January 28, 2016

Shareholder Engagement: How to Handle ESG Inquiries

Here’s something from Abby Jones, who recently retired from QEP Resources as corporate secretary:

Investor Relations and corporate governance teams increasingly are receiving investor questions about ESG matters. What should these teams do if they receive a call or letter?

How We Got Here – ESG stands for Environmental, Social and Governance. ESG has become shorthand for investment methodologies that consider sustainability. The ESG investment theory posits that considering ESG factors offers portfolio managers added insight into the quality of a company’s management, culture, and risk profile. ESG investors want companies to increase their disclosure of environmental, social and governance information so that investors can make investment decisions with that information in mind.
In February 2010, the SEC issued an interpretive release titled “Commission Guidance Regarding Disclosure Related to Climate Change.” In response, few companies provided climate change disclosure in their 10-Ks. Fearing the SEC guidance was inadequate, advocacy groups including the Global Investor Coalition on Climate Change, the Climate Disclosure Standards Board, and the Sustainability Accounting Standards Board issued carbon asset risk disclosure guidelines.

And some sustainability advocacy groups – such as Ceres – claim that most companies have failed to provide meaningful carbon asset risk disclosures in response to these guidelines. In order to obtain information, some large investors with ESG goals have begun to contact investors directly. Hence the calls.

Who is Calling Whom? – Some large investors such as state pension funds and large institutions with specialized funds have ESG teams devoted to gathering ESG information. Their first point of contact is typically someone in Investor Relations or the Corporate Secretary’s department.

What Do Investors Want to Know? – The information these investors seek can be very specific. For example, some investors have recently asked for greenhouse gas (GHG) emission totals, plans to submit data to the Carbon Disclosure Project, internal GHG emission targets, plans to adopt a corporate sustainability plans, and other related data. Those asking the questions are often well-informed about the subject matter and the industry involved.

What Should I Do Upon Receiving a Call or Letter?

Here are my suggestions:

1. Make sure all internal stakeholders are aware your company has been contacted. This will generally include Investor Relations, the Operations and/or the Health Safety and Environmental (HSE) team, the governance team, the CEO and CFO. Obviously, the list will vary depending on the organization.
2. Determine whether any of the information is proprietary, and your company’s willingness to release it, whether narrowly or broadly.
3. Determine whether your company has the information sought, and whether you measure it the same way the requesting investors do.
4. Ascertain which department(s) are responsible for gathering and maintaining the information.
5. Put together a working group to assemble the data to be released and to answer the policy questions.
6. Decide whether your company wants to provide the information just to the investor who requested it – or more broadly.
7. Set up a time to talk with the investor representatives. Even if your company plans to broadly disseminate the information, you should take the time to speak with the investors who contacted your company.
8. If you plan to disclose to just the individual investors, review all data you plan to provide with legal counsel to ensure you do not run afoul of Regulation FD. Have that counsel present during the call in case the answer to a question prompts disclosure of additional information.
9. If you plan to disclose the information more broadly, work with the Legal Department Investor Relations, Financial Reporting, and Corporate Communications to ensure adequate and accurate disclosure.
10. Have employees who understand the subject matter on the phone for the call. They are best qualified to have these discussions – and to answer specific questions.
11. If you have good facts to tell, by all means tell them. Investors want you to answer their questions – but in my experience they also like to hear about innovative processes your company has developed to advance ESG goals. Don’t be afraid to go “off topic” to provide good news.

Examining Carbon Reduction ROI & Competitive Positioning

Here’s a great blog by Pam Styles that analyzes disclosures companies have made about their ROI when it comes to carbon reduction initiatives. It includes some good sample purchasing company disclosures…

Transcript: “Audit Committees in Action: The Latest Developments”

We have posted the transcript for our recent webcast: “Audit Committees in Action: The Latest Developments.”

Broc Romanek