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The need for the Social & Human Capital Protocol Jan. 2019 - AHC Group

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Corporate managers have long heralded people as their companies’ most important assets and research confirms the vital role of human capital in long-term value creation. In recognizing the importance and value of social and human capital many corporations, their investors, stakeholders and business partners are seeking to integrate consistent, standard, and widely accepted valuation and decision making tools. This session will discuss the evolution of the Social & Human Capital Coalition. The Coalition and key stakeholders will delve into the latest trends around valuing social and human capital, as well as the application of the Social & Human Capital Protocol.

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The need for the Social & Human Capital Protocol Jan. 2019 - AHC Group

  1. 1. The need for the Social & Human Capital Protocol 37th Bi-Annual Corporate Affiliates Executive Workshop AHC Group Mike Wallace – Partner, BrownFlynn, an ERM Group company Interim Executive Director, Social & Human Capital Coalition | January 24, 2018
  2. 2. 20+ Years of Evolving ESG Guidance
  3. 3. GRI (1997) - Globally Crowd-Sourced ESG Issues 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 Social & human capital issues are interwoven throughout
  4. 4. GHG Protocol (1997)
  5. 5. IIRC (2009 / 2010) – Six Capitals
  6. 6. SASB (2010 / 2011) – Social & Human Capital
  7. 7. Natural Capital Coalition & Protocol (2012 / 2014)
  8. 8. SDGs (2015 / 2016)
  9. 9. Social & Human Capital Coalition (2016 / 2018)
  10. 10. Increasing Investor Demand for ESG Performance
  11. 11. 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 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 UN PRI Growth Over Time Assets under management (US$ trillion) Number of Signatories
  12. 12. UN PRI Signatories (sample)
  13. 13. The ESG Ecosystem
  14. 14. 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.
  15. 15. 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.
  16. 16. 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
  17. 17. Examples of Social & Human Capital Interests Demand & Supply
  18. 18. Recent Market Developments 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
  19. 19. Recent Market Developments 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
  20. 20. Investors & Human Capital
  21. 21. 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
  22. 22. U.S. Securities & Exchange Commission (2017) A sample of some of the influential and global participants: • LouiseDavidson,CEO, Australian Councilof SuperannuationInvestors • MartinWhittaker,CEO, JUST Capital • ScottConnolly, Assistant Secretary, Australian Councilof Trade Unions • Kerrie Waring,ExecutiveDirector,and Joyce Haboucha,Co-Chair,Disclosureand Transparency Committee;InternationalCorporateGovernanceNetwork • Jeffrey P. Mahoney, General Counsel,Councilof InstitutionalInvestors • Ken Hall, General Secretary-Treasurer, InternationalBrotherhoodof Teamsters • CatherineHowarth,ChiefExecutive, ShareAction • Denise L. Nappier,State Treasurer, State of Connecticut • Gary Yee, BoardChair,BritishColumbiaMunicipalPensionBoardof Trustees • HeatherSlavkin Corzo,Director,Corporationsand CapitalMarkets,AFL-CIO • Josh Zinner,ChiefExecutiveOfficer, InterfaithCenter onCorporateResponsibility • MichaelW.Frerichs,State Treasurer of Illinois • RonaldB. McKinley, Chair, ISOTC/260 • Paul Kearns, Chair,MaturityInstitute • Anne Simpson,InvestmentDirector,SustainableInvestments,CaliforniaPublicEmployees Retirement System (CalPERS),and Anne Sheehan,Directorof CorporateGovernance,CaliforniaStateTeachers' RetirementSystem (CalSTRS) Rulemaking Petition - https://www.sec.gov/comments/4-711/4-711.htm
  23. 23. Social & Human Capital Data
  24. 24. Social & Human Capital Topics in Bloomberg Social Human Capital Employees Employee Turnover % Number of Part-Time Employees Number of Temporary Employees Number of Contractors Employee Diversity % Women in Management % Women in Workforce Gender Pay Gap Breakout Percentage Gender Pay Gap for Senior Management Percentage Gender Pay Gap Mid & Other Management Percentage Gender Pay Gap Employees Ex Management % Gender Pay Gap Tot Empl Including Management % Minorities in Management % Minorities in Workforce % Disabled in Workforce Community & Customers Community Spending Community Spending/Profit Before Tax Community Spending Percentage of EBITDA Community Spending Percentage of Total Equity Number of Customer Complaints Supply Chain Number of Suppliers Audited Number of Supplier Audits Conducted Social Supply Chain Management Number Supplier Facilities Audited Sustain Sup Guidelines Encomp ESG Area Pub Disclsd Employees Number of Employees - CSR % Employees Unionized Employee Average Age Policies Health and Safety Policy Equal Opportunity Policy Human Rights Policy Training Policy Business Ethics Policy Fair Remuneration Policy Employee Protection / Whistle Blower Policy Anti-Bribery Ethics Policy Policy Against Child Labor Accidents & Fatalities Workforce Accidents - Employees Lost Time from Accidents Fatalities - Contractors Fatalities - Employees Fatalities - Total Lost Time Incident Rate Fatalities - Third Party Fatalities per 1000 employees Accidents per 1000 employees Lost Time per Employee Total Recordable Incident Rate Total Accidents - Contractors Lost Time Incident Rate - Contractors Total Recordable Incident Rate - Contractors Employee Training Employee CSR Training Employee Training Cost Total Hours Spent by Firm - Employee Training Training Spending per Employee Other Sustainable Investment/Capital Expenditures Source: Bloomberg. Metrics as of 8/7/2018 Overlap
  25. 25. ESG Scores & Comparisons (Mining Sector)
  26. 26. Environmental Metrics (Mining Sector)
  27. 27. Social Metrics (Mining Sector) Source: Bloomberg data accessed 9/20/18
  28. 28. Governance Metrics (Mining Sector)
  29. 29. The Social & Human Capital Coalition
  30. 30. The Social & Human Coalition and Protocol 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: • It provides a consistent process to guide companies through the journey of measuring, valuing and better managing social and human capital. • 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 phrase “Social & Human Capital” is being defined through a public comment process that was launched on April 17, 2018.
  31. 31. Protocol consultation and review process 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 2018 Insights from 20 companies in 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 Q1 2019
  32. 32. Board of Directors • Peter Bakker, CEO, World Business Council for Sustainable Development (WBCSD) (Board Chair) • Pavan Sukhdev, President, WWF International • Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC) • Cécile Duflot, Director General, Oxfam France • Mark Gough, Executive Director, Natural Capital Coalition (NCC) • 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, Organisation for Economic Co-Operation and Development (OECD) • Victor van Vuuren, Director Enterprises, International Labour Organization (ILO) • Richard Howitt, CEO, International Integrated Reporting Council (IIRC) • Additional Board Members TBD
  33. 33. Technical Committee
  34. 34. 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 • Follow us on Twitter @shcCoalition
  35. 35. Structural Alignment with the NCP The steps of the Social & Human Capital Protocol (DRAFT)
  36. 36. Thank you Mike Wallace Executive Director, The Social & Human Capital Coalition wallace@social-capital.org Partner, BrownFlynn, an ERM Group company mikew@brownflynn.com