© 2017 SASB™

The Evolution of SEC Disclosure –

The Materiality of ESG Information and its Use by Investors

Sustainability Accounting Standards Board & Workiva

March 14, 2017

• One hour of CPE credit

• Four attendance questions asked during webinar

• Logged in with correct contact information

Obtaining Your CPE Credit

Your Panelists

Janine Guillot Director of Capital

Markets Policy and

Outreach, SASB

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Robert HerzFormer Chairman,

FASB.

Board Member of

SASB, Workiva,

Fannie Mae, Morgan

Stanley

Rakhi KumarHead of ESG

Investments and

Asset Stewardship,

State Street Global

Advisors

Malcolm RyerseDirector, Responsible

Investment,

Columbia Threadneedle

Investments

Agenda For Today’s Webinar

• The SASB Perspective

(8 minutes)

• The Corporate Reporting and Regulatory Landscape

(8 minutes)

• The Investor Perspective

(15 minutes)

• Panel Discussion and Q&A

(30 minutes)

Learning Objectives:

• Gain a broader understanding of why investors care about ESG info and how

investors use the information.

• Learn about the current regulatory environment as it relates to corporate reporting

on sustainability issues.

• Understand the landscape and state of disclosure for climate-related risks.

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Polling Question #1

What is your role?

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Investors Care about SustainabilityA rapidly increasing share of global assets are managed with ESG issues in mind

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Initiative AUM (US $)

PRI $59 trillion

CDP $95 trillion

International

Corporate

Governance

Network

$26 trillion

Investor

Network on

Climate Risk

$15 trillion

Key sustainability-related

investor initiatives and

Assets Under Management:

Trends in U.S. Sustainable, Responsible, & Impact Investing 2005-2016

Adapted from US SIF Foundation

Today, 1 out of every 5 dollars under professional management in

U.S. managed under sustainable and responsible investment strategies.

© SASB

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

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Evaluation of the Materiality of Sustainability Issues in Each IndustrySASB’s research and prioritization starts with a broad set of sustainability issues

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Environment

• GHG emissions

• Air quality

• Energy management

• Fuel management

• Water and wastewater management

• Waste and hazardous materials

management

• Biodiversity impacts

Social capital

• Human rights and community relations

• Access and affordability

• Customer welfare

• Data security and customer privacy

• Fair disclosure and labeling

• Fair marketing and advertising

Human capital

• Labor relations

• Fair labor practices

• Diversity and inclusion

• Employee health, safety, and

wellbeing

• Compensation and benefits

• Recruitment, development, and

retention

Business model and

innovation

• Lifecycle impacts of products

and services

• Environmental and social

impacts on assets and

operations

• Product packaging

• Product quality and safety

Leadership and governance

• Systemic risk management

• Accident and safety

management

• Business ethics and

transparency of payments

• Competitive behavior

• Regulatory capture and political

influence

• Materials sourcing

• Supply chain management

Business model and innovation

Social capital

Human capital

Leadership and

governance

Environment

UNIVERSE OF SUSTAINABILITY

ISSUES

© SASB

UNIVERSE OF

ESG ISSUESSUSTAINABILITY

ISSUES

Industry Research

Industry Working Groups

Evidence VettingStandards Council

Sub-Committee on Metrics Quality

Public Comment

Final Revisions

Provisional Standard

Average of

5 topics and 13 metrics

Standards

maintenance

Ongoing

Rigorous Process Drives SASB StandardsStandards for each industry are rooted in evidence and shaped by market input

2800 Market Participants

Evidence of Financial Impacts

90 days

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Industry-

specific

disclosure

topics

Technical protocol for

compiling data; activity

metrics for normalization

Accounting metrics for

each disclosure topic

Robust Standards Designed to Provide Decision-Useful InformationSASB standards contain industry-specific disclosure topics, metrics, and guidance

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SASB Materiality MapA first view of exposure to material sustainability risks across a diversified portfolio

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Complementary EffortsMandatory and voluntary reporting serve different purposes for different audiences

Material Information

Sustainability factors likely to

affect the financial condition or

operating performance of a

company

Relevant Information

All environmental, social, and

governance topics of interest

Investors

All

Stakeholders

Alignment is key (e.g., consistent approach to determining and disclosing “material”

information, presentation of results)

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10-K or

20-F

© SASB

Polling Question #2

How would you characterize your sustainability disclosures?

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The Corporate Reporting

and Regulatory Landscape

The Pain Point for InvestorsInvestors lack tools needed to integrate sustainability into investment decisions

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Source: PwC, ESG Pulse 2016, October 2016. Base: 28

Issuer ReportingInvestor Needs

vs.

29%

Issuer confidence in the quality

of the ESG information reported

Investor confidence in the quality of the

ESG information received from issuers

100%

How risks and opportunities are identified and quantified in financial terms

Comparability of sustainability reporting between companies in the same industry

Relevance and implications of sustainability risks/issues

Key performance indicators related to each identified material issue

Process used to identify material sustainability issues 57%

82%

79%

74%

68%

High degree of investor dissatisfaction with the current state of ESG disclosure

Source: PwC, Sustainability Goes Mainstream, May 2014

% Investors Dissatisfied

© SASB

Reporting Burden for CompaniesMultiple ESG questionnaires consume corporate resources and provide little value

A market standard could

reduce the burden and

risk of selective disclosure.

• Large-cap companies receive hundreds of

information requests each year, leading to

“questionnaire fatigue” and information

asymmetry.

• On a 2016 Institute of Management Accountant

(IMA) webinar survey of 100 members, 7.5% of

respondents reported completing more than 250

ESG surveys per year

• At GE, responding to over 650 ESG questionnaires

involved more than 75 people at GE and took

several months, “with virtually no value to (GE’s)

customers or shareholders and even less impact

on the environment.”*

*Ann R. Klee, The Environmental Forum, May/June 2015

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True and fair representation of

performance on material factors

SASB Disclosure Topics

and Metrics designed for

integration into MD&A,

risk factors, and other

sections as appropriate

US GAAP governs

presentation of the

financials

Designed for Integration into Mandatory Public FilingsAn integrated reporting environment without regulation

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Definition of Materiality from an Investor’s PerspectiveSASB is guided by U.S. securities law in identifying disclosure topics

MD&A Disclosure Rules

• Item 303 of Reg SK requires disclosure of certain known trends and uncertainties

• Companies must evaluate:

Likelihood of occurrence

Effect on a company’s financial condition or results of operations

US Supreme Court Definition

“Material information” is defined by the U.S. Supreme Court as

presenting a substantial likelihood that the disclosure of the omitted

fact would have been viewed by the reasonable investor as having

significantly altered the “total mix” of information made available.

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976)

2

1

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Current State of DisclosureOpportunity to transform disclosure from boilerplate to metrics-based

Source: SASB Annual State of Disclosure Report 2016

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STATE OF DISCLOSURE IN SEC FILINGS

19 © SASB

4,300+ public filings

Analyze disclosure quality

Benchmark disclosure against

industry peers

Access disclosures on SASB topics

Demo available at

navigator.sasb.org

Tools for InvestorsDisclosure Intelligence tool in the SASB Navigator provides insight into disclosure

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Polling Question #3

Do your investors ask you about the impact of environmental, social and governance

factors on your business?

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SASB Standards –

Use by Investors

Institutional Investor Support for Improved ESG Disclosure SASB’s Investor Advisory Group

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IAG members:

Encourage companies to disclose material and decision-useful ESG information to investors

Believe standards would improve the quality and comparability of sustainability-related

information

Believe SASB’s approach—which is industry-specific and materiality-focused —will help

provide investors with relevant and decision-useful information

Agree to participate in SASB’s ongoing standards development process, so that outcomes

best reflect investor needs

Agree to encourage companies to participate in SASB’s ongoing standards development

process, so that outcomes reflect both issuer and investor viewpoints

Believe that SASB standards can inform integration of sustainability factors into investment

and/or stewardship processes, such as corporate engagement and proxy voting

The SASB Investor Advisory Group (IAG) comprises leading asset owners and asset

managers who recognize the need for consistent, comparable and reliable disclosure

of material, decision-useful ESG information.

SASB Investor Advisory GroupIAG Statement

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Rakhi KumarHead of ESG Investments and Asset Stewardship, State Street Global Advisors

Malcolm RyerseDirector, Responsible Investment, Columbia Threadneedle Investments

What is the biggest obstacle to achieving a greater level of

sustainability disclosure to your investors in your organization?

Polling Question #4

Your Panelists

Janine Guillot Director of Capital

Markets Policy and

Outreach, SASB

3/14/2017 © SASB28

Rakhi KumarHead of ESG

Investments and

Asset Stewardship,

State Street Global

Advisors

Malcolm RyerseDirector, Responsible

Investment,

Columbia Threadneedle

Investments

Robert HerzFormer Chairman,

FASB.

Board Member of

SASB, Workiva,

Fannie Mae, Morgan

Stanley