DFIN’s Guide to Effective Proxies: ESG and HCM Edition

Interest on the part of a broad range of investors and other stakeholder groups in Environmental, Social & Governance (ESG) issues, Corporate Social Responsibility (CSR), and company sustainability is rapidly intensifying. A related issue of increased focus is Human Capital Management (HCM), increasingly seen as a significant driver of company success.

In addition to traditional concerns about company impact on environmental change, long-term or “permanent” investors want to understand the ESG-related risks and opportunities facing their portfolio companies, and how “sustainable” are these companies and thus the value of their investment. They are looking for decision-useful, quantitative information on ESG elements that are material for a given company, and for evidence of board-level governance of Environmental, Social & Governance (ESG) risks and opportunities. In the U.S., this is largely being driven by a range of institutional investors. Other influential interested groups include employees, customers, and the communities in which these companies operate.

In response to this interest, an increasing number of companies are publishing detailed CSR, CR, or Sustainability reports on their websites. Others are providing website information on these topics, but not in the form of formal reports. Many of these companies are incorporating highlights of this content in their proxies and referring interested readers to the full reports. Companies that have not yet published their initial reports or are in the final stages of preparing them, nevertheless are including some relevant ESG highlights in their proxies.

For the past years DFIN has included a section on “Environmental & Social Disclosure” in our widely utilized “Guide to Effective Proxies.” Our 7th Edition, which we anticipate distributing in the early Fall, again will include this section. Over the past three years, this has been the most dynamic and rapidly evolving disclosure topic and area of client interest; rather than wait for its inclusion in the full Guide, we are pre-releasing this ESG/HCM section of the Guide so users can start to benchmark their proposed 2020 disclosures against a range of examples presented by other companies in their 2019 proxies.

As with the full Guide, there are a range of approaches that companies are using in disclosures: some broad, others more detailed, some textual, and others more visual. The location of these disclosures often vary as well.

While many include these disclosures in the governance or risk management sections of their proxies, the inside front cover, the inside back cover, and the outside back cover of the document also can present useful locations for presenting summary “highlights.” While you may consider some of these disclosures to be “best in class”, our goal in presenting these is to show that there is a range of approaches. There is no “right or wrong”; rather what you feel works best for your company at any particularly stage of your sustainability journey is what matters.

To learn more, download the e-book below.

DFIN’s Guide to Effective Proxies: ESG and HCM Edition

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