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Investor interests influence disclosure trends.

A review of shareholder-sponsored proposals reveals long-standing proponents of environmental and social (E+S) topics continue to influence how companies address corporate sustainability. While some companies undertake these initiatives on their own, in many cases, investors are helping to frame the dialogue and drive change.

As of early April, E+S proposals account for approximately 45 percent of all shareholder proposals submitted thus far in 2013.

A new report by Ernst & Young LLP, How Today's Investors are Framing Conversations on Corporate Sustainability, shows attention to E+S topics particularly from institutional investors is influencing corporate sustainability disclosure trends.

Three topics comprise nearly 60 percent of E+S shareholder proposals in 2013: political spending and lobbying; climate change and sustainability; and board and corporate diversity.

The report highlights that though some E+S proposals do not make it to the proxy ballot box, their impact is noticeable, if not stronger due to the fact that most decisions to withdraw are a result of substantive dialogue with a company or action has been taken. A high rate of withdrawals has already been seen among the top three E+S proposal topics:

* Political Spending & Lobbying: About 17 percent of proposals have been withdrawn as companies have agreed to the disclosure and oversight provisions requested;

* Climate Change & Sustainability: Nearly one-third of proposals have been withdrawn, mostly due to agreements to provide a comprehensive sustainability report or to report on specific metrics; and

* Board & Corporate Diversity: About one-third of proposals have been withdrawn as companies agree to include diversity as a consideration when evaluating potential board candidates or to expand the definition of diversity in corporate policies.

As these issues grow in importance, there are several emerging categories of environmental and social proposals to watch:

* Greenhouse Gas (GHG) Emissions: For the first time, a proposal seeking disclosure on the GHG emissions impact of a company's lending portfolio, as well as on the company's exposure to climate change risk in its lending, investing and financing portfolio, will go to a vote.

* Energy Extraction Processes: In recent years, a number of proposals on risks related to energy extraction processes have appeared and they are continuing to ask for more enhanced disclosure. This year, some proposals on hydraulic fracturing are specifically asking for quantitative disclosure, and a new proposal on "fugitive methane" emissions has emerged.

* Board Composition: Some proposals seek to enhance board oversight over E+S issues including asking companies to consider expertise in these areas when evaluating potential board candidates and requesting that companies link executive compensation to environmental and social measures.


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Author:Heffes, Ellen M.
Publication:Financial Executive
Geographic Code:1USA
Date:Jun 1, 2013
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