April 17, 2013

Investor Group Proposes Corporate Sustainability Disclosure As Global Listing Standard

In what can be a new trend, an investor group, the Investor Network on Climate Risk – led by Ceres – has issued a consultation paper in an effort to place sustainability disclosure requirements into listing standards on a global basis. Companies are welcome to submit comments during the consultation period, which ends May 1st. The INCR webpage hosts the Consultation Paper, the supporting Appendices and a Comment Template. After receiving comments, a subset of the INCR investors will sort through the comments and figure out where investors have the greatest agreement. The group has already started engaging with stock exchanges – including those that already have a sustainability standard – in an effort to install a uniform standard at all of them.

Here’s an excerpt from a blog by Davis Polk’s Ning Chiu on this:

INCR includes notable investors such as BlackRock and others traditionally associated with being active on corporate social issues, including Boston Common Asset Management and the AFL-CIO. The group is concerned that the ability to factor sustainability issues into investment decisions is difficult due to what they perceive as inconsistent and insufficient corporate reporting. In addition, INCR members have heard from companies that have been reluctant to report on sustainability that they are not certain what specific information investors need and how it will be used. INCR members have been in discussions with NASDAQ OMX and several other stock exchanges, and the paper is in response to those exchanges urging INCR to develop more clarity and consensus on “a unified sustainability disclosure listing standard that could be adopted by all stock exchanges.”

The three segments of a listing requirement being proposed for listed issuers globally include:

– Materiality assessment in annual financial filings where management is expected to discuss its approach to determining the company’s material environmental, social and governance (ESG) issues, with key components that include: (a) how the company determined its material ESG issues; (b) who was involved in that determination; (c) which ESG issues were determined to be material and why, including a discussion of risks and opportunities related to each issue and the connection to financial performance and business strategy; and finally (d) a periodic review of the assessment and reporting on the frequency of scheduled reviews.
– A Global Reporting Initiative (GRI) content index, with every company providing a hyperlink in its annual financial filings to such an index, which will inform investors about the availability and location of a company’s ESG data.
– Corporate ESG disclosure about the following categories of issues, using a “comply or explain” approach: climate change; diversity; employee relations; environmental impact; government relations; human rights; product impact; and safety and supply chain.

The consultation paper notes that about 3,400 companies published a sustainability report as of 2011, and few companies discuss material ESG information in their financial filings. Bloomberg published corporate ESG data for over 5,000 companies in 2011, with more than 120 ESG indicators on display.

The paper contains a number of questions seeking feedback. The initial comment, or consultation, period ends on May 1, 2013. INCR intends to host meetings to discuss the comments with other investors, and Nasdaq has committed to engage in discussions with other stock exchanges as well as the International Organization of Securities Commissions (IOSCO).

Checklist: Corporate Sustainability Initiatives

Check out this extensive checklist on corporate sustainability initiatives – posted in our “ESG” Practice Area – courtesy of Kelley Drye’s Jeanne Solomon & Steven Humphreys. If you would like to contribute a checklist to our site, please be in touch…

Social Media: Netflix Begins Using Facebook as Channel & Infrax Announces Channel Use

Last week, I blogged about Netflix filing a Form 8-K to list five social media channels by which it may disseminate company information. I mused that the company might have done this as CYA – but I was wrong. As noted in this WSJ article, CEO Reed Hastings disclosed Thursday on his personal Facebook page that Netflix’s customers had streamed more than four billion hours of video over the past three months – a post similar to the kind that got him in trouble with the SEC before the Section 21(a) report.

Meanwhile, Infrax filed this Form 8-K to list two social media channels of its own. As Dominic Jones tweeted: “There’s something not quite right about a company with 1 tweet and 16 followers using Twitter for Reg FD.” I am maintaining a list of 8-Ks filed by companies who announce they may disseminate information via social media in our “Social Media” Practice Area. And don’t forget our upcoming webcast: “Social Media: Parsing the Hypos.”

– Broc Romanek