a larger shareholding by an asset manager)? How many of your
company’s investors are PRI signatories? Have you reviewed your investors’ annual
reporting to PRI to better understand their ESG integration processes?
C. ESG Risk Management as a Value Preserver/Creator
While some critics assert that ESG analysis and engagement are driven mostly by the
imposition of politics on investing, there is growing belief that effective management of ESG-
related risk can protect a company’s brand and ability to operate, and increase a company’s
value over the long-term. Representative of that trend, a 2016 Harvard Business School
Working Paper noted that:
[F]irms with good performance on material sustainability issues significantly
outperform firms with poor performance on these issues, suggesting that
investments in sustainability issues are shareholder-value enhancing. Further,
firms with good performance on sustainability issues not classified as material do
not underperform firms with poor performance on these same issues, suggesting
investments in sustainability issues are at a minimum not value-destroying.
12
Id. at 16.
13
Available at https://sustainabledevelopment.un.org/sdgs.

Finally, firms with good performance on material issues and concurrently poor
performance on immaterial issues perform the best.14
Similarly, a 2015 Deutsche Bank Asset Management study done in cooperation with PRI
asserts that of more than 2,200 studies since 1970, 63% found a positive link between a
company’s ESG performance and its financial performance.15
Resource: The U.S. Sustainable Investment Forum16
and PAX World, a socially responsible
investor,17
have compiled useful bibliographies of ESG research.
Accordingly, the largest passive investors have embraced ESG in both their marketing and risk
management practices. BlackRock notes:
We find ESG can be implemented across most asset classes without giving up
risk-adjusted returns. ESG and existing quality metrics such as strong balance
sheets have a lot in common. This implies ESG-friendly portfolios could
underperform in “risk-on” periods — but be more resilient in downturns. They
could even outperform in the long run as flows into sustainable investment
products increase and climate risks compound.18
The world’s largest pension fund, the $1.4 trillion Government Pension Investment Fund of
Japan (GPIF), argues similarly: “If ESG ratings are reflected in stock prices, the stock price will
go up if the ESG ratings of the company improve . . . Because of our size, we can only buy and
hold, and end up with the market average. We can only improve performance by improving the
market return; we are expecting ESG will contribute to this.”19
14
Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912.
15
See https://institutional.dws.com/content/_media/K15090_Academic_Insights_UK_EMEA_RZ_Online_
151201_Final_(2).pdf. Citing the above research is not intended to take a position on ESG integration but rather
to provide a representative sample of the literature supporting the investor belief in the benefits of ESG
performance.
16
Available at https://www.ussif.org/performance.
17
Available at https://paxworld.com/category/research/esg/.
18
Available at https://www.blackrock.com/corporate/literature/whitepaper/bii-sustainable-investing-may-2018-
us.pdf.
19
Available at https://www.top1000funds.com/profile/2018/03/14/gpif-seeks-better-beta-through-
esg/#.WqjmB9CX3ag.linkedin.

i. Protecting Intangible Asset Value and Reputational Risk Management
In an age when intangible assets make up more than 80% of company value according to some
estimates,20 investors, boards and senior management are right to focus their value
preservation efforts on intangible assets, which can be quite vulnerable to ESG risks.
“Intangible asset” is an elastic concept that can include:
 Brand names
 Reputation
 Franchises, copyrights and trademarks
 Patents
 Top-notch management
 Loyal, well-trained and engaged workforce
 Technological know-how
For many companies, ESG-related risks— augmented by a social media-driven world— are
embedded in everyday operations and products. Consider an oil company that loses control of
a deep water well and spills a large amount of oil, an auto company that manufactures cars that
surreptitiously violate air quality laws, a bank that employs sales practices that violate customer
trust and damage the brand, or a social media company that sells advertising and is enveloped
in a user privacy imbroglio. These high-impact, low probability (HILP) or Black Swan events
may sound familiar. Each of these ESG problems stems from a risk inherent in the core
operations of the company and causes significant damage to the firm’s reputation or other
intangible assets.
The financial crisis raised awareness of the potential effect of high impact, low probability
events.21 Large banks employ teams working to “de-risk” investment banking clients with
significant environmental/social exposure. Investors in sectors such as mining actively consider
the risk of “a low-probability high-impact event affecting any particular one of their assets having
a larger monetary and reputational impact on the entire corporation.”22
20
See http://www.oceantomo.com/2015/03/04/2015-intangible-asset-market-value-study/.
21
See https://hbr.org/2009/10/the-six-mistakes-executives-make-in-risk-management.
22
Available at http://water.columbia.edu/files/2015/11/Long-Term-Risk-Assessment-Siegel.pdf.

The interplay between intangible asset value and ESG risks can be dynamic, leading to sudden
impacts and the exposing of a board or senior management as out of touch. Predicting HILPs
can be difficult, but planning and seeking to make a company more resilient to them is sound
risk management.23 As a result, investors and other interested parties want to better
understand company’s risk identification, mitigation and remediation processes.
ii. Long-Term Shareholders and Management Time Horizons
As the Government Public Investment Fund of Japan noted above, the fund must “buy and
hold,” making it more difficult to sell an individual company’s stock. This virtually permanent
share ownership creates a temporal mismatch between standard management time horizons of
less than 10 years and the time horizon of very long-term shareholders. Because typical capital
and operational decisions by company management are often made with a time horizon that is
shorter24 than the relevant horizon for a range of E&S risks, it is the long-term shareholders who
are exposed to those longer term E&S risks. ESG proponents would argue, therefore, that
encouraging strong ESG risk management is in the economic interests of these effectively
permanent shareholders.
Climate change is a leading example of a temporal mismatch. Climate change risks to
companies include physical impact, business disruption, technology disruption and government
policy, although the scale of the risk is determined by geographic location, sector and business
specifics. Each of those risks, or a combination, could meaningfully affect a company, yet the
uncertainty of specific impacts in particular regions necessary to mitigate a firm’s climate
exposure and the reversal of climate mitigation policies that might have imposed material costs
on certain industries could militate against climate risk management efforts. Management may
eschew climate planning and instead focus on other risks and opportunities. Long-term
shareholders, seeking to manage longer term risks such as climate, could reasonably disagree
and urge greater climate change risk management efforts.
23
See https://link.springer.com/chapter/10.1007%2F978-3-319-07239-5_5.
24
For example, the average maturity of U.S. investment grade corporate debt was 7.5 years in 2017, which has
actually increased since the financial crisis due to low interest rates. See https://tallusadvisory.com/investment-
grade-corporate-bonds-ongoing-strength-bond-market-perspectives-august-1-2017/. Focusing Capital on the
Long Term, a collaboration of asset owners, asset managers, and issuers, notes, “Too many investors continue
to seek returns on their strategies as quickly as possible. Companies are missing out on profitable investments
for fear of missing quarterly earnings guidance. Corporate management significantly undervalues and
underinvests in longer-term prospects.” Available at https://www.fcltglobal.org/docs/default-source/default-
document-library/a-roadmap-for-fclt.pdf?sfvrsn=7b2e258c_0.

Questions presented: Do you know which ESG issues are most relevant to your investors
and other stakeholders? Of these ESG issues, which are short-term or long-term? Are your
disclosures responsive to their views? Do your company disclosures provide investors with
sufficient insight into your board’s and senior management’s approach to long-term risk
management? Even if little risk management is required, do disclosures explain the board’s
and senior management’s deliberative process?
Investor focus on long-term time horizon and ESG can be seen here,25 here26 and here.27
III. ESG Financial Products, ESG Integration Strategies and Greater Shareholder
Engagement and Resolutions
A. Growth in ESG Financial Products
As discussed, ESG investing is increasing across several asset classes. ESG factors are now
integrated into several types of financial products including equity, debt and real estate
investment considerations. As noted above, the PRI requires the integration of ESG factors into
investment decision-making, which the graph shows has corresponded with a significant
increase in assets under management (AUM) with some degree of ESG integration. Overall,
26% of the $88 trillion in AUM covered in a recent McKinsey survey incorporates ESG factors to
some degree.28
25
Available at http://online.wsj.com/public/resources/documents/TopSustainableMutualFunds.pdf.
26
Available at https://www.temasek.com.sg/en/who-we-are/our-purpose.html.
27
Available at http://www.schroders.com/en/insights/economics/managing-corporate-controversies-the-role-of-esg-
ratings/.
28
See https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-why-to-why-
not-sustainable-investing-as-the-new-normal.

According to investment research firm Morningstar,29 funds that state they incorporate ESG
criteria into their investment process, pursue a sustainability-related theme, or seek measurable
sustainable impact alongside financial return continued to grow in the first quarter of 2018. At
the end of 2017, Morningstar counted 240 open-end funds and exchange-traded sustainable
investment portfolios available to U.S. investors. At the end of Q1 2018, such mutual funds and
ETFs numbered 267.30
B. ESG Integration Strategies
While ESG integration is increasing broadly, actual practices vary significantly. Similarly, the
influence of ESG analysis or ratings has differing influences in the decision-making of a
particular asset manager or asset owner. US SIF states that there is a spectrum of ESG-related
strategies including, but not limited to:31
 ESG integration: The systematic and explicit inclusion by investment managers of
ESG factors into financial analysis. (Note: the degree of influence of the ESG factors on
the ultimate investment decision may vary significantly among asset managers.)
29
In 2017, Morningstar purchased a 40% stake in a leading ESG research firm, Sustainalytics. See
https://www.sustainalytics.com/press-release/morningstar-acquire-stake-sustainalytics/.
30
See http://www.morningstar.com/articles/858952/firstquarter-volatility-doesnt-slow-sustainable-fu.html.
31
See https://www.ussif.org/esg.
(UNPRI)

 Positive/best-in-class: Investment in sectors, companies or projects selected for
positive ESG performance relative to industry peers.
 Negative/exclusionary screening: The exclusion from a fund or plan of certain sectors
or companies based on specific ESG criteria.
 Impact investing: Targeted investments, often in private markets, aimed at solving
social or environmental problems.
 Sustainability themed investing: The selection of assets specifically related to
sustainability in single or multi-themed funds.
The first three strategies (ESG integration, Positive/best-in-class and Negative/exclusionary
screening) are the most relevant to issuers because they comprise the vast majority of the ESG
assets under management. Each of these three approaches requires investment managers to
acquire, analyze and integrate information on companies’ ESG-related risks and performance.
The precise process of ESG integration and investor engagement varies among investors, but it
behooves corporate secretaries and others to understand the relevant ESG issues, their
weighting or importance to a particular investor and the bureaucratic process that leads to either
an investment or engagement decision.
Whatever the exact process employed by an investor, asset managers seek to do ESG analysis
and integration in the most efficient way possible (not dissimilar to the approach taken on proxy
voting where investors rely significantly on proxy advisors), which makes the role of third-party
ESG ratings and analysis providers increasingly important. (See Section IV: ESG Research
Firms.)
C. Examples of ESG Equity and Debt Products
Below, we provide examples32 of equity and debt products employing ESG integration,
Positive/best-in-class and exclusionary approaches to select assets based on ESG
performance.33
32
The equity and debt funds below are included for illustrative purposes only and were selected because of the
clarity of the prospectus language related to selection of securities. No endorsement, express or implied, is
intended.
33
A Society ESWG 2017 survey of a small sample of companies indicated that 10% of issuers’ equity or debt had
been “excluded from an ESG-related ETF/mutual fund/other investment vehicle.”

Activists Enter the ESG Fray
Leading activist investors and private
equity firms have adopted ESG-related
policies and strategies, including Trian
Partners, KKR, Blackstone, Carlyle Group,
Blue Harbour Group, Warburg Pincus
and JANA Partners.
Case study: In January, JANA Partners
and CalSTRS, which together controlled
roughly $2 billion in Apple equity, jointly
urged the iPhone maker to develop new
settings to help parents control
children’s time on mobile devices: “This
should be an easy fix for Apple…There’s
no question that it needs to be more
responsive to children’s needs and
children’s activities,” according to JANA’s
CEO.34
Adopting ESG related practices may
have at least two benefits for activists
and PE firms: (1) likely helps attract
institutional limited partners that have
ESG priorities; and (2) likely helps build
support from institutional investors for
other activist or PE priorities.
 The SPDR SSGA Gender Diversity Index
provides exposure to “US companies that
demonstrate greater gender diversity within
senior leadership [compared to] other firms in
their sector.” The SPDR SSGA Gender
Diversity Index ranks each company by using
ratios that compare the gender diversity within
the board of directors and executive positions
and “based on an analysis by an independent
third party of information included in regulatory
filings, press releases and the corporate
website of a company (“company
communications”)” (emphasis added).35
 iShares MSCI USA ESG Select ETF takes the
Parent Index (MSCI USA Index) and removes
companies that are “involved in tobacco,
companies involved with controversial
weapons, producers and retailers of civilian
firearms, as well as major producers of
alcohol, gambling, conventional weapons,
military weapons and nuclear power.” The
fund then selects company equity for the fund
by referring to MSCI evaluations of “each
eligible company’s ESG performance using
standardized criteria and assigns an ‘overall
rating’ to each company.”36
34
Available at https://www.cnbc.com/2018/01/09/jana-partners-on-apple-iphone-addiction-problem-easy-fix-for-
apple.html.
35
Available at https://www.ssga.com/investment-topics/general-investing/2016/SSGA-Gender-Diversity-Index-
Methodology.pdf. The “independent third party” may well be an ERF such as MSCI or Sustainalytics.
36
Available at https://www.ishares.com/us/library/stream-document?stream=reg&product=IUS-
SUSA&shareClass=NA&documentId=925822~926099~926263~1474672&iframeUrlOverride=%2Fus%2Fliteratu
re%2Fsai%2Fsai-ishares-trust-4-30.pdf.

ESG in the Debt Market
ESG investment practices are not limited to the public equity markets. Debt markets have also
begun considering ESG factors as a component of regular operations. For example, credit
rating agencies are including ESG factors in their analyses, with Moody’s, S&P and Fitch all
publicly discussing their approaches to ESG. Below are two examples of ESG debt mutual
funds or ETFs:
 TIAA-CREF’s Social Choice Bond Institutional Fund (TSBIX)37 attempts to achieve the
return of the foreign equity markets by investing in:
[C]ompanies whose activities are consistent with the Fund’s ESG
criteria…The ratings vendor currently providing the ESG performance
evaluation is MSCI, Inc. (“MSCI”). All companies must meet or exceed
minimum ESG performance standards to be eligible for inclusion in the
Fund. The evaluation process favors companies with leadership in ESG
performance relative to their peers. Typically, environmental assessment
categories include climate change, natural resource use, waste
management and environmental opportunities. Social evaluation
categories include human capital, product safety and social opportunities.
Governance assessment categories include corporate governance,
business ethics and government and public policy. How well companies
adhere to international norms and principles and involvement in major
ESG controversies (examples of which may relate to the environment,
customers, human rights and community, labor rights and supply chain,
and governance) are other considerations.
TIAA-CREF’s articulation of reliance on third-party data from MSCI with
subjective analysis of company involvement or connection to ESG controversies
neatly encapsulates the ESG challenge companies confront. Indeed, the
prospectus goes on to note that “[i]nvesting on the basis of ESG criteria is
qualitative and subjective by nature.”
 The Neuberger Berman Socially Responsive C mutual fund “consists of active equity
managers who integrate ESG criteria into the SRI investment process. The ESG ratings
37
See https://www.sec.gov/Archives/edgar/data/1084380/000093041315002523/c81176_485apos.htm#15.

are based on both avoidance and leadership parameters and are performed in-house by
the same portfolio management team. The team searches for companies demonstrating
leadership in the environment, workplace practices, community relations, supply chain
sustainability and product integrity. The SRI team believes that companies whose
managements are thoughtful about the impact of their actions on all stakeholders
fundamentally represent robust business models with more manageable long-term
contingent liabilities . . . The Portfolio Managers judge firms on their corporate citizenship
overall, considering their accomplishments as well as their goals.” (emphasis added).
Neuberger Berman makes an important point: disclosing goals for ESG performance
improvement can be relevant to both investors and reputation risk management.
 Other funds use both screening and ESG best practices, relying on the combination of
positive ESG performance and restricted or exclusionary strategies.38
Resources:
 Extensive lists of ESG-related mutual funds and ETFs are available from the Wall
Street Journal39
and Morningstar.40
 The World Economic Forum makes available a useful list of pension funds with ESG
strategies.41
38
See https://charts.ussif.org/mfpc/fund_profile_display.php?FundID=106.
39
See http://online.wsj.com/public/resources/documents/TopSustainableMutualFunds.pdf.
40
See https://charts.ussif.org/mfpc/.
41
See http://www3.weforum.org/docs/WEF_GAC%20Future%20of%20Investing%20Case%20Studies.pdf.

D. ESG Shareholder Resolutions & Proxy Voting
In addition to significantly increasing the number of ESG-related financial products, changing
attitudes by asset managers and asset owners have caused a concomitant increase in the
number of E&S shareholder proposals and support for them. For example, see the data below
for 2018 E&S shareholder proposals.

Growing support for E&S shareholder proposals aligns with the increase in public
acknowledgment (even championing) of various issues by asset managers.42 Larry Fink’s 2018
letter is a prominent example of asset manager focus on ESG, but it is hardly the only one. The
BlackRock CEO underscored the connection between ESG and long-term performance by
stating “stakeholders are demanding that companies exercise leadership on a broader range of
issues. And they are right to: a company’s ability to manage environmental, social, and
governance matters demonstrates the leadership and good governance that is so essential to
sustainable growth.” Proxy voting guidelines increasingly reflect a more forward-leaning
perspective on some ESG issues.43
The prominence of ESG has provided further impetus (if any was needed) for informed and
systematic shareholder engagement. Developing productive and deep relationships with your
investors can be affected positively—and negatively—by the company position on E&S issues.
Look Ahead: Expect further ESG advocacy and shareholder support from a growing list of
asset managers. Diversity, gender pay equity, political spending, climate change, human
capital management and an issue specific to your company will likely be the most popular.
IV. ESG Research Firms44
Just as proxy advisors arose to fulfill asset managers’ need for aggregated data and analysis on
traditional proxy and governance topics, a coterie of ESG Research Firms (ERFs) have arisen
to fulfill the need for aggregated ESG data.
The ESG Research Firm leaders45 are:
 MSCI
42
A less appreciated possibility for the change in attitudes among large publicly-held asset managers may be the
scrutiny they have received on ESG issues. For example, in 2017 BlackRock received a shareholder proposal
linking workplace equality issues to its proxy voting efforts. See http://www.trilliuminvest.com/shareholder-
proposal/blackrock-proxy-voting-2017/. Similarly, Vanguard received a proposal regarding disclosure of their
votes on climate change proposals in 2017. See https://pressroom.vanguard.com/news/Press-Release-Proxy-
Filing-2017.html.
43
See http://fundvotes.com/VotingGuidelines.php.
44
In this section, we focus on practical advice to better engage and communicate with the ERFs. For a well done
and still timely overview of the major ERFs (and ESG-related rankings) and their methodologies done by Davis
Polk, see https://corpgov.law.harvard.edu/2017/07/27/esg-reports-and-ratings-what-they-are-why-they-matter/.
45
Society ESWG 2017 survey data indicate that MSCI, Sustainalytics and ISS-Ethix are for U.S. issuers the most
important of the ERFs. The remainder of this section will focus on them.

 Sustainalytics
 ISS-Ethix
 Vigeo-Eiris
 RobecoSAM
 Bloomberg
 Thomson Reuters
While ERFs differ in how they articulate their mission and services, it is fair to say that they
share a consensus that environmental and social impacts are more important—and more
frequently “material”—than many companies believe them to be.46 Moreover, many European
asset owners, who have played a significant role in creating demand for ESG-related analysis
and investment, share a similar outlook.
ERFs reach in the financial markets is substantial. MSCI, perhaps the largest of the ERFs,
notes that “99 of the top 100 global investment managers are MSCI clients.”47 Similarly,
Sustainalytics serves “over 500 institutional investors in 22 countries.”48 As the largest proxy
advisor, ISS’ ESG product is available throughout the investor community. In addition, ERF
ratings and analysis are being used to assess mutual funds,49 ETFs and individual securities.50
A comprehensive round-up of ERFs and ESG Indices can be found on the website for the
Global Initiative for Sustainability Ratings.51
46
Sustainalytics, for example, states that, “We believe that it is imperative for the global economy to become more
just and sustainable.” Available at https://www.sustainalytics.com/about-us/. MSCI notes, “We provide investors
with critical performance measurement and risk management data and analytics. Through our environmental,
social and governance (ESG) research and applications we deliver insights, analysis and tools to support
investment processes that incorporate sustainability considerations.” Available at https://www.msci.com/our-
story. Vigeo-Eiris states, “The economic, ecological and societal challenges of the 21st century suggest
fundamental changes to our development models in the medium-term, leading to major transformations of
economic models and investment strategies. To acknowledge these challenges is to welcome innovation and
opportunity, while ignoring them poses a certain amount of risk.” Available at http://www.vigeo-eiris.com/vigeo-
eiris/vision/. RobecoSAM notes, “Our mission is to drive sustainability thinking . . . We are convinced that
companies with sustainable business practices are more successful. Our vision is to set the standard in
Sustainability Investing.” Available at http://www.robecosam.com/en/about-us/mission-vision.jsp.
47
Available at https://www.msci.com/our-story.
48
Sustainalytics’ ESG ratings are also available to investor clients of proxy advisor Glass Lewis, which adds to the
impact Sustainalytics’ ratings and analysis can have for a company.
49
See http://www.morningstar.com/articles/862431/finding-morningstars-new-carbon-score-for-funds.html.
50
See https://www.msci.com/fixed-income.
51
See http://ratesustainability.org/hub/index.php/search/.

A. Investor Use of ESG Research Firms Analysis and Ratings
It’s important to reiterate that investors do not simply “rubber stamp” ERF analysis and ratings.
Rather, investors will use ERF products as an important input among the mosaic of factors in
making investment decisions. Investors will also use ERF analysis to identify issues that may
become part of any company engagement; particularly the analysis related to “controversies.”
As the chart below shows, ERFs are an important source of information.52
MSCI’s description of the investor use of its products53 provides a useful overview and contains
two items of particular interest to corporate secretaries:
 Integrate ESG factors into investment approaches;
 Screen portfolios and trades for emerging and overlooked ESG risks;
 Generate investment ideas using positive and negative outliers on specific ESG issues;
 Generate investment ideas based on ESG developments impacting key industry drivers;
 Conduct due diligence for transactions;
 Determine opportunities for engagement with company management; and
 Support implementation of the UN Principles for Responsible Investment (PRI)
(emphasis added).
52
See http://www.morganstanley.com/content/dam/msdotcom/en/assets/pdfs/Morgan_Stanley_ISI_
Sustainable_Signals.pdf. Morgan Stanley’s Institute for Sustainable Investing and Bloomberg L.P. surveyed 402
asset management professionals at U.S. asset management firms.
53
See https://www.msci.com/documents/10199/123a2b2b-1395-4aa2-a121-ea14de6d708a, at 13.

B. Company Disclosures and ERF Methodologies
While the substantive range and number of factors considered by the ERFs varies, all of the
ERFs rely on similar sources of information. Company disclosures are the single most
important source of information for ERFs, although such disclosure constitutes only 35% of
MSCI’s inputs in its company ESG Ratings.54 Sustainalytics bases its company ratings on
“three dimensions: preparedness, disclosure, and performance. Preparedness measures a
company’s commitment to managing ESG risks through stated policies, programs, or systems.
Disclosure measures transparency about ESG-related activities and the extent to which a
company’s ESG reporting reflects best practices. Performance is measured through various
quantitative and qualitative indicators.”55
ISS-Ethix recently began providing the “Environmental and Social QualityScore,” which
“provides a measure of corporate disclosure practices and degree of transparency.” According
to ISS, “investors report that company disclosure is a meaningful signal in its own right – i.e.,
limited disclosure is often indicative that further investigation is needed to rule out the presence
of poor practice – and a prerequisite to an effective comparison of company performance
54
See https://www.msci.com/www/blog-posts/2018-esg-trends-to-watch/0828969046.
55
Available at https://finance.yahoo.com/news/sustainalytics-does-company-esg-Ratings-100000652.html.

against peers.”56 ISS intends to “bring the universes of E&S QualityScore and Governance
QualityScore into alignment, although the timing has not yet been determined.”57
C. Issuer Concerns Regarding ESG Research Firms
Extensive feedback from corporate issuers highlights concerns regarding process, accuracy and
interpretation; not dissimilar to some of the criticisms of proxy advisors.58 A recent Society
survey59 of issuers found that 30% of companies were “aware of factual inaccuracies” in ERF
reports. Systematic engagement with issuers has also revealed concern over interpretation
practices regarding controversies and specifically litigation. Issuers have highlighted concerns
regarding the ERFs’ understanding of U.S. judicial process, which has led to the perception that
ERFs assign too much significance—in some cases—to media reports of the initial filing of a
lawsuit. Moreover, issuers have consistently noted that ERFs sometimes do not follow litigation
to its conclusion and/or do not appreciate the financial/legal implications of ordinary litigation
practice (e.g., establishing accounting reserves for potential damages).60 Companies would
argue that a keener understanding of the U.S. legal system is required to accurately assess
American ESG profiles.
A related concern is peer grouping of companies and comparison of governance practices
across jurisdictions. In some cases, U.S. issuers have been compared unfavorably to non-U.S.
companies in less regulated markets despite adhering to U.S. securities regulation or stock
exchange listing standards, which are mandatory.
MSCI, Sustainalytics and ISS have engaged in dialogue with the issuer community and are
making efforts to increase transparency and engagement. The Society will continue to be
actively engaged in facilitating dialogue among ERFs, issuers and investors.
V. Disclosure Challenges and Strategies
There are a variety of challenges and barriers to optimizing the disclosure relied on by investors
and ERFs. Perhaps the most frequently cited problem by market participants is the lack of
56
Available at https://www.issgovernance.com/file/faq/es-key-issues-discloure-transparency-qualityscore.pdf.
57
Id. at 3.
58
It is worth noting that ISS has a fully-fledged ESG business (ISS-Ethix).
59
Society ESWG 2017 survey.
60
ERFs (including MSCI, Sustainalytics and ISS) have made clear in discussions that they are aware of such
criticism and take it seriously.

comparable ESG data between companies and sectors. The lack of standardization inhibits
comparison of risk management and commercial value of ESG issues or products. In addition,
much ESG disclosure beyond regulatory requirements to governmental authorities is voluntary
and, therefore, unaudited, which further discourages reliance by analysts.
Another significant challenge is the misalignment of the timing between financial and
sustainability reporting, which inhibits a holistic picture of a particular company. Many public
companies will publish their sustainability reports months after the release of their annual
reports, which makes a unified view more difficult for analysts who may cover dozens of public
companies. This underscores the bandwidth problem among investors and ERFs; the universe
of companies and required reports is so large that individual analysts or teams may simply not
be able to integrate all of the relevant information in a timely manner. As a result, embracing
best practices for disclosure becomes all the more important.
A. Bridging the Disconnects with Investors and ESG Research Firms
Like any industry or community, ERFs have a nomenclature that refers to certain issues using
specific words. ERFs use human analysts and/or software agents or “bots” to scour company
and other websites for relevant and updated information. As a result, corporate secretaries and
sustainability teams need to speak the same language of the ERFs to ensure their disclosures
are efficiently recognized and incorporated into ERF analysis.
A related concern is whether an issuer receives “credit” for policies or actions that are disclosed
to an ERF but not to the general public. Whether a particular policy or practice is disclosed
publicly can be critical to whether an ERF incorporates such information into its analysis and
ratings but may also raise questions under Regulation FD. Practice varies among the ERFs
with respect to giving “credit” only to publicly disclosed policies or practices.61 Obviously, an
ERF requirement for public disclosure is critical information for a corporate secretary trying to
make the optimal disclosure decision.
ERFs have a company engagement process that tends to unfold year-round, although
anecdotal information suggests challenges in responsiveness remain. Similarly, while MSCI62
61
“MSCI ESG Research does not conduct surveys of companies, nor will it use or accept non-public information
from companies or other sources. Any company disclosed information that is used in process must be publicly
disclosed.” See https://www.msci.com/for-corporate-issuers.
62
Id.

and Sustainalytics both seek data verification from issuers, company experience suggests the
robustness of such engagement can vary considerably.63 Building ERF engagement into your
company’s standing engagement strategy is increasingly appropriate for many companies.
Questions Presented:
 Does your company have access to ERF reports and ratings?
 Has the correct contact point for ERFs been designated and communicated to them?
If not, contact the Society (gmartin@societycorpgov.org).
 Which ERFs are used by your investors?
 Are your company disclosures optimized for ERF identification and relevance?
 Are your ESG disclosures synchronized with your financial disclosures?
 Is non-disclosure of certain policies or practices hurting your company’s ESG rating?
 What disclosures would your company need to make in order to increase your ESG
scores?
B. ESG Disclosure Platforms
According to the Global Initiative for Sustainability Ratings there are 652 ESG “ratings, rankings
and indices from across the globe.”64 “Survey fatigue” among company sustainability teams has
become commonplace. What, where and how companies disclose ultimately depends on each
company’s facts and circumstances including:
 a company’s specific E&S impacts and/or related products/services;
 the intended audience of a particular disclosure;
 investor interests or demands;
 applicable regulatory requirements; and
 company resources for ESG disclosure.
63
Ensuring your company is connected to the ERFs at the right level is critical. If you would like to ensure that your
corporate secretary, IR or sustainability teams are appropriately connected, please email
gmartin@societycorpgov.org to have your company’s designated contact point communicated to the ERFs.
64
Available at http://ratesustainability.org/hub/index.php/search/report_in_graph.

There are several reporting platforms that merit discussion because their sponsorship provides
them with a high profile and data reported under them is or may be used by other ESG reporting
platforms, some investors and/or the ESG Research Firms.
i. Sustainability Accounting Standards Board (SASB)65
SASB, originally established and funded by Michael Bloomberg in 2011, promotes “high-quality
disclosure of material sustainability information that meets investor needs” through the
development of “sustainability accounting standards”—for 79 industries in 11 sectors. SASB
enjoys significant support from institutional investors through its Investor Advisory Group.66
Society member feedback indicates continuing concern among issuers about the relevance of
some SASB industry standards. In response to issuer feedback, SASB has revised its
interpretation of “materiality” to be more in line with the traditional legal definition and has
become more flexible about the necessity/desirability of ESG disclosures in SEC filings.
To date, adoption of SASB standards in company disclosures is somewhat limited but is
increasing. Having said that, SASB has established consultation processes with companies
and investors that are intended to further refine the standards to yield more relevant and
decision-useful data for investors. Moreover, SASB has significant room for growth given that a
recent Society survey indicated that more than 45% of respondents were either “not very
familiar” or “not familiar” at all with SASB.67 Issuers should consider whether disclosing
pursuant to SASB standards is responsive to their needs since broad adoption by the corporate
community could reduce the expectation of reporting against myriad surveys/platforms and
improve overall efficiency. Broad adoption by issuers could also facilitate the creating of
comparable ESG information, which is a long-sought goal of the investor community.
ii. Task Force on Climate-related Financial Disclosure (TCFD)68
Established in 2015 at the behest of the Financial Stability Board (the international grouping of
G-7 financial supervisors created after the financial crisis), the TCFD created voluntary “climate-
related financial risk” standards “for use by companies in providing information to investors,
65
See https://www.sasb.org/.
66
See https://using.sasb.org/investor-advisory-group/.
67
See Society ESWG 2017 survey.
68
See https://www.fsb-tcfd.org/.

lenders, insurers, and other stakeholders.”69 Over 250 organizations have expressed their
support for the TCFD.70
The TCFD standards are intended to be used by various parts of the financial sector—including
banking and asset management—and several non-financial sectors including energy,
transportation, materials & buildings, and agriculture/food/forest products.71 The TCFD
disclosure structure is similar to how many companies tend to think about traditional business
issues: Governance, Strategy, Risk Management, and Metrics/Targets. In addition, TCFD has
articulated extensive guidance to assist companies in formulating the relevant disclosures.
Going forward, TCFD will continue to receive support from national financial regulators and
other climate-related disclosure platforms, such as SASB and the Climate Disclosure Standards
Board, are seeking to align their own climate standards with the TCFD.72 (PRI also intends to
harmonize its’ reporting expectations with the TCFD.)73 Similar to SASB, broad adoption of
TCFD standards can help reduce the stakeholder expectation of reporting against myriad
surveys/platforms and facilitate the creation of comparable climate-related information.
iii. GRI (formerly Global Reporting Initiative)
GRI is perhaps the most venerable of the ESG disclosure platforms. Established in 1997, GRI
provides disclosure standards for companies to “communicate their impact on critical
sustainability issues such as climate change, human rights, governance and social well-being.”
According to GRI, 93% of the world’s largest 250 corporations report on their sustainability
performance thru GRI.74
Issuers that are considering whether and what to disclose should consider the GRI framework,
since it is well-known among stakeholders and has a substantial track record of implementation,
although concerns have been raised about implementation cost. In addition, GRI is working to
69
Available at https://www.fsb-tcfd.org/about/#.
70
See https://www.fsb-tcfd.org/tcfd-supporters-may-2018/.
71
See https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817.pdf at 15.
72
See https://www.cdsb.net/sites/default/files/sasb_cdsb-tcfd-convergingonclimaterisk-091317-web.pdf.
73
See https://www.unpri.org/climate-change/meeting-the-tcfd-recommendations-in-the-2018-pri-reporting-
framework/763.article.
74
See http://database.globalreporting.org/SDG-12-6/about-gri.

align its reporting standards with the UN Sustainable Development Goals,75 which many
company stakeholders will be focused on in the years ahead.
VI. Conclusion
ESG investing, shareholder engagement and disclosure have become effectively a permanent
feature of the capital markets and the larger context in which companies operate. Many
companies have embedded ESG risk and value in their operations and practices that have often
been left undisturbed. ESG creates new imperatives and opportunities for boards, corporate
secretaries and sustainability teams to identify the ESG risk and value and weave them into the
overarching narrative of long-term shareholder value. The vocabulary of ESG may be
somewhat new to certain readers, but the fundamental objective of managing real risks to
shareholder value is familiar to all of us.
75
See http://database.globalreporting.org/SDG-12-6/un-sustainable-development-goals.

ESG Roadmap: Observations and practical advice for boards, corporate secretaries and governance professionals.

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ESG Roadmap: Observations and practical advice for boards, corporate secretaries and governance professionals.