Corporate Governance

Shearman & Sterling LLP 16 | The Climate Changes for ESG ESG DISCLOSURE PROCESS MATTERS Given the significant attention that CSR reports receive from many different constituencies, the accuracy and tone of the report is critically important to ensure the report is consistent with the company's intended message. As CSR reports are voluntary disclosures, in some companies they are not subjected to the rigor of the review, inter-departmental vetting and auditing process that mandated SEC filings are routinely given. Companies often take quite different approaches to the creation and review of the reports. It is essential that companies be thoughtful in designing a process that has the same kind of integrity and quality that is applied to other important corporate disclosures. Many companies integrate the review process with existing functions, such as presentation and review by the disclosure committee that provides oversight for SEC reporting. In any case, irrespective of what process is chosen, it should be a thorough and formal one. The review of a CSR report cannot be relegated to the "other report" category that gets a cursory review by a disclosure committee or similar body. It is important to ensure involvement of all relevant internal stakeholders, including financial reporting, legal and investor relations. Although there may not be rules mandating disclosures, the impact of saying the wrong thing or forgetting to say something in an ESG report could be significant. Establishing an ESG Reporting Process There is not a one-size-fits-all approach to ESG reporting, but companies should be thinking about the following factors as they develop their approach: • Define the material ESG issues that are relevant to the company's business and should be incorporated into the report • Identify the third-party standards that make the most sense for the company to use, and consider the approaches being taken by other companies in the industry • Develop a formal plan for creating and building the "communications vehicle" for the company's ESG message on an annual basis, which can be a website with interactive components, a report or series of specific-issue reports, a series of investor presentations, an ESG roadshow or all of these things. Consideration should be given to the time during the calendar year when this communication refreshes for the maximum impact, such as integration with the annual reporting cycle (annual report/proxy statement) • Establish a formal vetting process that integrates review by key internal stakeholders and ensures accuracy and engagement • Create a process to get directors up to speed on the significant ESG issues for the company and create a process for meaningful board engagement and oversight • Develop processes for obtaining feedback from investors and other key stakeholders Release of ESG Reports Part of the decision-making process regarding ESG communications is deciding when to publish your CSR report and whether to issue a press release announcing such release. While a number of Top 100 Companies do not indicate the date their CSR report is released, 40 of the 58 Top 100 Companies for which there was a release date issued their CSR reports within the period beginning two weeks prior to their announcement of earnings and ending two weeks after their annual meeting. Issuance of CSR reports in this window suggests a degree of coordination and integration between traditional financial reporting and ESG reporting.

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