April 16 sasb delta series financials iw gs & standards overview

Delta Series – Financials Sector Changing Standards for a Changing World

Thank you to our event sponsors…

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Delta Series – Financials Sector Changing Standards for a Changing World

8 AM Registration & Coffee

8:25 Host Remarks – Curtis Ravenel, Bloomberg LP

Opening Remarks – Erika Karp, UBS

8:45 Keynote: Business View on Reporting: Walking the Talk

Chad Holliday, World Business Council for Sustainable Development

9:00 SASB Overview - Jean Rogers, PhD SASB

9:10 Panel: Materiality and the Reasonable Investor

10:05 Break

10:20 SASB Standards for the Financials Sector - How Did We Get Here?

Jerome Lavigne-Delville & Katie Schmitz Eulitt, SASB

11:00 Panel: CSR Reports and the 10-K - The Role of SASB Standards

11:45 Closing Remarks - Peter Knight, Generation Investment Management

Noon Lunch

1-2 PM Workshop: A "Deep Dive" on SASB Standards for the Financials Sector

#DeltaSeries

SASB Standards for the

Financials Sector

Katie Schmitz Eulitt

Associate Director, Stakeholder Engagement

SASB

How did we get here?

#DeltaSeries

$

Investment Banking & Brokerage

Asset Management & Custody Activities

Commercial Banking

Consumer Finance

Mortgage Finance

Security & Commodity Exchanges

Insurance

$5T AUM $1.3T Market Cap $

Balanced across interest groups

Corporations | Market Participants | Public Interest/Intermediaries

Composition, balance, gravitas

Financials Working Groups

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Financials Working Groups

225 Surveys completed

3X Increase in participation

over health care groups

77% Agreement on materiality of issues

outlined by SASB for the sector

Initial results

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Industry Working Group Participants

Health Care Financials

Selected Companies Selected Investors Selected Companies Selected Investors

Johnson and Johnson

Baxter

Aetna

Ingersoll Rand

Becton, Dickinson and

Company

Biogen Idec

Davita

HCA Holdings, Inc

Novo Nordisk

CBRE Group

Pfizer

Encision, Inc

Atlas Copco

Mettler-Toledo

Merck

Alliance Bernstein

Trillium Asset Management

Domini Social Investments

Pax World Investments

Harrington Investments

UAW Retiree Medical

Benefits Trust

Calvert Investments

Boston Common Asset

Management

Henderson Global Investors

Core Capital Management

UBS Securities

Breckinridge Capital

Advisors

Stifel Nicolaus

ANZ Banking Group

Aegon Group

TD Bank Group

The Hartford Group

Royal Bank of Canada

Comerica

Wells Fargo Bank

HSBC Private Bank

DNB

ING

Visa

Morgan Stanley

Bank of America

Citigroup

MetLife Bank

Macquarie Group

Independent Capital

Management AG

Standard Life Investments

Aviva Investors

Breckinridge Capital

Advisors

Oddo Securities

Calvert Investments

DB Advisors

Hermes Fund Manager

Pax World Investments

Domini Social Investments

Trillium Asset Management

First Affirmative Financial

Network

Health Care participants represent companies

with more than $800B market cap and investors

with more than $952B in AUM

Financials participants represent companies with

more than $1.3T market cap and investors with

more than $5T in AUM

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IWG results for Financials: A broad consensus

Vast majority of disclosure issues exceeded 75%+

approval via IWGs

No issue received less than 51% consensus by IWG

members

77%

Above 75%

23% Below 75%

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Asset

Management

Commercial

Banks

Investment

Banking and

Brokerage

Consumer

Finance Mortgage Finance

Securities and

Commodities

Exchanges Insurance

E

N

V

I

R

O

N

M

E

N

T

Integration of ESG

factors in

investment

management and

advisory

Environmental and

social products

and services; New

market

opportunities

Integration of

ESG factors in

credit risk

analysis

Environmental

and social

products and

services; New

market

opportunities

Resource

efficiency

Integration of ESG

factors in lending

and proprietary

investments

Environmental and

social products and

services; New

market

opportunities

Environmental

products and

services

Resource

efficiency

Environmental Risk to

mortgaged properties

Environmental and

social products and

services; energy

efficient mortgages

Promoting ESG

disclosure of listed

companies

Environmental and

social products and

services; new market

opportunities

Resource efficiency

Integration of ESG

factors in

investment

management

Environmental

products and

services

Environmental risk

exposure

S

O

C

I

A

L

Transparent

information and

fair advice for

customers

Talent recruitment,

development and

retention

Employee

incentives and

compensation

Financial

inclusion and

capacity building

Transparent

information and

customer

responsibility

Customer privacy

and security

Talent

recruitment,

development and

retention

Transparent

information and

customer

responsibility

Talent recruitment,

development and

retention

Employee

incentives and

compensation

Financial

inclusion

Transparent

information and

fair advice for

customers

Responsible

lending and debt

prevention

Customer privacy

and security

Inclusion and capacity

building

Transparent

information and fair

advice for customers

Responsible Lending

and debt prevention

Promoting

transparent, efficient

capital markets and

preventing

information

asymmetry

Financial inclusion

Plan performance

Minimization of risk

and moral hazard

Talent recruitment,

development, and

retention

G

O

V

E

R

N

A

N

C

E

Legal and

regulatory

compliance

Systemic risk

management

Active ownership

and shareholder

engagement

Legal and

regulatory

compliance

Systemic risk

management

Legal and

regulatory

compliance

Systemic risk

management

Managing Conflicts

of Interest

Legal and

regulatory

compliance

Legal and regulatory

compliance

Managing business

continuity and

technology risk

Managing conflicts of

interest in a self-

regulating

organization

Legal and

regulatory

compliance

IWG results for Financials: The metrics

Surveys on metrics attributes indicate consensus among industry experts

73%

#DeltaSeries

Relevant Useful

Cost-

effective Comparable Auditable

Commercial banks 80% 80% 80% 80% 82%

Investment banking and brokerage 78% 76% 73% 73% 74%

Asset management and custody activities 85% 83% 80% 78% 82%

Consumer finance 86% 86% 86% 86% 86%

Mortgage finance 79% 79% 79% 79% 79%

Security and commodity exchanges 81% 81% 75% 75% 75%

Insurance 73% 73% 73% 70% 73%

Total Median 85% 83% 77% 79% 79%

SASB Standards for the

Financials Sector

Jerome Lavigne-Delville

Director, Standards Development

SASB

How did we get here?

#DeltaSeries

Materiality Assessment Investor Interest

Materiality: “a substantial likelihood that the disclosure of the omitted fact

would have been viewed by the reasonable investor as having

significantly altered the ‘total mix’ of the information made available”

TSC Industries v. Northway, Inc., Supreme Court, 1976

11

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Materiality Assessment MD&A Item 303 (a)(3)(ii) – the two-part test

12

Probability

of Occurrence

Magnitude

of Impact

Reasonable likelihood

of occurrence

Reasonable expectation

of material effect

No disclosure

No disclosure

No disclosure No disclosure

Voluntary forward-looking

disclosure

Required disclosure Voluntary forward-looking

disclosure

No disclosure

Less predictable impact

Anticipated future

trend or event Emerging Sustainability

Issues

Remote

Immaterial impact

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Materiality Assessment Evidentiary threshold for SASB

13

Industry determination of

materiality

(SASB standards)

Lower threshold to accommodate

for Greatest Common

Denominator of material issues in

whole industry

U.S. Courts determination of

materiality

(failure to disclose material information)

Highest threshold directly tied to Item

303 test: Reasonable likelihood of (i)

occurrence and (ii) material impact

Company determination of

materiality

(Preparation of Form 10-k)

Higher threshold tied to company

specific operations but still allows

creative interpretation

Least Most

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Materiality Assessment How ESG Issues Impact Financial Value

• Increasing pressure from society, regulators, consumers and long-

term investors on individual businesses to reduce sources of

externality through license to operate, carbon pricing, demand for

low-carbon solutions (b-to-b and b-to-c), and access to financing.

• Impact of externality on individual businesses, including:

- asset value (real or financial)

- business performance (assets under management, insurance

products)

- availability and price of raw material and other input for products or

services

14

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• Impacts can be actual or potential:

- Actual impact (existing regulation, consumer demand and financial

valuation)

- Potential impact/risks (pending regulation or risk of legal or

regulatory action; threat of competition, investor interest)

• … positive or negative:

- Positive impact through innovation or comparative performance

- Negative impact (decrease demand or price, increase in costs

15

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• action

16

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• action

17

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Revenue

- New markets

- Market share

- Pricing power / pressure


• action

18

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Revenue

- New markets

- Market share


Cost

- Regulation

- Incidents (e.g. weather)

- Efficiency (energy, labor)

- Raw material (avail./price)


• action

19

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Revenue

- New markets

- Market share


Cost

- Regulation




Assets & Liabilities

- Tangible Assets

- Financial Assets

- Intangible Assets

- Contingent Liabilities


• action

20

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Revenue

- New markets

- Market share


Cost

- Regulation




Assets & Liabilities

- Tangible Assets

- Financial Assets

- Intangible Assets

- Contingent Liabilities

Cost of Capital

- Cost of debt and equity

- Access to capital

• Extensive License to Operate

• Non-financial capitals / Intangibles

• Strong Social Externalities

• Indirect Environmental Impact

• Opportunity to finance more sustainable solutions

21

ESG Characteristics of Financials Industries

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• Extensive License to Operate

• Quasi public service: 401-k, exchanges, banks, insurance

• Consolidation; Glass-Steagall Act; TBTF/TITF

• Fiduciary duty in money management and underwriting

• Social Capital

• ESG issues in the sector driven by core impact on economic

development, with great potential benefits for society and equally

negative potential social externalities

22

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Cross-sector Trends Importance of Social Capital

23

Contribution to Society Potential for Social Externalities

Insurance - Protection against acute short-

term risks

- Moral hazard of insuring risk

away

- Chronic long-term erosion of

value

Consumer

Finance

- Source of financial flexibility,

inc. for low income population

- Many small businesses start on

credit card

- Business models based on

indebtedness

- ~800B in credit card debt

Mortgage

Finance

- 65% ownership in the U.S.

- Innovative financial engineering

- Mass production of mortgage to

create securitized products

- Sub-prime crisis

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Cross-sector Trends Societal Contribution & Potential Externalities

Access & financial inclusion

- New funding models benefit banks with strong community ties

- Balance of social inclusion and tightening in lending activities

Transparency

- Risks to clients or role of banks

- Lack of bargaining power in mortgage and consumer finance

Responsible Lending

- Business models built on generating debt

24

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Cross-sector Trends Social Capital Issues

Cross-sector Trends ESG Integration and Indirect Impact

Investment analysis and valuation

• Responsible investment (UN-PRI)

• Credit analysis

• Proprietary trading

Impact on underlying assets and products

• Insurance payout

• Mortgaged properties

• Underwriting activities

25

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Governance issues in the sector driven by strong license to operate,

industry concentration and large players with multiple roles:

• Conflict of interest

• Economies of scope in investment banking

• Stock Exchanges as SROs and publicly listed companies

• Regulatory compliance / Systemic risk

• Dodd Frank Act lead to re-assessment of business models

• Industries prone to create systemic risk (TBTF/TITF)

26

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Cross-sector Trends Governance

Current State of Reporting

27

50% 14% 30% 6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mortgage Finance (8)

Consumer Finance (9)

Insurance (10)

Asset Management & Custody Activities (10)

Commercial Banks (10)

Security & Commodity Exchanges (6)

Investment Banking & Brokerage (10)

Financials Sector (63 companies)

No Disclosure Boilerplate Statement Industry Specific Metrics Performance / Goals

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28

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Sustainability Accounting Standards

29

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Sustainability Accounting Standards

SASB provides guidance for disclosure of material sustainability issues in the

Form 10-k by establishing issues that are material at the industry-level and

likely to be material at the company-specific level

Companies are responsible for determining materiality and issues deemed

material at the company-level should be accounted for in Form 10-k

SASB provides accounting standards to account for companies’ performance

on material issues in a comparable and auditable way

For a “deep dive” on sustainability accounting standards for the financials sector, or more about SASB register for a webinar via: http://www.sasb.org/education/

Thank you

http://www.sasb.org/education/

http://www.sasb.org/education/

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April 16 sasb delta series financials iw gs & standards overview