‘It’s basically open season for environmental and social proposals’: Highlights from the ESG Integration Forum – US

Earlier this month, professionals gathered virtually at the ESG Integration Forum – US to discuss the ESG issues affecting governance and investor relations teams heading into 2022.

The event began with a discussion around some of the recent and looming ESG-related regulatory changes coming out of the SEC. Those changes are set to impact not just companies’ own disclosures but also shareholder proposals in the upcoming proxy season and, as such, set the stage for much thinking and discussion around ESG matters.

Panelists Alexandra Higgins, managing director with Okapi Partners, and Janice Warren, managing director and head of ESG reporting solutions at Nasdaq OneReport, explained that companies and their boards can start preparing for expected disclosure requirements even before rules are finalized.

For example, SEC chair Gary Gensler has ordered agency officials to prepare a proposed rule-making that would require companies to report on climate risk. The proposal had not been released at time of writing, but Higgins noted that a lot of feedback sent to the SEC earlier this year urged the SEC to rely on the TCFD framework, with some also calling for it to use SASB’s framework.

In advance of a rule coming into effect, companies should start taking an inventory of their Scope 1 and Scope 2 emissions and start enhancing their climate governance, Higgins advised. ‘It’s going to be important to assign this to the board or to a committee,’ she said, adding that companies should start analyzing their climate-related risks and opportunities under TCFD.

Warren noted that the SEC’s division of corporation finance recently published a sample letter outlining comments the division may make to companies regarding their climate-related disclosures, or the lack thereof.

The letter is a helpful guide in highlighting areas of interest and concern, she explained: ‘It’s a great resource for companies and a [kind of] checklist for good governance and disclosure on climate matters.’ She added that the SEC’s climate disclosure proposal will likely discuss both companies’ impact in terms of climate change and the impact of climate change on companies.

The SEC is also expected to propose requirements for additional human capital management disclosures. Higgins described requirements adopted in 2020 on the topic as vague, and predicted that the upcoming proposal would define human capital management and relevant metrics such as employee turnover.

Companies should start assessing their human capital management disclosures now, including their diversity statistics, Higgins said. She noted that many investors are interested in EEO1 data regardless of whether the SEC requires it to be released. Companies should also start strengthening their policies around human capital management and diversity, equity and inclusion, she advised.

Warren said the looming proposal provides an opportunity for, among other things, enhancing boards’ diversity and educating them on human capital management issues. Companies should also start tracking and collecting internally information that may need to be reported, she added. 

In another regulatory development with ESG implications, the SEC’s division of corporation finance last month updated its guidance on the process by which companies seek permission to exclude shareholder proposals from their AGMs. The notice rescinds three staff legal bulletins – 14I, 14J and 14K – and has widely been seen as making it likely that more ESG proposals will end up on proxy statements.

Higgins said the change may well mean that fewer shareholder proposals will be excluded, particularly those dealing with environmental issues and those relating to human capital management issues with broad social implications.

‘It’s basically open season for environmental and social proposals,’ she said. One approach that has been suggested for companies to respond to such proposals is to hold dialog with proponents and see whether an agreement can be reached, she noted. 


OTHER INSIGHTS
Elsewhere during the forum, panels covered topics such as managing year-round engagement on ESG, how teams can work together to prioritize and articulate material ESG issues, assurance of ESG data, how small and mid-cap companies can tackle ESG and getting the right metrics for social, human capital and diversity matters.

Advice shared by speakers across the two-day event included:

• Show both what your company has achieved in terms of climate change and what it needs to do to get to net-zero
• Consider having a central repository for your ESG data as requirements develop
• Third-party verification is likely to be the future for ESG data
• Following human capital and climate change, companies may face pressure to release data around privacy and cyber-security
• Investors are increasingly expecting companies to tie executive compensation to climate goals
• Know where you stand with your peer companies in terms of what you are disclosing
• Help the market know where to find your company’s ESG data
• Think about ESG expertise and education across your board, not just in one director.

To find out more about the ESG Integration Forum – US or to watch replays of the sessions, please click here.