IFRS Foundation
February 1, 2019

With ESG, Asking the Right Question is Half the Solution

Janine Guillot

With proxy season around the corner, both shareholders and their portfolio companies are busy preparing for annual meetings, crucial votes, and constructive engagement. In recent years, an increasing share of such proxy season activity has centred around sustainability matters. Direct, active engagement has emerged as an especially effective approach for developing a shared understanding of the key long-term risks and opportunities faced by companies, as well as the strategies being used to address them. As this important dialogue unfolds, SASB tools and resources can help bring focus to engagement strategies with an emphasis on financially material environmental, social, and governance (ESG) factors.

With this objective in mind, we’re pleased to release a newly updated edition of the SASB Engagement Guide for Asset Owners & Asset Managers. This latest iteration of the Guide reflects official revisions made to the SASB standards when they were codified in November after six years of technical development involving extensive consultation with investors and corporate professionals. The Guide is intended to bring companies and investors closer together on business-critical ESG issues. It aims to do so by establishing a common language around the sustainability issues that matter most to financial performance.

By drawing on the SASB standards to provide industry-by-industry guidance that can inform and enhance dialogue, the Guide is designed to help companies and their investors develop a more robust understanding of key risks and opportunities that may influence their ability to create sustained value over the long term. For example:

  • In the Household & Personal Products industry, what strategies is a company employing to minimise potential water supply disruptions or cost increases, particularly in water stressed regions?
  • In the Oil & Gas – Exploration & Production industry, how does pricing and demand for coal and/or climate change regulation impact a company’s capital expenditure strategy for exploration and development of assets?
  • In the Electric Utilities & Power Generators industry, how does a company work with regulators to establish financial incentives the company can earn for improving its customers’ energy efficiency?

The Guide is primarily designed for investors—including asset owners and managers—to help them identify the ESG issues that matter most to company performance and to guide discussion with company directors and management. However, it may also prove useful to corporate professionals engaged in their company’s shareholder relations program—including directors, senior management, investor relations, and corporate secretaries—who are looking for guidance on the evolving expectations of investors.

Investors can use the Guide to help shape more targeted questions for discussion and to more clearly demonstrate to companies how ESG information informs their investment analyses and decision making. Meanwhile, companies can use the Guide to ensure they’re prepared to accurately and meaningfully respond to potential inquiries in a way that aligns with existing external disclosures.

Although SASB’s work is primarily focused on facilitating more effective corporate reporting, engagement—like disclosure—is all about communication. As companies and investors seek to better understand each other’s needs regarding key sustainability matters, ESG reporting and related dialogue will continue to evolve. As a supplement to the SASB standards, we offer the Engagement Guide to help move this important conversation forward.