ESG RESOURCES

THE ESG ISSUE/Resources

ESG COMMITTEE CREATES TOOLKIT FOR MEMBERS

By Valerie Banner, Senior Vice President, General Counsel and Corporate Secretary, Exterran Corporation Jock Pool, Chief Compliance Officer, Oceaneering

Financial performance of any business is foremost in the mind of its leaders. Increasingly, data is reflecting that environmental, social and governance (ESG) actions taken by a company affect long-term financial performance and must be included in a strategy for long-term value creation.

ESG factors measure the impact of a company’s sustainability and ethical practices. They include carbon emissions and climate change, water use or conservation efforts, anti-corruption, talent and human rights policies and processes, board diversity and skills, and others. Socially conscious investors use ESG criteria to screen potential investments, and more recently, regulators are considering requiring maintenance and disclosure of ESG-related data. The majority of large-cap publicly traded companies now publish sustainability reports, which include information about their ESG initiatives and metrics.

With increasing pressure from Wall Street and private equity, many companies are looking for guidance in creating an effective ESG program. The PESA ESG Committee, recognizing the need to assist Member Companies in establishing such programs, has developed an ESG toolkit. This resource includes information about ESG, why a program is needed, how a company can address these issues, and the best method for collecting and disseminating a company’s ESG initiatives and metrics.

Obtaining support from upper management and functional department heads is critical to establishing an ESG program, as ESG information and initiatives reside across several functions. Understanding the impact of a company’s sustainability, social and ethical practices on its business and operations, and financial performance, is important so this information can be spread through the company and incorporated into its strategy, programs and processes.

A company should also consider developing an ESG-related mission statement. Reviewing investor position statements and voting guidelines, as well as proxy statements and sustainability reports of companies in the same sector, will provide a wealth of information to assist in determining ESG priorities.

Gathering information from departments such as HSSE, HR, IR and Corporate Secretary on existing ESG-related activities and metrics is another necessary early step. Keep in mind, most ESG rating agencies will give credit only for what is publicly available, so preparing and posting an ESG webpage or short sustainability report (or if a public company, including information in the proxy) enables a company to take immediate credit for what it is already doing well. There are many good industry sector ESG webpages and sustainability reports to use as examples.

Once current internal ESG-related practices, information and metrics are gathered and before disclosing publicly, ESG information contained in the webpage, sustainability report, proxy, IR deck and engagement deck should be checked for accuracy and consistency. Keep most disclosures aspirational and general, unless you can confirm (and possibly audit) specific data. Once disclosed, review and update ESG disclosures at least annually.

After a company determines what information already exists, it will be easier to determine what additional data and information is needed, and what processes should be implemented to obtain it. Company activities considered by rating agencies will help companies identify the information and data that should be tracked and maintained.

This is typically a long process, and investors do not expect a company to meet all reporting standards. Rather, evaluate what information and data makes sense and can be obtained cost-efficiently. For example, consider adopting an ESG-compliant supplier code of conduct, and make sure supplier contracts require compliance. Begin collecting easily obtained data, such as electric, gas and water invoices for each facility, so that usage can be tracked.

It’s important to regularly review the company’s ESG program and activities with senior management and board. Also, ratings firms often make mistakes in gathering and reporting data, so reports issued by these firms should be regularly reviewed and corrected as needed.

A short sustainability report or more robust webpage should be a goal, but only after a program is in place, the suggested steps have been taken and additional information and data is obtained. Reviewing sustainability reports of others in the sector prior to preparing a short report is essential and, per recommendations from large institutional investor publications, applicable SASB standards should be reviewed and used in preparing the report.

In addition to ESG reporting, implementing a limited stakeholder engagement program should also be considered. This includes reaching out to the company’s largest shareholders, pertinent ESG rating entities and other key stakeholders, outside of proxy season for a possible engagement call. Keep in mind financial firms such as JP Morgan Chase, Wells Fargo, and Goldman Sachs publish annual reports that review their ESG approaches. Taking a lead from these reports can help ensure your report is robust and pertinent.

Valerie Banner serves as Senior Vice President, General Counsel and Corporate Secretary of Exterran Corporation, a global energy process and systems company. Ms. Banner has more than 35 years of global experience, including numerous years in executive management positions driving strategy, growth, risk management, governance, compliance and legal matters. She is the co-chair of the PESA ESG Committee.

Jock Pool is the Chief Compliance Officer at Oceaneering, where he is responsible for the global ethics and compliance program. His career has included positions in governance, risk, audit and process improvement. Previously he worked for the UK’s BG-Group, where he had overall governance and risk responsibilities. He also was a risk management consultant for Deloitte, LLP. He is a military veteran and currently serves as co-chair of the PESA ESG Committee.