Sustainable Brands New Metrics: The evolution of social and human capital management and disclosure

An ERM Group Company
© 2018 BrownFlynn Ltd. All Rights Reserved.
Mike Wallace, Partner, BrownFlynn, an ERM Group company
Interim Executive Director, Social & Human Capital Coalition
October 29, 2018
The Evolution of Social and Human
Capital Management and Disclosure

/ 2© 2018 BrownFlynn Ltd. All Rights Reserved.
Speakers
Cambria Allen
Corporate Governance
Director, UAW Retiree
Medical Benefits Trust
Libby Bernick
Managing Director, Global
Head of Corporate Business,
Trucost, part of S&P Dow
Jones Indices
Christopher Earl
Safety, Security, Health and
Environmental Manager,
Roche
Mike Wallace
Partner, BrownFlynn
Manuela Werner
Strategic Lead, Starting
Ventures, BASF

“Frameworks and Standards and
Protocols – Oh my!”
Companies are increasingly frustrated

GRI (1997 / 2001)

© 2018 BrownFlynn Ltd. All Rights Reserved. / 5
Globally Crowd-Sourced ESG Topics
Environmental
 Materials
 Energy
 Water
 Biodiversity
 Emissions
 Effluents and Waste
 Products and Services
 Environmental Compliance
 Transport
 Supplier Environmental
Assessment
 Environmental Grievance
Mechanisms
Economic
 Economic Performance
 Philanthropy
 Market Presence
 Indirect Economic Impacts
 Economic Inclusion
 Procurement Practices
Human Rights
 Non-discrimination
 Freedom of Association &
Collective Bargaining
 Child Labor
 Forced /Compulsory Labor
 Security Practices
 Indigenous Rights
 Supplier Human Rights
Assessment
 Human Rights Grievance
Mechanisms
Labor Practices
& Decent Work
 Training and Education
 Employment
 Labor/Management Relations
 Occupational Health & Safety
 Diversity & Equal Opportunity
 Equal Remuneration for Men
and Women
 Supplier Assessment for
Labor Practices
 Labor Practices Grievance
Mechanisms
Society
 Anti-Corruption
 Public Policy
 Anti-competitive Behavior
 Local Communities
 Supplier Assessment for Impacts
on Society
 Grievance Mechanisms for
Impacts on Society
Product Responsibility
 Customer Health & Safety
 Product & Service Labeling
 Marketing Communications
 Customer Privacy
 Product Compliance

GHG Protocol (1997 / 2001)

IIRC (2009 / 10)

SASB (2010 / 2011)

Natural Capital Coalition & Protocol (2012 / 2014)

SDGs (2015 / 2016)

© 2018 BrownFlynn Ltd. All Rights Reserved.© 2018 BrownFlynn Ltd. All Rights Reserved.
Investors are exploring material issues
“In a galaxy far, far away . . . .”

Investor Coalitions & Networks
Interfaith Center on Corporate Responsibility (ICCR)
 1972; nearly 300 members; representing over $400 billion
Institutional Investors Group on Climate Change (IIGCC)
 2001; over 150 members; representing over $20 trillion
Carbon Disclosure Project (CDP)
 2002; nearly 900 signatories; representing over $100 trillion
Investor Network on Climate Risk (INCR)
 2003; over 150 members; representing $25 trillion
Principles for Responsible Investment (PRI)
 2006; over 1,800 signatories; representing over $80 trillion
United Nations Guiding Principles Reporting Framework
 2013; over 67 investors; representing nearly $4 trillion
Task Force on Climate-related Financial Disclosures
 2015; over 32 members and 275 signatories;
representing over $86.2 trillion

UN Principles for Responsible Investment (PRI)
The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international
network of investors working together to put the six Principles for Responsible Investment into practice.
Its goal is to understand the implications of sustainability for investors and support signatories to
incorporate these issues into their investment decision making and ownership practices.
Source: http://www.unpri.org/
$7 $10 $13 $18 $21 $24
$32 $34
$45
$59 $62
$68
$82
63
185
361
523
734
890
1,050
1,186 1,251
1,384
1,501
1,714
1,961
-
500
1,000
1,500
2,000
$-
$20
$40
$60
$80
$100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
UN PRI Growth Over Time
Assets under management (US$ trillion) Number of Signatories

UN PRI Signatories
(sample)

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RiskMetrics Group
buys Innovest
FEB 2009
Thomson Reuters
buys Asset 4
NOV 2009
Bloomberg
buys New Energy
Finance
DEC 2009
GMI and
The Corporate
Library merge
JUL 2010
Vigeo and
EIRIS merge
OCT 2015
MSCI acquires GMI
Ratings
JUN 2014
ISS buys IW Financial
JAN 2017
Morningstar buys
40% of Sustainalytics
JUL 2017
SEP 2009
Sustainalytics and
Jantzi Research
Inc. merge
NOV 2009
RiskMetrics
Group buys KLD
MAR 2010
MSCI buys
RiskMetrics
Group
JUN 2012
Sustainalytics acquires
Responsible Research
SEP 2015
ISS acquires Ethix SRI
Advisors
OCT 2016
Standard & Poor’s
buys Trucost
JUN 2017
ISS acquires South Pole
Group’s Investment
Climate Data Division
ESG Research Market Evolution

© 2018 BrownFlynn Ltd. All Rights Reserved.© 2018 BrownFlynn Ltd. All Rights Reserved.
Reduce – reuse – recycle
“What we’ve got here is a failure
to communicate.”

A glimpse of the current ESG Ecosystem
Based on sustainability reporting standards and frameworks, there are 100+ organizations producing
lists, rankings, ratings, and scorecards of the “top companies” and “most sustainable” companies.

“Show me the money.”
Growing interest in social and human
capital issues

Human Capital Activity
Evolution of concepts
fair labor
practices; health
and safety;
responsible
contracting and
diversity
20152014
workforce
demographics;
workforce stability;
workforce
composition;
workforce skills and
capabilities; workforce
culture and
empowerment;
workforce health and
safety; workforce
productivity; human
rights; workforce
compensation and
incentives
total headcount,
“broken down by the
division between full-
time and part-time
employees, gender, and
diversity”; Annual
turnover—including
both planned and
regrettable turnover;
Investment in training,
skills, and professional
development;
Employee engagement
score
2016
gender diversity;
employment type,
such as full-time, part-
time or agency
workers; staff
turnover; accidents,
injuries and workplace
illnesses; investment
in training and
development; pay
ratios between the
highest paid and
median and lowest
quartile workers
across the company;
and employee
engagement scores.
2017
workforce
composition,
unionization, worker
participation in
decision-making,
OHS practices,
training and
development and
employee
compensation
policies.
workforce
composition,
worker welfare,
investment in
skills and worker
representation.
Sources: Corporate Disclosure of Human Capital Metrics. October 2017. Retrieved from: https://lwp.law.harvard.edu/files/lwp/files/pension_paper_corporate_disclosure_of_human_capital_metrics_102317.pdf
CSHS Human Capital Project. http://www.centershs.org/human-capital.php
2018

 hiring and retention,
 employee engagement,
 training,
 compensation,
 fair labor practices,
 health and safety,
 responsible contracting,
 ethics,
 desired company culture, and
 diversity, both with respect to a company’s direct employees and to the employees of
vendors throughout the company’s supply chain.
Human Capital Management Coalition
Views Human Capital Management (HCM) as encompassing a broad
range of corporate practices related to the management of employees,
including, but not limited to:
Members:
UAW Retiree Medical Benefits Trust
AFL-CIO Office of Investment
Amalgamated Bank LongView Funds
California Public Employees’ Retirement System
California State Teachers’ Retirement System
Calvert Research and Management
Connecticut Retirement Plans and Trust Funds
CtW Investment Group
Domini Impact Investments LLC
Hermes Equity Ownership Services
Illinois State Board of Investment
Office of Illinois State Treasurer Michael W. Frerichs
International Brotherhood of Teamsters
Legal and General Investment Management
LiUNA
The Nathan Cummings Foundation
Office of the New York City Comptroller Scott Stringer
Office of the New York State Comptroller Thomas P. DiNapoli
Ohio Public Employees Retirement System
Pennsylvania Treasury
Segal Marco Advisors
Sycomore AM
Trillium Asset Management
UAW Employees Pension and Severance Plan
UFCW Pension Plan for Employees
Zevin Asset Management
Source: Human Capital Management Coalition. 2018. Retrieved from: http://uawtrust.org/hcmc

Center for Safety & Health Sustainability – Human
Capital Project (2017)
Link to CSHS Website
The Harvard research study looked at disclosure
on twelve topics selected from the Human
Capital section of RobecoSAM’s Corporate
Sustainability Assessment (CSA).
 Training Hours
 Training Cost
 Return on Training
 Employee Development
 Employee Development Business Benefits
 Employee Development Qualitative
 Operating Profit per Employee
 OHS Framework
 OHS Oversight
 OHS Work Environment
 Lost-Time Injuries
 Fatalities
Link to Harvard Research Report

A sample of some of the influential and global participants:
• Louise Davidson, CEO, Australian Council of Superannuation Investors
• Martin Whittaker, CEO, JUST Capital
• Scott Connolly, Assistant Secretary, Australian Council of Trade Unions
• Kerrie Waring, Executive Director, and Joyce Haboucha, Co-Chair, Disclosure
and Transparency Committee; International Corporate Governance Network
• Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors
• Ken Hall, General Secretary-Treasurer, International Brotherhood of Teamsters
• Catherine Howarth, Chief Executive, ShareAction
• Denise L. Nappier, State Treasurer, State of Connecticut
• Gary Yee, Board Chair, British Columbia Municipal Pension Board of Trustees
• Heather Slavkin Corzo, Director, Corporations and Capital Markets, AFL-CIO
• Josh Zinner, Chief Executive Officer, Interfaith Center on Corporate
Responsibility
• Michael W. Frerichs, State Treasurer of Illinois
• Ronald B. McKinley, Chair, ISO TC/260
• Paul Kearns, Chair, Maturity Institute
• Anne Simpson, Investment Director, Sustainable Investments, California Public
Employees Retirement System (CalPERS), and Anne Sheehan, Director of
Corporate Governance, California State Teachers' Retirement System (CalSTRS)
U.S. Securities & Exchange Commission (2017)
Rulemaking Petition - https://www.sec.gov/comments/4-711/4-711.htm

Recent Market Developments
Investors are increasingly asking companies to disclose strategies for long-term value creation and
incorporation of ESG into business strategies.
I want to reiterate our request, outlined in
past letters, that you publicly articulate
your company's strategic framework for
long-term value creation and explicitly
affirm that it has been reviewed by your
board of directors…you must also
understand the societal impact of your
business as well as the ways that broad,
structural trends — from slow wage
growth to rising automation to climate
change — affect your potential for
growth.” – Larry Fink, BlackRock Letter
to CEOs, 2018
“As part of our stewardship review, we
classify companies according to how they
have: 1) identified material
environmental and social sustainability
issues; 2) assessed and, where necessary,
incorporated the implications into their
long-term strategy; and 3) clearly
communicated their approach to
sustainability and its influence on
strategy.” – Ronald O’Hanley, State
Street Letter to Board Members, 2017
“Shareholders rely on a strong board to
oversee the strategy for realizing
opportunities and mitigating risks.
Thorough disclosure of relevant and
material risks enables share prices to
fully reflect all significant known risks and
opportunities…Climate risk is an example
of a slowly developing and highly
uncertain risk—the kind that tests the
strength of a board’s oversight and risk
governance..” – F. William McNabb III,
Vanguard Letter to Directors, 2017
Further Reading: Why the world’s largest asset managers are pushing long-term thinking, Mark Tulay, Director, Strategic Investor Initiative, CECP

January 2018 – Larry Fink’s Letter to CEOs
“Companies must ask themselves: What role do we play in the community? How are we
managing our impact on the environment? Are we working to create a diverse
workforce?”
March 2018 – Investor Stewardship on Human Capital
“Research has consistently shown the importance of human capital to company
performance. Companies included in Fortune magazine’s “100 Best Companies to Work
For” lists earned, over the long-term, excess risk-adjusted returns of 3.5%.”
October 2018 – BlackRock to Expand Access to ESG Data
“BlackRock projects ETF assets in ESG to grow from $25 billion today to more than $400
billion by 2028.”
Investor Activity

April 2018 – CEO of Salesforce Closes the Gender Pay Gap
 “One of the reasons we’re considered such a great place to work (Fortune rated them
#1 this year) is that from the time we founded the company, we emphasized
philanthropy and social responsibility. We pay employees to give their time to
local schools and charities, and we have donated more than $180 million to non-
profits.”
 “The World Economic Forum says that it'll take more than 100 years for us to pay men
and women equally.”
 “We said we're going pay men and women equally at this company, and we're going to
go through and level set every job, every division, and every department. We’re going
make sure that we have gender equality.”
 “It cost us about $3 million for us to do those adjustments the first year.”
Corporate Activity

“Houston, we have a problem.”
Do we?
Amazing efforts, but how do compare
and contrast impact?

Speakers
Cambria Allen
Libby Bernick
Jones Indices
Christopher Earl
Roche
Mike Wallace
Partner, BrownFlynn
Manuela Werner
Ventures, BASF

“They call it a Royale with cheese.”
Same same, but different?

 The Social & Human Capital Coalition is an initiative which aims to mainstream the
measurement of social & human impacts for business – shifting the improvement of
social & human performance from an optional extra to a core part of business decision
making.
The Protocol serves two purposes:
1. It provides a consistent process to guide companies through the journey of measuring,
valuing and better managing social and human capital.
2. It provides a framework for collaboration to harmonize the currently fragmented
landscape of social & human impact measurement and valuation, and to move towards
standardized approaches for business.
The Social & Human Coalition and Protocol
The phrase “Social & Human Capital” is being defined through a public
comment process that was launched on April 17, 2018.

Built from
existing best
practice
Targeted
review and
test
Public
consultation
Analysis of
consultation
inputs
Integration
into Protocol
Launch of
updated
Protocol
Public consultation
launched
17/04/2018
Formal consultation
closed in July 2018Insights from 20
companies 2016
Review and release
of Protocol Q4
2016/2017:
Social Capital
Protocol Advisory
Group (20 external
experts)
25 companies tested
the Protocol in their
organizations
Q3/4 2018
Categorize comments
Evaluate validity
Consider options for
update of Protocol
content
Resolution with
Technical Committee
input
Report on resolution
of comments (short
summary)
Q/4 2018
Overseen by
Coalition Technical
Director
Approval by
Coalition Executive
Director
Final sign-off by
Coalition Board
Protocol consultation and review
process
Q1 2019

Board of Directors
• Peter Bakker, CEO, WBCSD (chair)
• Pavan Sukhdev, President, WWF International
• Sharan Burrow, General Secretary, International Trade Union Confederation
• Cécile Duflot, Director General, Oxfam France
• Mark Gough, Executive Director, Natural Capital Coalition
• Kathy A. Seabrook, Chair, Center for Safety & Health Sustainability (CSHS)
• Jeremy Nicholls Former CEO, Social UK and Social Value International
• Martine Durand, Chief Statistician and Director of Statistics and Data, OECD
• Additional Board Members TBD

Technical Committee

Outreach & Engagement
• Distribution list: >1,300
• Coalition Webinars: >100 participants at each webinar
• Joint Statements: x4 key partners
• International Integrated Reporting Council
• Natural Capital Coalition
• Roundtable of Product Social Metrics
• Social Value International
• Article Distribution >100,000

Structural Alignment with the NCP
The steps of the Social & human Capital Protocol (DRAFT)
FRAME Step 1: Get Started
SCOPE
Step 2: Define the objectives
Step 3: Scope the assessment
Step 4: Determine the impacts and/or dependencies
MEASURE
& VALUE
Step 5: Measure impacts and/or dependencies
Step 6: Measure changes in the state of social & human capital
Step 7: Value impacts and/or dependencies
APPLY
Step 10: Apply results into key business decisions
Step 11: Interpret and test results
Step 12: Take action

Q&A

Speakers
Cambria Allen
Libby Bernick
Jones Indices
Christopher Earl
Roche
Mike Wallace
Partner, BrownFlynn
Manuela Werner
Ventures, BASF

Do Good. Do Well. Win.™
For more information on BrownFlynn’s services,
please visit www.brownflynn.com or contact us below.
Thank You
Mike Wallace
Partner
(424) 320 3501
mikew@brownflynn.com

Sustainable Brands New Metrics: The evolution of social and human capital management and disclosure

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