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The divergence between offer and demand of climate information is increasing rapidly Disclosure of climate information is poor: • Among top 500 global asset owners, only 7% calculate their portfolio’s emissions; only 1.4% have reduced their carbon intensity since 2014 (Asset Owners Disclosure Project) • Over 40% S&P 500 10-K filings to the SEC do not include any climate-related information Demand for enhanced disclosure is growing - and comes from many stakeholders: • Workers: In the US, in June 2015, participants in the employee pension plans of Arch Coal and Peabody Energy Corporation filed class action complaints alleging breaches of fiduciary duty for imprudently retaining Arch and Peabody stock in the pension plans’ investments despite the “sea-change” in the coal industry. • Regulators: The potential causes of action against directors or officers of companies may include breach of statutory or fiduciary duties based on a failure to “mitigate” or “adapt” or a failure to disclose in relation to the climate change risks (Prudential Regulation Authority of the Bank of England). • Shareholders: 14 energy companies are facing shareholder resolutions on environmental and social policies, more than 190 resolutions were proposed in 2014 (Bloomberg) 15 out of G20 countries mandate disclosure of (some) climate information 15 G20 countries have a mandatory corporate climate change reporting scheme 15 schemes require reporting of direct GHG emissions (scope 1) 6 schemes require reporting of emissions related to consumption of purchased energy (scope 2) 0 schemes require reporting of indirect emissions (scope 3) 4 schemes encourage reporting of indirect emissions 9 schemes encourage reporting of information other than GHG emissions (e.g. risks, strategy) 15 2 schemes apply to companies within national boundaries schemes also apply beyond national boundaries 12 schemes require verification of information 12 schemes provide penalties for non-compliance 14 schemes specify methods of GHG emissions calculation 12 schemes provide reporting guidance UNEP FI INPUTS TO THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES Facilitating the flows and integration of climate information for a smooth but determined transition to the new climate economy Eric Usher, Acting Head, UNEP Finance Initiative First meeting of the TCFD 9 February 2016 – London, UK 1 UNEP FINANCE INITIATIVE A UNEP-run network of financial institutions worldwide • Members: 230 listed and un-listed financial corporations from banking, insurance, and asset management; development banks. • Objective: Financial institutions fit for financing sustainable development • Two agendas: • Environmental risk agenda (managing brown problems) Environmental performance agenda (delivering green solutions) Availability + integration of information central to both agendas 2 UNEP FINANCE INITIATIVE • UNEP FI has track record both on Financial institutions as the readers of information Financial institutions as the issuers of information • FIs as readers: require standardised; material, integrated and verified information. • FIs as issuers: FI disclosure less advanced than disclosure in the real economy. 3 RELEVANT INITIATIVES Positive Impact Workstream 130 banks driving positive impact. Enabling assessment and disclosure. Risk managers, risk carriers and investors UNEP Inquiry: Design of a Sustainable Financial System Sustainable Stock Exchanges 48 members; 15 providing ESG reporting guidance; 13 committed to do so Investor action as the next step to disclosure 100+ investors comitted to disclosing carbon footprints Portfolio Carbon Initiative FI disclosure approaches and metrics USD 600 bn committed towards decarbonization Integrating ESG/carbon information into investment practice. 4 From: Real economy actors Risk information Financial economy actors Recommendation 1: Include finance sector climate disclosure in the scope of your work. To: Real economy actors Risk information Financial economy actors Owners Beneficiaries Regulators 5 Rationale for finance sector disclosure: 1. Enables assessment of climate risks to systemic financial stability 2. Investor disclosure drives corporate disclosure + corporate action 3. It’s already starting to happen: 6 However: 1. Disclosure requirements, approaches, and metrics for financial actors, as issuers of information, will differ from those for actors in the real economy. 2. Even within the financial economy, disclosure approaches, and metrics are likely to differ according to asset class. Therefore: Recommendation 2: Distinguish between the approaches, requirements, and metrics needed for disclosure by: i) Corporations/actors in the real economy ii) Institutional investors such as pension funds iii) Other FIs such as lenders 7 The different objectives of finance sector disclosure: 1. Assessments of the climate risk exposure of financial portfolios, financial institutions & the financial system • how well are FIs reacting to the climate economic transition and effects of climate change? 2. Assessments of the climate performance of financial portfolios, financial institutions & the financial system • to what degree are FIs supporting the climate economic transition? Therefore: Recommendation 3: Distinguish between climate risk objective and climate performance objective, and include the latter in your scope of work. 8 Rationale for distinguishing between risk and performance objectives: • Climate risk disclosure by FIs allows for an assessment of a rather immediate risk exposure. • Doesn’t say much about the degree to which Fis are conducive (or not) towards the low carbon economy. • Considering long-term financial stability concerns, shouldn’t financial system help drive the transition? • The French regulation makes the distinction and asks FIs to disclose on both. 9 Recommendation 4: Push for integrated reporting by engaging the financial accounting and audit community COP21 agreed to limit climate change to well below 2°C increase. This has profound effects on the valuation of many economic assets that are incompatible with these commitments. Critical that financial accounting and audit organizations start to address the valuation implications of the economic transitions that Governments have committed to. 10 UNEP FINANCE INITIATIVE’S CLIMATE CHANGE ADVISORY GROUP A group of recognized climate change experts from the different industries of the finance sector Chair Karsten Löffler, Allianz From banking Abyd Karmali, BoAML Giorgio Capurri, Unicredit Madeleine Ronquest, FirstRand From investment Bruce Duguid, Hermes Frederic Samama, Amundi From insurance David Bresch, SwissRe From UNEP Nick Robins, Co-Director, UNEP Inquiry Merlyn VanVoore, Climate Change Coordinator 11 Recommendation 1: Include finance sector climate disclosure in the scope of your work. Recommendation 2: Distinguish between the approaches, requirements, and metrics needed for disclosure by: i) Corporations/actors in the real economy ii) Institutional investors such as pension funds iii) Other FIs such as lenders Recommendation 3: Distinguish between climate risk objective and climate performance objective, and include the latter in your scope of work. Recommendation 4: Push for integrated reporting by engaging the financial accounting and audit community THANK YOU. Eric Usher, Acting Head, UNEP Finance Initiative 1 Photo Credit: The Economist Ceres Presentation: Inaugural Meeting of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures February 9, 2016 Investor experience of climate disclosure First meeting of the TCFD, 9th February 2016 Stephanie Pfeifer, IIGCC CEO About IIGCC - a collaborative platform on climate change for European investors 120 members in 9 countries, representing over €13 trillion in assets Collaboration demonstrates strong and consistent investor demand for action on climate change and accelerates learning Inform and Guidance, frameworks and showcase events on integrating climate investment risks and opportunities and Objectives IIGCC’s Resources for collaborative ownership engagement with companies practices Engage on policy that supports move to low carbon economy 20 A strong global agreement A robust carbon price signal Energy efficiency measures Removal of perverse incentives Lessons from our carbon footprinting roadshow Data gaps and data quality Estimations used Data reliability Lack of Scope III data Developed versus emerging markets The context matters Emissions data is not sufficient: What is the company’s exposure to regulation? What is it’s ability to pass on costs? How much is being invested in new technologies? Forward-looking data required Historical GHG emissions data does not provide any insight into the range of risks or how companies are responding to those risks – need forward-looking data to consider physical and transition risks. 21 It’s critical to get a whole narrative in order to be able to understand how policy, technology and demand dynamics will impact on a company over time. Engagement with investee companies can supplement current company disclosure IIGCC investor expectations guides Current O&G sector Mining sector Forthcoming Utilities sector Auto sector Key areas for disclosure Governance Strategy (2 degrees alignment) Improving operational efficiency Preparedness for physical impacts Public policy 22 Conclusions Improve disclosure to a level that supports financial decision-making by seeking advance on: Data gaps and quality Forward-looking data and narrative Accuracy and verification Scenario analysis and stress testing Comparability and standardisation Sufficient qualitative and quantitative information Geographical coverage Disclosure of all relevant risks 23 Thank you! 24 Climate-Related Disclosure A Carbon Tracker Initiative presentation to the Task Force on Climate-related Financial Disclosure Mark Campanale Founder & Executive Director Mike Knight Head of Regulatory Research and Reform 9th February, 2016 An Introduction: The Carbon Tracker Initiative Identity Carbon Tracker is a non profit financial think tank. Mission To enable a climate secure global energy market by aligning the capital markets with climate reality. Strategy To provide the financial and regulatory analysis to ensure that the risk premium associated with fossil fuels is correctly priced. How Mapping the transition for the fossil fuel industry to stay within a two degree budget. Our Recommendation: Priorities for focus 1.The Carbon Budget 2.Fossil Fuel Risk Exposure 3.Low-Carbon Transition A.Business Risk & Strategy B.Accounting The Carbon Budget Problem: The math 900 GtCO2 – 2˚C Carbon Budget for 20131 2049 2860 GtCO2 – Total estimated fossil fuel reserves and resources Disclosure: Embedded CO2 Why: Enables monitoring mechanism of markets’ carbon intensity Status: Lack of forward-looking methods & incorporation of price banding 1 Carbon Tracker Initative, 'Unburnable Carbon 2013: Wasted capital and stranded assets', 2013 Fossil Fuel Risk Exposure Problem: Inadequate clarity of fossil fuel risk exposure Disclosure/Standard: Capital requirements & credit ratings adequately reflect climate risk Why: Clear risk attribution will divert capital to “high quality assets” Status: Research required to understand financial exposure to fossil fuel BAU Low-Carbon Transition: Business Risk & Strategy Problem: Business strategies inadequately recognise risk reinforced by Paris Agreement Disclosure: Discussion of how business aligns with 2˚ Why: Actions rather than words Status: Companies dismiss risk as ‘unlikely’ or ‘immaterial’. Do boards believe certain demand projections? Low-Carbon Transition: Accounting Problem: Insufficient accounting of low-carbon transition Input to Standard(s): Enable asset accounting to acknowledge 2˚ scenario as default position Why: Capital driven away from surplus carbon assets Status: Existing standards fail to deliver. Financial reporting does not reflect energy transition. Our Recommendation: Approach Fossil fuel companies should acknowledge 2˚ scenario as international default position TCFD can enable financial reports to align the numbers with the rhetoric Thank You Mark Campanale Founder & Executive Director Mike Knight Head of Regulatory Research and Reform www.carbontracker.org @Carbon Bubble th 25 November 2015 Vision 2050: Business will be measured by True Profits, True Costs and True Value “[The Paris Agreement provides] an unequivocal signal to the business and financial communities, one that will drive real change in the real economy.” - Paul Polman, CEO Unilever, Chairman, WBCSD Scaling up business solutions An historic year WBCSD: Scaling up solutions Role of Financial System Collaboration with the Financial Sector Collaboration with the Financial Sector From WHY to HOW An historic year Renewables Low Carbon Freight Carbon Capture & Storage Low carbon transport fuels Energy Efficiency in Buildings Climate Smart Agriculture Materials: Cement Forests Materials: Chemicals Decision Making RISK Management Disclosure Green Bonds EP&L Possible focus areas for FSB-TCFD Financing: • Transparency of climate risk exposure investment portfolios • Climate risk weighting in index-/fund- performance • Cost of capital review for “Green” infrastructure Integrated Valuation: • Support call for Price on Carbon • Advise on valuation of climate risk and impact • Possible “Decarbonization– index” Integrated Performance Management: • Include climate risk/action in corporate governance • Support existing (legal) corporate reporting vehicles • Stress requirement of rule-based disclosures: • Definition of Materiality (importance & accuracy) • Definition of Boundary • Standards on calculation methods (GHG protocol) • Standards on disclosure metrics • Climate Risk disclosure assurance Paul Druckman, International Integrated Reporting Council Task Force on Climate-related Financial Disclosures February 2016 Who is the IIRC? Companies Investors NGOs Regulators Accounting Standard setters © International Integrated Reporting Council IIRC Vision The IIRC’s vision is to align capital allocation and corporate behaviour to wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking. © International Integrated Reporting Council “By improving reporting requirements for organizations, Integrated Reporting can bring additional information, in particular about the longer-term costs of climate change, to feed into markets and inform decision-making and policyformulation by institutions. If achieved, it will lead to better-informed and more sustainable long-term investment, for the benefit of society.” Mark Carney, Governor of the Bank of England © International Integrated Reporting Council Levels of information Strategic Data How do climate risks impact strategy? metrics and performance indicators © International Integrated Reporting Council <IR> as an umbrella for Frameworks & Standards © International Integrated Reporting Council Recommendations • • • • • Embed the principle of connectivity and information Start with strategy Seek explanations on business model Extend the disclosure horizon over material climate change information Underpin corporate governance and stewardship codes © International Integrated Reporting Council GRI Introduction and Recommendations for TCFD Michael Meehan,Chief Executive GRI Eric Hespenheide,Chair of the GSSB 9 February 2016 Our History 4500 organizations in 90 countries • Network: 14,000 • 580 core supporters • GRI 1997 • 1000s of organizations in 90 countries - 38 sectors • N etwork:25,000 practitioners • 600 core supporters - 60 countries 50 organizations In 14 countries 280 organizations in 37 countries 700 organizations in 50 countries • 350 core supporters 2000 2002 2006 2013 2016 G1 G2 G3 G4 GRI STANDARDS • Brazil – Australia – China – India – USA – SouthAfrica – Colombia – Philippines A Sustainable Economy andWorld The role of trust • The value of the sustainability reporting process is in ensuring organizations consider their impacts on a broad range of critical issues, enabling transparency about the risks and opportunities they face • Increased transparency leads to better decision making,which helps build and maintain trust in business and governments Empowering Sustainable Decisions Supporting business and governments • O ur work is embedded in different types of decision making across the world: – the sustainability reporting process helps business understand, manage and communicate their risks and impacts – governments use this information to build smarter policy • GRI focuses on four strategic areas to further help empower sustainable decision making Leading global standard “T he Global Reporting Initiative (GRI) remains the most popular voluntary reporting guideline worldw ide” • 60% of the companies that report use or reference GRI Guidelines • 74% of the G250 that report use or reference GRI Guidelines Reference:KPMG International Survey of C orporate Responsibility Reporting 2015 38 countries refer to GRI in government policy and capital market regulation EU Hong Kong Maldives References in capital market regulation References in governmental policies References in both capital market regulation and governmental policies Working in Partnership Leveraging synergies • Long-standing collaborations with over 20 international organizations – Intergovernmental organizations – International non-governmental organizations • Joint activity with partner organizations to connect GRI Standards to other relevant international initiatives and frameworks Sustainable Development Goals GRI’s role in enabling business & government action • The SD Gs call for worldwide joint action among governments,business, and civil society to end poverty,create a life of dignity and opportunity for all, and ensure t he planet ’s st ability by 2030 • They help to connect business commitments with global priorities • GRI’s contr ibutes in t hree ways: 1. Target 12.6Tracker:enabling follow-up and review of progress 2. The SDG Compass:triple alliance with UNGC andW BCSD 3. Statistics:alignment between global & national frameworks GRI Standards Key features • Designed to enhance the global comparability and quality of sustainability information • Enable organizations to disclose their economic, environmental and social impacts across more than 40 issue areas • Developed and approved in the public interest by the Global Sustainability Standards Board through a robust and transparent multi-stakeholder process GRI Standards Three pillars of climate change disclosure • Impacts - Energy and Emissions impact disclosure as point of departure and basic expectation • Disclosure of financial implications and other risks and opportunities for the organizations activities due to climate change • Disclosure of interrelated issues like water,local community,occupational health and safety. Disclosure Ecosystem Alignment Guiding Principles for Effective Disclosure 1. Materiality focus rather than compliance reporting 2. Set quality expectations through established principles 3. Combine narrative and quantitative disclosure The TCFD remit Our recommendations 1. Build on established agreements, methodologies and frameworks 2. Consider a wide range of stakeholder perspectives 3. Encourage a holistic assessment of impacts as basis for disclosure 4. Require disclosure of targets Thank you [email protected] www.globalreporting.org GRI Barbara Strozzilaan 336 1083 HN Amsterdam The N etherlands Amsterdam | NewYork | Beijing | Sydney | New Delhi | Johannesburg | Bogota | São Paulo CDP: The market led platform for climate and environmental disclosure Presentation to the TCFD Paul Simpson, CEO, CDP 9th February 2016 www.cdp.net | @CDP The disclosure process www.cdp.net | @CDP Page 82 The global environmental disclosure system 5,533 75 Companies in more Global corporate supply than 91 countries chains – US$ 2 trillion in reporting – over half annual procurement the world’s market cap 822 314 Institutional investors requesting information – a third of the world’s investable capital www.cdp.net | @CDP Cities sharing best practices – 390 million people, 61 leading megacities Page 83 Investor interest in climate, water & forests disclosure, 2003-16 900 Climate change 100 800 90 5,000 Reported in 2014 80 70 600 60 500 Water 50 400 40 1064 300 Assets (US$ Trillion) Number of Signatories 700 Reported in 2014 30 200 20 100 10 Forests 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 162 Climate Change Signatories Water Signatories Forests Signatories Climate Change Signatory Assets Water Signatory Assets Forests Signatory Assets www.cdp.net | @CDP Reported in 2014 Responding Companies, 2003-2015 CDP disclosure numbers by theme 6000 5533 5003 5000 4540 4112 4000 3715 3050 3000 2456 2204 2000 1449 1064 922 1000 1237 589 253 295 2003 2004 355 283 176 345 100 138 159 179 2013 2014 2015 0 2005 2006 2007 Unique www.cdp.net | @CDP 2008 2009 Theme Forests Page 85 2010 2011 Theme Water 2012 TCFD scope linkages to CDP scope Cities Water Governance, Management & Strategy Risks from changing physical climate parameters Climate Change Risks & opportunities Risks from changing regulation Physical risks from climate events Forests Measurement & Monitoring Risks from changing technology Transition risks from changing to low carbon economy Liability risks from 3rd party claims Task Force on Climate-related Financial Disclosures www.cdp.net | @CDP Risks from other climaterelated developments Harmonising disclosure of climate risk CDP, GRI and DJSI have linked and aligned climate disclosure CDP part of Corporate Reporting Dialogue www.cdp.net | @CDP Page 87 CDP collaboration on standards / frameworks Collaborating on sectorial approach & sharing data Formalising CDP experience into mainstream financial disclosures www.cdp.net | @CDP Page 88 Collaboration will continue with core aims Consistency Transparency Integrating with financial disclosure Driving action to mitigate risk www.cdp.net | @CDP Page 89 That in turn will benefit all stakeholders Lenders Comparability Risk minimisation Minimise disclosure burden to companies Insurers Investors Policy makers Businesses www.cdp.net | @CDP Page 90 Suggestions for TCFD’s approach Clarify users needs Review current state of corporate and investor disclosure Review current and evolving mandatory disclosure requirements Identify best practice both market led and regulation Identify gaps between needs and current best practice Make recommendations for investors, companies and regulators. Which resources can be used to guide approaches. Think about forward looking context based information such as stress tests on physical risk, 2 degree and carbon price pathways www.cdp.net | @CDP Page 91 Thank you [email protected] @CDP_PaulS www.cdp.net | @CDP Climate Disclosure Standards Board Richard Samans Chairman, Climate Disclosure Standards Board Member of the Managing Board, World Economic Forum February 16 | Tweet @CDSBGlobal Task Force on Climate-related Financial Disclosure Background, mission, stakeholders & initiatives Board Technical Working Group • Big 5 accounting firms and major accounting associations • Business • NGOs • Academia • Subject experts February 16 | Tweet @CDSBGlobal 95 To provide decision-useful environmental information to markets via the mainstream corporate report February 16 | Tweet @CDSBGlobal Task Force on Climate-related Financial Disclosure 97 Initiatives 1. Creation of common framework for mainstream reporting to financial markets Climate Change Reporting Framework Stranded assets Environmental information & natural capital 2. Analysis of enabling environment Report: Consistency in climate change reporting February 16 | Tweet @CDSBGlobal Mapping the reporting landscape Analysis of G20 reporting schemes Analysis of FTSE350 mandatory reporting Task Force on Climate-related Financial Disclosure Reporting requirements Consortium created common framework for comparable reporting of climate-related performance and risk in mainstream reports. • Requirements and principles aligned with the mainstream reporting model • Content elements and overall approach is aligned with the highest common denominator of climate reporting practice – derived from our landscape mapping work with WBCSD February 16 | Tweet @CDSBGlobal 98 Task Force on Climate-related Financial Disclosure Reporting requirements Consortium created common framework for comparable reporting of climate-related performance and risk in mainstream reports. REQ-01 Management’s environmental policies, strategy and targets REQ-02 Risks and opportunities REQ-03 Governance REQ-04 Sources of environmental impacts REQ-05 Performance and comparative analysis REQ-06 Outlook REQ-07 Organisational boundary REQ-08 Reporting policies REQ-09 Reporting period REQ-10 Restatements REQ-11 Conformance REQ-12 Assurance February 16 | Tweet @CDSBGlobal 99 With the support of Statement on Fiduciary Duty & Climate Change Commitment by companies & institutional investors to report and use climate change information on a comparable basis in mainstream reports out of a sense of fiduciary responsibility, i.e., because shareholders and plan beneficiaries have an inherent interest in the completeness and comparability of such information, since “the economic effects of global warming are tangible and therefore have implications for the relative prospects of firms, industries and investment portfolios.” • • • • Currently over 100 industrial signatories from all sectors and regions Endorsement of funds with over $10 trillion in assets under management Drive to expand industry and investor signatories by COP21 Vehicle for moving CDSB Framework from best to customary practice Improving capital allocation efficiency through market-led internalisation of environmental externalities. Join at: cdsb.net/Fiduciary February 16 | Tweet @CDSBGlobal 101 Strength of the system Task Force on Climate-related Financial Disclosure Mainstream - financial, governance statements and management commentary for investors Integration Structure Standard Materiality Sustainability - environmental and social information for stakeholders February 16 | Tweet @CDSBGlobal Key Industry 102 Our support for TCFD Task Force on Climate-related Financial Disclosure • Our Framework and materials • Landscape map • Memorandum – Success criteria for TCFD’s work – 10 questions to help frame objectives and scope and define optimal outcomes – List of potential development areas for CRFI content, such as sensitivity analysis – Ideas on the enabling environment – supporting resources and information access • List of possible work streams to refine and enhance existing activity February 16 | Tweet @CDSBGlobal 103 Memorandum for TCFD – Success criteria Task Force on Climate-related Financial Disclosure • Complement existing legal and regulatory reporting requirements and other activities that seek to influence, supervise and regulate the behaviour of organisations in relation to climate change and sustainability more generally; • Explain the objective and audience that climate related financial information (CRFI) is designed to serve; what, how and where CRFI should be reported and how to encourage continuous improvement and trust in CRFI; • Adopt and enhance current corporate climate reporting requirements and consider the corporate (industry led) response to those requirements as well as evidence from users of information about the usefulness of current reporting practice. February 16 | Tweet @CDSBGlobal 104 Questions to inform scope and objectives Task Force on Climate-related Financial Disclosure 1. Why should climate related financial information (CRFI) be reported by organisations? 2. To whom should CRFI be reported? 3. Which organisations should report CRFI? 4. What type of CRFI should be reported by organisations? 5. How should CRFI be prepared and reported? 6. What makes CRFI useful to the audience? 7. Where should CRFI should be reported? 8. What is the status of CRFI ? 9. How should users gain trust and confidence in CRFI? 10. What processes will be used for the review of CRFI and to encourage continuous improvement? February 16 | Tweet @CDSBGlobal Contact Lois Guthrie [email protected] +44 (0)203 818 3939 www.cdsb.net @CDSBGlobal February 16 | Tweet @CDSBGlobal Task Force on Climate-related Financial Disclosure 106 Initiatives Statement on fiduciary duty & climate change disclosure With the support of “We are a group of companies and investors sharing a concern that financial markets do not yet take sufficient account of climate-related corporate performance, risks and opportunities relevant to future shareholder value … For this reason, we have decided to produce and make use of such information on a common basis … whether or not required by current regulation. We take this step primarily out of a sense of fiduciary responsibility.” February 16 | Tweet @CDSBGlobal Sustainability Accounting Standards Board Industry-Based Standards to Guide Disclosure and Action on Material Sustainability Information Presentation to the Task Force on Climate-Related Financial Disclosure London, UK February 9, 2016 Jean Rogers, PhD CEO and Founder © 2016 SASB™ The SASB Mission Improved non-financial disclosure results in enhanced market efficiency The mission of SASB is to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. That mission is accomplished through a rigorous process that includes evidencebased research and broad, balanced stakeholder participation. Facts about SASB Independent 501(c)3 non-profit American National Standards Institute (ANSI) accredited standards developer Developing industry-specific standards for 10 sectors and 80+ industries Guided by the U.S. Supreme Court’s definition of materiality, SASB prioritizes material sustainability factors for disclosure to investors 109 2/9/2016 © 2016 SASB™ The Materiality Method SASB’s approach grew out of research done at Harvard University From Transparency to Performance Industry-Based Sustainability Reporting on Key Issues July, 2010 Steve Lydenberg Domini Social Investment and IRI Fellow, Harvard University Jean Rogers, PhD SASB, formerly Arup and Loeb fellow, Harvard University David Wood, PhD Initiative for Responsible Investment, Harvard University 110 2/5/16 © 2016 SASB™ The SASB Difference SASB standards are created for the market, by the market Material Decision-Useful Cost-Effective Industry-Specific Evidence-Based Market-Informed 111 2/5/16 © 2016 SASB™ Comparing Fundamentals, Competing on Performance SASB standards enable peer-to-peer comparisons and foster competition SASB Metrics Peer comparison Consistent units Complete data set 112 2/9/2016 Benchmarking © 2016 SASB™ Sustainable Industry Classification System SICS™ industries are grouped by resource intensity and sustainability impacts Health Care Non-Renewable Resources Resource Transformation Oil & Gas – Exploration & Production Oil & Gas – Midstream Oil & Gas – Refining & Marketing Oil & Gas – Services Coal Operations Iron & Steel Producers Metals & Mining Construction Materials Biotechnology Pharmaceuticals Medical Equipment & Supplies Health Care Delivery Health Care Distributors Managed Care Technology & Communications Electronic Manufacturing Services & Original Design Manufacturing Software & IT Services Hardware Semiconductors Telecommunications Internet Media & Services Renewable Resources & Alternative Energy Biofuels Solar Energy Wind Energy Fuel Cells & Industrial Batteries Forestry & Paper Transportation 113 Automobiles Auto Parts Car Rental & Leasing Airlines Air Freight & Logistics Marine Transportation Rail Transportation Road Transportation Infrastructure Electric Utilities Gas Utilities Water Utilities Waste Management Engineering & Construction Services Home Builders Real Estate Owners, Developers & Investment Trusts Real Estate Services Services Education Professional Services Hotels & Lodging Casinos & Gaming Restaurants Leisure Facilities Cruise Lines Advertising & Marketing Media Production & Distribution Cable & Satellite 2/9/2016 Chemicals Aerospace & Defense Electrical & Electronic Equipment Industrial Machinery & Goods Containers & Packaging Financials Commercial Banks Investment Banking & Brokerage Asset Management & Custody Activities Consumer Finance Mortgage Finance Security & Commodity Exchanges Insurance Consumption Agricultural Products Meat, Poultry & Dairy Processed Foods Non-Alcoholic Beverages Alcoholic Beverages Tobacco Household & Personal Products Multiline and Specialty Retailers & Distributors Food Retailers & Distributors Drug Retailers & Convenience Stores E-Commerce Apparel, Accessories & Footwear Building Products & Furnishings Appliance Manufacturing Toys & Sporting Goods © 2016 SASB™ Designed for Integration Into Mandatory Filings A de facto mandatory reporting environment without regulation US GAAP SASB Accounting Metrics True and fair representation of performance on material factors 114 2/5/16 © 2016 SASB™ A Market-Driven Response SASB addresses needs of all market participants—both investors and issuers Issuers Investors A minimum set of disclosure topics that are likely to have material impacts on companies in an industry, and a model for disclosing information on those factors in a decisionuseful way to investors A method to understand and improve performance on ESG-related value drivers A way to better satisfy the requirements of Regulation S-K in the U.S. and Directive 2014/95/EU in Europe Comparable data for benchmarking and evaluating performance Standardized, decision-useful information in a trusted channel (i.e., 10-K and 20-F) Tools and resources to analyze and understand sustainability risk at the portfolio level Guidance for more focused corporate engagement efforts SASB INDUSTRY WORKING GROUPS REFLECT BROAD-BASED INTEREST >2,800 $23.4T $11.0T PARTICIPANTS MARKET CAP 115 ASSETS UNDER MANAGEMENT 2/9/2016 © 2016 SASB™ Balanced Participation SASB’s standards-setting process is inclusive and informed by industry expertise Sample of participants • 3M • Alaska Airlines • Alcoa • Allianz Global Investors • Anheuser-Busch InBev • Apache • Applied Materials • ArcelorMittal • AT&T • Atlas Copco • Autodesk • BAE Systems • Bain & Company • Baker Hughes • Bank of America • Barrick Gold • BASF • Bloomberg LP • Blue Cross Blue Shield • BNY Mellon • Boeing • Booz Allen Hamilton • Caesars Entertainment • CalPERS • CalSTRS • CBRE • Chrysler • CISCO • Citigroup • ConocoPhillips • Credit-Suisse • Crowell & Moring 116 • Deloitte • Dell • Delta Airlines • Denaher • Deutsche Bank • Diebold • Dow Chemical • DuPont • Eastman Chemical • eBay • EMC • Encana • EY • Fannie Mae • FedEx • FMC • Ford Motor Company • General Electric • General Motors • Gerdau Ameristeel • Goldman Sachs • Google • Greif • Groupon • Harley-Davidson • Hertz • Hess • Hewlett Packard • Hill & Knowlton (WPP) • HSBC • Illinois Tool Works • ING • Ingersoll Rand • Intel • JetBlue Airlines • JLL • JP Morgan • Johnson and Johnson • Kaiser Permanente • KLA-Tencor • KPMG • Lear • Lockheed Martin • MeadWestvaco • MetLife • Microsoft • Monsanto • Morgan Stanley • Morningstar • MSCI • NASDAQ • Newfield Exploration • Nielsen • Noble Energy • Novo Nordisk • NYSE Euronext • NVIDIA • Owens Corning • Patriot Coal • Pax World Investments • Petronas • Pfizer • Pirelli • PwC 2/9/2016 IWG Participation 31% 31% Corporate Professionals Investors 37% Public Interest & Intermediaries • Prudential • Range Resources • Raytheon • RBC • Rio Tinto • Sasol • Schlumberger • Siemens • Solvay • Spectra Energy • Statoil • Sunoco • Symantec • Talisman Energy • Teck Resources • Thomson Reuters • Tyco • UBS • Visa • Wyndham Worldwide • Weyerhaeuser • Yahoo © 2016 SASB™ Shaped By Consensus SASB topics must achieve a high level of consensus among all stakeholder types Stakeholder-specific feedback on likely materiality of all proposed disclosure topics (% of respondents, by interest group, who think suggested topics are likely to constitute material information) 100 90 80 Percentage 70 60 50 40 30 20 10 0 Health Care Financials Technology & Non-Renewable Communications Resources Transportation All % 117 Services Corporations % 2/9/2016 Resource Transformation Consumption 1 Consumption 2 Renewable Resources & Alternative Energy Infrastructure Investors/Analysts % © 2015 SASB™ Rigorous, Transparent Process SASB standards are rooted in evidence and shaped by consensus UNIVERSE OF ESG ISSUES Industry Research Evidence-based discovery Public Comment Feedback and refinement Standards Development Vetting Industry working group engagement and evaluation Disclosure topics and metrics consensus and definition Provisional Standards Release Codification Road testing by companies 2016: Deep consultation with issuers, internal review, cost-benefit analysis 2017: Code and basis for conclusion 118 2/9/2016 © 2016 SASB™ Known Value Drivers SASB standards address business issues known to impact value creation Financial Drivers Types of Financial Impact 119 COST REVENUE Demand for Core Products and Services Intangible Assets and Long-Term Growth Operational Efficiency/Cost Structure 2/9/2016 ASSETS & LIABILITIES Valuation of Core Assets and Liabilities COST OF CAPITAL Governance, License to Operate and Risk © 2016 SASB™ Robust Standards SASB standards contain more than just metrics Accounting metrics SASB Standard Disclosure topics Technical protocol 120 2/9/2016 © 2016 SASB™ Cost-Effective Disclosures SASB provides a cost-effective way to report on material sustainability factors 74 percent of SASB topics are already being addressed in SEC filings. SASB standards average 5 topics and 14 metrics (78 percent quantitative) per industry. 121 2/9/2016 © 2016 SASB™ Major Themes from Standards Setting Interesting patterns have begun to emerge after 10 sectors and 79 industries CLIMATE CHANGE Event readiness in health care delivery, carbon intensity of reserves in oil and gas, emissions from refining, vulnerability of real estate and insurance, impact on crop yields $29.1T 80% $26.9T 75% $8.3T 23% $3.9T 11% FINANCING & RESPONSIBLE LENDING Responsible lending and transparency of terms in mortgages, consumer finance, and education, financial literacy initiatives 122 93% ACCESS & AFFORDABILITY OF SERVICES Consumption II Orphan Energy drugs and pricing, access to medicine and coverage, transparency in Renewable procedures and billing, financial inclusion and capacity building Infrastructure $33.8T RESOURCE INTENSITY & SCARCITY 24/7 health care facilities and data centers, fuel management in transport rare earth minerals in manufacturing, water consumption in beverages, oil and gas, agriculture Percentage of U.S. equity market PRODUCT ALIGNMENT & SAFETY Counterfeit drugs, food quality and nutrition, car and airline safety, responsible gambling and drinking, product design and take-back Market cap of companies affected 2/9/2016 © 2016 SASB™ Climate Change: Ubiquitous but Differentiated Climate change affects majority of capital markets, but industry impacts are unique CLIMATE CHANGE Impacts 72 of 79 industries Event readiness in Health Care Delivery Carbon intensity of reserves in Oil & Gas – Exploration & Production Emissions from refining in Oil & Gas – Refining & Marketing Vulnerability of real estate in Insurance Impact on crop yields in Agricultural Products Financed emissions in Commercial Banks 123 2/9/2016 93% $33.8T Percentage of U.S. equity market impacted Market cap of companies affected © 2016 SASB™ SASB’s Climate Risk Framework SASB frames the impacts of the climate change in a way that is relevant to investors 124 2/9/2016 © 2016 SASB™ Channels of Impact Across Industries SASB has mapped climate risk for all industries of the economy 125 2/9/2016 © 2016 SASB™ Carbon Footprint is Not Enough GHG emissions are important, but other more prevalent risks are poorly disclosed Type of risk Affected market cap % of U.S. equity market OVERALL CLIMATE RISK $27.5T 93% Physical Effects $18.1T 61% Transition to a LowCarbon Economy $26.3T 89% Climate Regulation $6.3T 21% State of Disclosure on Climate Risk in 10-K and 20-F 0% 20% 40% 60% 80% Capital markets data from Jan. 4, 2016; figures for U.S.-listed, non-OTC securities; figures include impacts from both primary and secondary risk types; disclosure data from FY 2012-2014 10-K and 20-F filings of the top 10 U.S.-listed companies by revenue for each industry, resulting in a total of 690 companies. 126 2/9/2016 © 2016 SASB™ 100% Cost-Effective Alignment Sample of how SASB climate metrics align with a variety of approaches already in use 127 2/9/2016 © 2016 SASB™ SASB and Climate Risk A look at investor exposure to climate risk and an analysis of corporate disclosure Climate risk is systemic in nature Climate risk manifests differently in each industry Understanding climate risk requires specialized disclosures Climate risk has tangible, identifiable financial implications Climate risk is not adequately disclosed 128 2/9/2016 © 2016 SASB™