INSIGHT by
〉Katherine J. Brennan | Deputy General Counsel, Corporate Secretary & Chief Compliance Officer at Marsh & McLennan Companies, Inc
〉Connor Kuratek | Chief Corporate Counsel and Assistant Corporate Secretary at Marsh & McLennan Companies, Inc. (MMC)
〉Betty Moy Huber | co-head of Davis Polk’s Environmental, Social and Corporate Governance Group
〉Paula Simpkins | associate in Davis Polk’s Environmental, Social and Corporate Governance Group and the firm’s Corporate Department, practicing in the Capital Markets Group
This insight was first published by the Harvard Law School Forum on Corporate Governance.
Five framework- and standard-setting institutions announced a joint statement on September 11, 2020 reflecting their collaborative vision to develop a comprehensive global corporate reporting system for disclosing sustainability topics such as climate change, biodiversity, wages and skills.
The participants include the Global Reporting Initiative (GRI), CDP (formerly the Carbon Disclosure Project), Climate Disclosure Standards Board (CDSB), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB).
| Relevance to Companies
The overarching purpose of the new system is to reduce the reporting burden on companies while improving the completeness, consistency and comparability of sustainability data available for decision-making. The participants’ plan is that companies who choose to disclose sustainability topics need to collect data only once. The companies then can choose the appropriate communication channel, such as an integrated report, a sustainability report or a website posting, depending on the applicable disclosure standard. This statement comes at a time when European Union regulators and market participants are considering how to strengthen the EU’s Non-Financial Reporting Directive, and whether companies should be required to disclose against some of the frameworks already issued by certain of the participants.
| Next Steps
The joint statement does not provide a timeline or targeted completion date. The participants will provide market guidance on how their existing frameworks and standards can be used in a complementary way (including with respect to generally accepted accounting principles (GAAP)) and serve as a launch point for creating a new comprehensive reporting system. The joint statement acknowledges the importance of a “stepping stone” approach to achieve needed harmonization, including recognizing the role of GAAP and the regulatory perspectives on sustainability reporting around the world.
| Relevant to Users of Sustainability Reporting
The comprehensive corporate reporting system will address the needs of different types of users whose use of sustainability data varies. While there are users who are primarily concerned with a company’s impact on the economy, environment and various stakeholders, others are more concerned with the financial impact on the company’s financial performance and value creation. Investors fall in the second group because they incorporate the information in their investing and shareholder decision-making.
| How the Current Frameworks Work Together
Each contributing framework and standard-setting institution plays a critical role in what the joint statement refers to as a nested ecosystem. GRI standards generally enable companies to report sustainability information that significantly impacts the economy, environment or people and, in turn, the companies’ contributions toward sustainable development. SASB standards and the CDSB framework generally focus on sustainability information that they view as material to corporate value creation. CDSB’s framework focuses primarily on “a company’s natural capital, environmental and climate-related risks and opportunities.” In contrast, SASB standards are industry-specific and span across five subcategories of sustainability information, “including the environment, social capital, human capital, business model and innovation, and leadership and governance.” IIRC provides the integrated reporting framework that connects sustainability information to financial reporting. The nested ecosystem considers the relationship with the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) and the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). Going forward, the participants view that technology will also play a crucial role in the reporting, including creating a public platform like CDP’s existing one.
While the collaboration has a substantial way to go, the joint statement provides some examples of how these frameworks and standard setters have already worked together:
〉SASB and CDSB’s publication of the TCFD Implementation Guide and the Good Practice Handbook;
〉GRI and IIRC’s jointly assisting companies in adopting the GRI standards and the IIRC’s framework; and
〉GRI and SASB’s collaborative effort in educating companies on how to report under both standards concurrently.
The participants call for feedback on the joint statement, invite engagement with them and welcome market support for the process.
The World Economic Forum and Deloitte facilitated the joint statement. They, together with other accounting firms, issued a draft sustainability disclosure framework in January 2020, which we discuss here.
| brief bios
〉 Katherine J. Brennan serves as Deputy General Counsel, Corporate Secretary & Chief Compliance Officer at Marsh & McLennan Companies, Inc. Prior to re-joining Marsh & McLennan in October 2017, Kate served as the Senior Vice President, Deputy General Counsel and Corporate Secretary at S&P Global Inc. From 2008 to 2015, Kate served in a number of leadership roles at Marsh & McLennan, including General Counsel of Guy Carpenter, Senior Corporate Counsel and Assistant Corporate Secretary.
Prior to joining Marsh & McLennan, Kate was with the law firm Dewey & LeBoeuf in New York City. At D&L, she represented clients in connection with all aspects of the corporate and securities practice with a focus on insurance-linked securities, including catastrophe bond transactions. Ms. Brennan graduated with a BA from Duke University and received her JD from the University of Virginia School of Law.
〉 Connor Kuratek is Chief Corporate Counsel and Assistant Corporate Secretary at Marsh & McLennan Companies, Inc. (MMC), where he is responsible for public disclosures, M&A, and securities and other strategic corporate transactions at MMC and its operating companies. Connor also serves as Chair of the MMC Disclosure Committee and Secretary of the Audit Committee of the MMC Board of Directors. Prior to joining MMC in 2016, Connor was a Capital Markets associate at Davis Polk in New York. He received his J.D. with honors from Harvard Law School and his Bachelor of Arts with honors from Columbia University.
〉Betty Moy Huber is co-head of Davis Polk’s Environmental, Social and Corporate Governance Group. She advises public and private companies and their boards on the full range of corporate governance matters, including stakeholder engagement, shareholder activism, board composition and refreshment, fiduciary duties, board assessments, reporting and disclosure requirements and shareholder proposals. She also advises her clients on institutional investor and proxy advisory firm policies, trends and “best practices” in proxy statement and voluntary disclosure, ESG policies, corporate culture and rating organizations.
〉 Paula H. Simpkins is an associate in Davis Polk’s Environmental, Social and Corporate Governance Group and the firm’s Corporate Department, practicing in the Capital Markets Group.
| about
〉Marsh & McLennan (NYSE: MMC) is the world’s leading professional services firm in the areas of risk, strategy and people. The Company’s 76,000 colleagues advise clients in over 130 countries. With annual revenue of $17 billion, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses. Marsh advises individual and commercial clients of all sizes on insurance broking and innovative risk management solutions. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and wellbeing for a changing workforce. Oliver Wyman serves as a critical strategic, economic and brand advisor to private sector and governmental clients.
〉Davis Polk | For more than 165 years, Davis Polk has ranked among the premier law firms with practices that are world class across the board.
Today, with 10 offices strategically located in key business centers and political capitals around the globe, Davis Polk remains one of the small handful of firms that leading companies and financial institutions around the world turn to for counsel on their most significant business and legal matters.
Our professionals collaborate seamlessly across practice groups and geographies to provide our clients with exceptional service, sophisticated advice and creative and practical solutions that reflect a deep understanding of the full legal landscape, market practice and our clients’ businesses and objectives. Our extensive cross-border experience coupled with the diversity of our professionals and our top-flight local law capabilities allow us to bridge business, cultural, language, legal and regulatory differences across jurisdictions.
| All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
