Eng   |   Ru

Изменение климата и корпоративное управление

Платформа директоров для обсуждения вызовов новой экономики и климатической бизнес-стратегии

Главная E Отчетность и раскрытие E Oversight of OSG – ten questions for boards

by Sydney Posner

28 October 2020

According to Protiviti, in 2019, 90% of companies in the S&P 500 issued separate sustainability reports—not part of SEC filings—and, as of February 2020, over 1,000 companies with an aggregate market cap of $12 trillion have endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations for sustainability disclosure (see this PubCo post and this PubCo post). Similarly, use of the Sustainability Accounting Standards Board (SASB) framework has increased by 180% over the last two years (see this PubCo post).  With this heightened focus on sustainability, how can boards best oversee ESG?  To that end, in this article, consultant Protiviti offers ten questions about ESG reporting that boards should consider with their management teams.

Under pressure from large asset managers and other institutional investors, such as BlackRock and State Street Global Advisors, environmental groups and climate activists, consumers and even employees, many companies have sought to demonstrate their bona fides when it comes to sustainability. According to the article, “ESG reporting presents an opportunity for companies to share what they are doing to sustain the long-term interests of shareholders while also addressing the interests of customers, employees, suppliers and the communities in which they operate.” Just this year, in his annual letter to CEOs, Laurence Fink, CEO of BlackRock, the world’s largest asset manager, announced a number of initiatives designed to put “sustainability at the center of [BlackRock’s] investment approach.” According to Fink, “[c]limate change has become a defining factor in companies’ long-term prospects.” What’s more, he made clear that companies needed to step up their games when it comes to sustainability disclosure. (See this PubCo post.) Similarly, SSGA has announced that, in 2022, it plans to start voting against the boards of big companies that have underperformed relative to their peers on ESG standards, particularly financially material sustainability issues, and cannot explain how they plan to improve. (See this PubCo post.) SSGA believes that directors have a significant  role to play in promoting action on ESG issues, but still exhibit some “ambivalence” about their roles in ESG oversight. During engagements, SSGA wants to “understand how boards are developing ESG-aware strategies, as well as how they are overseeing and incentivizing management to consider and measure performance of financially material ESG issues.” (See this PubCo post.) But how should boards approach their oversight of this issue? Below are ten suggested questions from Protiviti about ESG reporting for consideration and discussion by boards with their management teams:

  • “Have we set compelling sustainability targets and goals that appeal to the marketplace?” This question requires directors to understand where the company’s sustainability goals stand relative to the competition. Are they serious goals that are integrated into the company’s strategy?
  • What story are we telling the street?” How is the street reacting to the company’s message on ESG, including in comparison with competitors and the rest of the industry? Protiviti advocates that companies “articulate how ESG initiatives make a difference in executing the strategy and identify areas where it sees the greatest opportunity to create value.”
  • “Can we integrate our ESG reporting with financial reporting?” Investing in ESG involves costs, but can also lead to new revenue opportunities and operating efficiencies, all of which can impact financial performance. As a result, Protiviti suggests, it would make sense to integrate ESG reporting into financial reports and earnings calls.
  • “What reporting framework are we using, and why?” In the absence of a consensus framework, Protiviti suggests that companies may need to use several frameworks to address  “investor needs for common industry metrics to compare and contrast performance.”  A survey of the S&P 500 by the G&A Institute showed the usage of the most common frameworks as follows: the CDP (65%), Global Reporting Initiative (51%), the United Nations Sustainable Development Goals (36%), SASB (14%) and TCFD (5%). Until either the SEC mandates the use of a framework, which, as noted above, seems unlikely in the near term at least, or a consensus develops regarding adoption of a framework, Protiviti expects the use of multiple frameworks to continue. Protiviti believes that “the use of an established framework, such as the SASB’s, is an effective way to avoid ‘greenwashing,’ or overstating ESG efforts.”
  • What accountabilities have we set for ESG-related performance?” Protiviti advocates that, to ensure appropriate management attention, executives should sponsor ESG initiatives, and ESG performance should be monitored together with financial and operational performance and linked to incentive compensation plans.
  • Is our ESG reporting satisfying the needs of the investment community and other stakeholders?”  How does management engage with institutional investors and ESG stakeholders to understand their expectations? Protiviti also suggests monitoring ESG ratings and the reasons for changes in those ratings.
  • “What are our ESG risks, and how well are we managing them?” Protiviti advises that companies view ESG risks and opportunities through the company’s “enterprise risk management lens,” and refers companies to a COSO document, “Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,” for guidance. As part of its oversight responsibilities, the board will need to consider the adequacy of the disclosures of material risks related to ESG issues, such as climate, and the material impact of the company’s ESG-related activities in its periodic reports and other SEC filings.
  • “What have we done to ensure that our ESG-related disclosures are reliable?”  Here, Protiviti recommends that directors understand the level of management’s confidence in the company’s disclosure controls and procedures related to ESG metrics and reporting. Internal audit may also be able to provide assurance as to the fair presentation of the underlying data.
  • “Is our ESG reporting satisfying the needs of the investment community and other stakeholders?”  How does management engage with institutional investors and ESG stakeholders to understand their expectations? Protiviti also suggests monitoring ESG ratings and the reasons for changes in those ratings.
  • “What are our ESG risks, and how well are we managing them?” Protiviti advises that companies view ESG risks and opportunities through the company’s “enterprise risk management lens,” and refers companies to a COSO document, “Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,” for guidance. As part of its oversight responsibilities, the board will need to consider the adequacy of the disclosures of material risks related to ESG issues, such as climate, and the material impact of the company’s ESG-related activities in its periodic reports and other SEC filings.
  • “What have we done to ensure that our ESG-related disclosures are reliable?”  Here, Protiviti recommends that directors understand the level of management’s confidence in the company’s disclosure controls and procedures related to ESG metrics and reporting. Internal audit may also be able to provide assurance as to the fair presentation of the underlying data.
  • “Is our ESG reporting satisfying the needs of the investment community and other stakeholders?”  How does management engage with institutional investors and ESG stakeholders to understand their expectations? Protiviti also suggests monitoring ESG ratings and the reasons for changes in those ratings.
  • “What are our ESG risks, and how well are we managing them?” Protiviti advises that companies view ESG risks and opportunities through the company’s “enterprise risk management lens,” and refers companies to a COSO document, “Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,” for guidance. As part of its oversight responsibilities, the board will need to consider the adequacy of the disclosures of material risks related to ESG issues, such as climate, and the material impact of the company’s ESG-related activities in its periodic reports and other SEC filings.
  • “What have we done to ensure that our ESG-related disclosures are reliable?”  Here, Protiviti recommends that directors understand the level of management’s confidence in the company’s disclosure controls and procedures related to ESG metrics and reporting. Internal audit may also be able to provide assurance as to the fair presentation of the underlying data.
Поделитесь материалом с коллегами и знакомыми: