June 25, 2020

SASB Disclosures: Contributing to Societal Change?

Rhonda Brauer shares her observations about our current crises and how SASB’s “financial materiality” disclosure framework could assist in bringing about societal change:

As news occurs literally outside my window, I see accelerated demands for societal change that are impacting company, investor and other stakeholder expectations.  The following data points affect not only “human capital” and environmental issues, but also “social capital” issues encompassing community relations and human rights:

  1. The global COVID-19 pandemic, which has disproportionately killed more black Americans;
  2. The killing of George Floyd and likely continuing protests calling for deeper structural changes to systemic racism in our country;
  3. The Business Roundtable’s 2019 Statement on the Purpose of a Corporation, which committed to support the communities in which companies operate, as well as the World Economic Forum’s International Business Council’s recent statement;
  4. Blackrock CEO Larry Fink’s 2020 letter to CEOs, calling for corporate disclosures that align with industry-specific SASB guidelines;
  5. More investor focus on environmental and social (E&S) issues as the pandemic spreads, with particular success this year for “materiality” proposals that request SASB-aligned reporting. As You Sow had three majority-supported 2020 “materiality” proposals that called for reports on “material human capital risks”, as well as successful settlements for similar proposals and proposals on material water management risks; and
  6. SASB’s continuing work on possible revisions to its standards, including research on human capital management across its 77 industries. SASB notes that these themes are closely related to “social capital” themes, which focus on human rights and community relations in, g., the Oil & Gas – Exploration & Production (E&P) industry.
    SASB’s “financial materiality” disclosure framework brings these issues together in a way that could result in profound societal changes, particularly given the supportive statements of large asset managers and re-energized public focus on structural racial health inequities.  As noted in my earlier blog, large asset managers are among the investors from which SASB has gained increasing support.

    Looking more closely at social capital issues, I note the 2020 shareholder resolution (#8) at Chevron — it requested a report on efforts to “prevent, mitigate and remedy the actual and potential human rights impacts of its operations.”  The supporting statement and exempt solicitation went into more detail about the social capital aspects of the request, referencing SASB’s quantitative metrics and analysis, which incorporate related international conventions to which Chevron says it adheres.  The proposal received 16.7% support, which is significant for a first-year company proposal.  Nevertheless, the lack of support from larger asset managers, in particular, raises questions about why they were satisfied with the company’s current disclosure about its impact on communities that are home or adjacent to its operations.

    Unlike As You Sow’s “materiality” proposals, the Chevron human rights proposal did not mention SASB in its RESOLVED clause.  Proxy Insight has tracked – through mid-June — the 2020 E&S proposals that concern human rights and community relations.  Of those requesting enhanced disclosures, As You Sow’s resolutions that referenced SASB passed in most cases, unlike most similar proposals.  This suggests that larger asset managers – and their asset owner clients — are focusing on the SASB-referenced resolutions, which might not otherwise get their attention during the busy proxy season.  When considered with As You Sow’s successful withdrawal settlements, this also suggests that companies are willing to act when faced with resolutions that request SASB-aligned reporting.

    Chevron is one of the few E&P companies listed as a SASB reporter, although it does not provide the required social capital metrics and analysis to show its investors and other stakeholders how its policies are actually implemented.  Until there is widespread required ESG disclosures, companies like Chevron will likely increase SASB-requested disclosures, as they navigate the competing concerns of different external and internal constituencies calling for more or less disclosure.  More corporate case studies will likely be disclosed.

    Stay tuned as companies, investors and other stakeholders re-prioritize their social capital plans, following stepped-up calls for combatting systemic racism and also updated, reliable and comparable reporting on ESG issues, as noted in my earlier blog.  Companies who ignore these powerful trends risk scrambling to catch up with their peers’ disclosures and policies, as well as antagonizing a wide range of their stakeholders, which could result in, e.g., employee and customer retention issues, as well as being targeted with community protests and boycotts and also shareholder resolutions and vote-no director campaigns.

Final CCPA Regulations Released

Back in April, I blogged about how even though California was continuing to make changes to the California Consumer Privacy Act, California’s Attorney General planned to move ahead with enforcement beginning July 1.  With that date fast approaching, this Thompson Hine memo reports that California has released final CCPA regulations.  The memo says there are no material substantive changes from the modified regulations that were released March 11 but the rulemaking record provides clarification and insight about the AG’s interpretation and approach to the CCPA.

As a resource for our members, we’ve been posting memos about the CCPA and other data security topics in our “Cybersecurity” Practice Area.

Today’s Webcast: “M&A Litigation in the Covid-19 Era”

Tune in this afternoon for the webcast – “M&A Litigation in the Covid-19 Era” – to hear Hunton Andrews Kurth’s Steve Haas, Wilson Sonsini’s Katherine Henderson and Alston & Bird’s Kevin Miller review the high stakes battles currently being waged over deal terminations and other M&A litigation issues arising out of the Covid-19 crisis.

– Lynn Jokela