© 2016 SASB™

Sustainability Accounting Standards Board

Industry-Based Standards to Guide Disclosure and

Action on Material Sustainability Information

Jean Rogers, PhD

CEO and Founder

Presentation to the Task Force on Climate-Related Financial Disclosure

London, UK

February 9, 2016

The SASB Mission

Improved non-financial disclosure results in enhanced market efficiency

117

The mission of SASB is to develop and

disseminate sustainability accounting

standards that help public corporations

disclose material, decision-useful

information to investors.

That mission is accomplished through a

rigorous process that includes evidence-

based research and broad, balanced

stakeholder participation.

Facts about SASB

Independent 501(c)3 non-profit

American National Standards Institute

(ANSI) accredited standards developer

Developing industry-specific standards for 10 sectors

and 80+ industries

Guided by the U.S. Supreme Court’s definition of materiality, SASB prioritizes

material sustainability factors for disclosure to investors

2/9/2016 © 2016 SASB™

The Materiality Method

SASB’s approach grew out of research done at Harvard University

From Transparency

to PerformanceIndustry-Based Sustainability

Reporting on Key Issues

July, 2010

Steve LydenbergDomini Social Investment and IRI Fellow, Harvard University

Jean Rogers, PhDSASB, formerly Arup and Loeb fellow, Harvard University

David Wood, PhDInitiative for Responsible Investment, Harvard University

118 2/5/16 © 2016 SASB™

The SASB Difference

SASB standards are created for the market, by the market

Decision-Useful

Cost-Effective

Material

Industry-Specific

Evidence-Based

Market-Informed

2/5/16119 © 2016 SASB™

120

Comparing Fundamentals, Competing on Performance

SASB standards enable peer-to-peer comparisons and foster competition

2/9/2016 © 2016 SASB™

Benchmarking

SASB

Metrics

Peer comparison

Complete data set

Consistent units

Sustainable Industry Classification System

SICS™ industries are grouped by resource intensity and sustainability impacts

2/9/2016121

Health Care Biotechnology

Pharmaceuticals

Medical Equipment & Supplies

Health Care Delivery

Health Care Distributors

Managed Care

Technology & Communications Electronic Manufacturing Services &

Original Design Manufacturing

Software & IT Services

Hardware

Semiconductors

Telecommunications

Internet Media & Services

Renewable Resources &

Alternative Energy Biofuels

Solar Energy

Wind Energy

Fuel Cells & Industrial Batteries

Forestry & Paper

Transportation Automobiles

Auto Parts

Car Rental & Leasing

Airlines

Air Freight & Logistics

Marine Transportation

Rail Transportation

Road Transportation

Non-Renewable Resources Oil & Gas – Exploration &

Production

Oil & Gas – Midstream

Oil & Gas – Refining & Marketing

Oil & Gas – Services

Coal Operations

Iron & Steel Producers

Metals & Mining

Construction Materials

Infrastructure Electric Utilities

Gas Utilities

Water Utilities

Waste Management

Engineering & Construction Services

Home Builders

Real Estate Owners, Developers &

Investment Trusts

Real Estate Services

Services Education

Professional Services

Hotels & Lodging

Casinos & Gaming

Restaurants

Leisure Facilities

Cruise Lines

Advertising & Marketing

Media Production & Distribution

Cable & Satellite

Resource Transformation Chemicals

Aerospace & Defense

Electrical & Electronic Equipment

Industrial Machinery & Goods

Containers & Packaging

Financials Commercial Banks

Investment Banking & Brokerage

Asset Management & Custody

Activities

Consumer Finance

Mortgage Finance

Security & Commodity Exchanges

Insurance

Consumption Agricultural Products

Meat, Poultry & Dairy

Processed Foods

Non-Alcoholic Beverages

Alcoholic Beverages

Tobacco

Household & Personal Products

Multiline and Specialty Retailers &

Distributors

Food Retailers & Distributors

Drug Retailers & Convenience Stores

E-Commerce

Apparel, Accessories & Footwear

Building Products & Furnishings

Appliance Manufacturing

Toys & Sporting Goods

© 2016 SASB™

True and fair representation

of performance on material

factors

Designed for Integration Into Mandatory Filings

SASB Accounting MetricsUS GAAP

A de facto mandatory reporting environment without regulation

122 2/5/16 © 2016 SASB™

A Market-Driven Response

SASB addresses needs of all market participants—both investors and issuers

123

Issuers A minimum set of disclosure topics that are

likely to have material impacts on companies

in an industry, and a model for disclosing

information on those factors in a decision-

useful way to investors

A method to understand and improve

performance on ESG-related value drivers

A way to better satisfy the requirements of

Regulation S-K in the U.S. and Directive

2014/95/EU in Europe

Investors Comparable data for benchmarking

and evaluating performance

Standardized, decision-useful

information in a trusted channel

(i.e., 10-K and 20-F)

Tools and resources to analyze and

understand sustainability risk at the

portfolio level

Guidance for more focused

corporate engagement efforts

2/9/2016 © 2016 SASB™

$11.0T

SASB INDUSTRY WORKING GROUPS REFLECT BROAD-BASED INTEREST

PARTICIPANTS

>2,800ASSETS UNDER MANAGEMENT

$23.4TMARKET CAP

Balanced Participation

SASB’s standards-setting process is inclusive and informed by industry expertise

2/9/2016 © 2016 SASB™124

• 3M

• Alaska Airlines

• Alcoa

• Allianz Global Investors

• Anheuser-Busch InBev

• Apache

• Applied Materials

• ArcelorMittal

• AT&T

• Atlas Copco

• Autodesk

• BAE Systems

• Bain & Company

• Baker Hughes

• Bank of America

• Barrick Gold

• BASF

• Bloomberg LP

• Blue Cross Blue Shield

• BNY Mellon

• Boeing

• Booz Allen Hamilton

• Caesars Entertainment

• CalPERS

• CalSTRS

• CBRE

• Chrysler

• CISCO

• Citigroup

• ConocoPhillips

• Credit-Suisse

• Crowell & Moring

• Ingersoll Rand

• Intel

• JetBlue Airlines

• JLL

• JP Morgan

• Johnson and Johnson

• Kaiser Permanente

• KLA-Tencor

• KPMG

• Lear

• Lockheed Martin

• MeadWestvaco

• MetLife

• Microsoft

• Monsanto

• Morgan Stanley

• Morningstar

• MSCI

• NASDAQ

• Newfield Exploration

• Nielsen

• Noble Energy

• Novo Nordisk

• NYSE Euronext

• NVIDIA

• Owens Corning

• Patriot Coal

• Pax World Investments

• Petronas

• Pfizer

• Pirelli

• PwC

• Deloitte

• Dell

• Delta Airlines

• Denaher

• Deutsche Bank

• Diebold

• Dow Chemical

• DuPont

• Eastman Chemical

• eBay

• EMC

• Encana

• EY

• Fannie Mae

• FedEx

• FMC

• Ford Motor Company

• General Electric

• General Motors

• Gerdau Ameristeel

• Goldman Sachs

• Google

• Greif

• Groupon

• Harley-Davidson

• Hertz

• Hess

• Hewlett Packard

• Hill & Knowlton (WPP)

• HSBC

• Illinois Tool Works

• ING

• Prudential

• Range Resources

• Raytheon

• RBC

• Rio Tinto

• Sasol

• Schlumberger

• Siemens

• Solvay

• Spectra Energy

• Statoil

Sample of participants

IWG Participation

31%Corporate

Professionals

31%

Investors

37%Public Interest &

Intermediaries

• Sunoco

• Symantec

• Talisman Energy

• Teck Resources

• Thomson Reuters

• Tyco

• UBS

• Visa

• Wyndham Worldwide

• Weyerhaeuser

• Yahoo

Shaped By Consensus

SASB topics must achieve a high level of consensus among all stakeholder types

125 2/9/2016 © 2015 SASB™

0

10

20

30

40

50

60

70

80

90

100

Health Care Financials Technology &Communications

Non-RenewableResources

Transportation Services ResourceTransformation

Consumption 1 Consumption 2 RenewableResources &Alternative

Energy

Infrastructure

Per

cen

tage

Stakeholder-specific feedback on likely materiality of all proposed disclosure topics(% of respondents, by interest group, who think suggested topics are likely to constitute material information)

All % Corporations % Investors/Analysts %

Rigorous, Transparent Process

SASB standards are rooted in evidence and shaped by consensus

126

Industry

Research Vetting

Public

Comment

Provisional

Standards

Release

Standards

Development

Evidence-based

discovery

Industry working

group engagement

and evaluation

Disclosure topics

and metrics

consensus and

definition

Feedback and

refinement

Road testing by

companies

UNIVERSE OF

ESG ISSUES

UNIVERSE OF

ESG ISSUES

Codification

2/9/2016 © 2016 SASB™

2016: Deep consultation with issuers, internal review, cost-benefit analysis

2017: Code and basis for conclusion

Known Value Drivers

SASB standards address business issues known to impact value creation

127

Financial

Drivers

Types of

Financial

Impact

COST OF

CAPITALREVENUE COST

ASSETS &

LIABILITIES

Demand for

Core Products

and Services

Intangible

Assets and

Long-Term

Growth

Operational

Efficiency/Cost

Structure

Valuation of

Core Assets

and Liabilities

Governance,

License to

Operate and

Risk

2/9/2016 © 2016 SASB™

Robust Standards

SASB standards contain more than just metrics

128 2/9/2016 © 2016 SASB™

SASB

Standard

Disclosure

topics

Technical

protocol

Accounting metrics

129

Cost-Effective Disclosures

SASB provides a cost-effective way to report on material sustainability factors

SASB standards average

5 topics and 14 metrics

(78 percent quantitative) per industry.

2/9/2016 © 2016 SASB™

74 percent of SASB topics

are already being

addressed in SEC filings.

130 2/9/2016 © 2016 SASB™

Consumption II

Renewable Energy

Infrastructure

Major Themes from Standards Setting

Interesting patterns have begun to emerge after 10 sectors and 79 industries

CLIMATE CHANGE

Event readiness in health care delivery, carbon intensity of reserves in oil and gas,

emissions from refining, vulnerability of real estate and insurance, impact on crop yields

PRODUCT ALIGNMENT & SAFETY

Counterfeit drugs, food quality and nutrition, car and airline safety, responsible

gambling and drinking, product design and take-back

RESOURCE INTENSITY & SCARCITY

24/7 health care facilities and data centers, fuel management in transport rare earth

minerals in manufacturing, water consumption in beverages, oil and gas, agriculture

ACCESS & AFFORDABILITY OF SERVICES

Orphan drugs and pricing, access to medicine and coverage, transparency in

procedures and billing, financial inclusion and capacity building

FINANCING & RESPONSIBLE LENDING

Responsible lending and transparency of terms in mortgages, consumer finance, and

education, financial literacy initiatives

$33.8T

$29.1T

$26.9T

$8.3T

$3.9T

Market cap of

companies

affected

Percentage

of U.S. equity

market

93%

80%

75%

23%

11%

131 2/9/2016 © 2016 SASB™

Climate Change: Ubiquitous but Differentiated

Climate change affects majority of capital markets, but industry impacts are unique

Event readiness in Health Care

Delivery

Carbon intensity of reserves in Oil &

Gas – Exploration & Production

Emissions from refining in Oil & Gas –

Refining & Marketing

Vulnerability of real estate in Insurance

Impact on crop yields in Agricultural

Products

Financed emissions in Commercial

Banks

$33.8TMarket cap of

companies

affected

Percentage of

U.S. equity

market

impacted

93%

CLIMATE CHANGE

Impacts 72 of 79 industries

132 2/9/2016 © 2016 SASB™

SASB’s Climate Risk Framework

SASB frames the impacts of the climate change in a way that is relevant to investors

133 2/9/2016 © 2016 SASB™

Channels of Impact Across IndustriesSASB has mapped climate risk for all industries of the economy

Carbon Footprint is Not Enough

GHG emissions are important, but other more prevalent risks are poorly disclosed

2/9/2016 © 2016 SASB™134

0% 20% 40% 60% 80% 100%

Type of risk

Affected

market

cap

% of U.S.

equity

market

OVERALL CLIMATE RISK $27.5T 93%

Physical Effects $18.1T 61%

Transition to a Low-

Carbon Economy$26.3T 89%

Climate Regulation $6.3T 21%

Capital markets data from Jan. 4, 2016; figures for U.S.-listed, non-OTC securities; figures include impacts from both primary and

secondary risk types; disclosure data from FY 2012-2014 10-K and 20-F filings of the top 10 U.S.-listed companies by revenue for each

industry, resulting in a total of 690 companies.

State of Disclosure on Climate Risk in 10-K and 20-F

Cost-Effective AlignmentSample of how SASB climate metrics align with a variety of approaches already in use

2/9/2016 © 2016 SASB™135

Climate risk manifests differently in each industry

Understanding climate risk requires specialized disclosures

Climate risk is systemic in nature

SASB and Climate Risk

A look at investor exposure to climate risk and an analysis of corporate disclosure

136 2/9/2016 © 2016 SASB™

Climate risk has tangible, identifiable financial implications

Climate risk is not adequately disclosed