United States: Corporate Law Developments (January 24, 2017): Sustainability Accounting Standards Board (SASB) Issues Inaugural Report Benchmarking And Ranking Sustainability Disclosures; U.S. Department Of Labor Issues Important Guidance To ERISA Plan Fiduciaries

This week's corporate law news roundup includes discussions of the Sustainability Accounting Standards Board (SASB)'s first annual State of Disclosure Report (published December 1, 2016) providing an overview as to the quality of corporate sustainability disclosures in SEC filings and ranking such disclosures' effectiveness across various industries in the Sustainable Industry Classification System (SICS), and the recent issuance by the U.S. Department of Labor of guidance to ERISA plan fiduciaries encouraging active engagement with shareholders and addressing proper authority to vote proxies and application of investment policy statements.


On December 1, 2016, the Sustainability Accounting Standards Board (SASB) published its first annual State of Disclosure Report – 2016, for investors and other users of financial information who are looking to better understand the material sustainability risks and opportunities embedded in their portfolios. The report provides an overview as to the quality of existing corporate sustainability disclosures in SEC filings across the 10 sectors, 35 sub-industries and 79 industries in the Sustainable Industry Classification System (SICS), toward providing users with an understanding of how efficiently these risks and opportunities are being priced within an industry-specific context. The inaugural report aims to provide a baseline against which future disclosure analyses may be measured, providing investors and other users of the information with insight into evolving trends related to corporate disclosure practices, market pricing and key areas to be addressed in corporate engagement and portfolio risk management. The report's focus is disclosure and not performance (the latter of which will be assessed by the market), and ranked education, gas utilities, tobacco, car rental/leasing and cruise lines as the five industries with most effective sustainability disclosure. The report found that over 80% of disclosures analyzed across SASB disclosure topics included some level of sustainability disclosure in SEC filings, but that more than half of companies use boilerplate (instead of tailored) language and fewer than 25% contain metrics (indicating that most companies take a minimalist compliance approach to this disclosure). The SASB report comes on the heels of the April 2016 Concept Release relating to Regulation S-K, in which the SEC requested public comment as to sustainability disclosure (including environmental, social, or governance (ESG) topics) in SEC filings. For more information, please see http://www.prnewswire.com/news-releases/new-report-is-first-to-benchmark-sustainability-disclosures-in-sec-filings-300370746.html and https://library.sasb.org/state-of-disclosure-annual-report/.


The U.S. Department of Labor (DOL) recently issued guidance as to voting proxies on securities held in employee benefit plan investment portfolios and the maintenance of (and compliance with) statements of investment policies that take into account environmental, social and governance (ESG) factors, including the use of shareholder proposals and proxy voting policies. The DOL guidance assists fiduciaries in meeting their ERISA obligations relating to proxy voting, investment policy statements and shareholder engagement in employee benefit plans. It addresses proper authority among plan trustees, named fiduciaries and delegated plan investment managers to vote proxies and make plan decisions. The guidance clarifies that in addition to fiduciary obligations of prudence and loyalty to plan participants, fiduciaries also must monitor the activities of any ERISA plan-appointed investment manager with respect to management of plan assets (including proxy voting decisions). The guidance also states that a fiduciary appointing an ERISA plan investment manager may condition the manager's appointment on its acceptance of an investment policy statement (which policy statement may include proxy voting and ESG policies); but no investment policy statement will shield an investment manager from liability for imprudent actions taken in compliance with an investment policy statement (or relieve a fiduciary from its ERISA obligations as to its appointment and monitoring of an ERISA plan investment manager or trustee). In order to enhance the value of ERISA plans' investments, the guidance also encourages fiduciaries to actively engage with and communicate with management of companies in which the plan owns securities as to issues including governance, corporate decision making, sustainability and capitalization. For more information on the DOL's Interpretive Bulletin 2016-01 dated December 29, 2016 (and withdrawal of Interpretive Bulletin 2008-2 (2008) and reinstatement of Interpretive Bulletin 94-2 (1994)), see https://www.dol.gov/sites/default/files/ebsa/2016-31515.pdf

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