Report highlights evolving ESG disclosure in proxy statements

US companies are continuing to ramp up ESG-related disclosures and visual presentations of board processes in their proxy statements, according to an analysis of this year’s crop.

Companies have been expanding their reporting on ESG matters amid growing investor interest in those topics. Donnelley Financial Solutions’ (DFIN) report on 2019 proxy statements highlights how far that reporting has come in one of the most important tools issuers have to communicate with investors. ‘[ESG disclosure] has exploded over the last three years,’ Ron Schneider, director for corporate governance services at DFIN, tells Corporate Secretary.

Companies face a wide array of ESG issues, some of which are more material than others to the issuer and its investors, leading to a wide variety of disclosures. Overall, however, Schneider says companies are expanding the ESG section of the proxy statement each year and moving it around within the statement to make it more prominent, adding that ‘it’s an extremely dynamic section.’

‘Leading companies are now using proxies to tell their strategic ESG story, which helps investors get a clearer picture of long-term value,’ John Truzzolino, director of business solutions at DFIN, says in a statement on the report.

Schneider says the evolution of this reporting for a company might start with it saying in the proxy, ‘We pay attention to ESG issues.’ The following year, the same company might say, ‘These are our ESG goals’ and the following year say, ‘This is the progress we have made toward those goals.’ That progress is increasingly presented statistically and based around materiality considerations.

Another evolving area within proxy statements is the explanation of board processes such as board oversight of risk, director recruitment, shareholder engagement, board evaluations and setting compensation. Companies increasingly describe what those processes are, how they work and what the outcomes are – for example, how many directors have been recruited in the past few years with certain skillsets – using visual presentations, Schneider says.

A couple of years ago only two or three companies included such features, but now dozens are doing so, he notes: as companies see their peers or competitors taking this approach, the more they are encouraged to follow suit.

According to Schneider and DFIN, other trends in proxy statements include:

• In addition to CEOs’ cover letters, an increasing number of cover letters written by lead independent directors or independent board chairs
• Increased use of corporate branding, not just for cover art but also within the report itself
• Efforts to ‘humanize’ the board, such as including photographs of directors or some personal information
• Detailing the link between business strategy and the executive compensation program
• A growing focus on digital proxies, which are used by many institutional investors.