ESG v8

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PRACTICAL ESG Q&A

What processes should we adopt to ensure our ESG disclosures are accurate?

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Carolyn Frantz

ESG continues to evolve, with an increasing regulation and scrutiny from the SEC, a broad demand from investors and proxy advisors for more detailed, data-intensive, disclosure, and a more complex set of stakeholder views about which ESG initiatives companies should adopt. Our resource center is intended to support legal and compliance leaders who are increasingly guiding the company’s response.

How often should the full Board discuss information security?

Should our company have a Human Rights Policy?

RELATED SUPPORT

Resources for companies just getting started with ESG

Orrick Resources:

RESOURCES

ORRICK SOLUTIONS & TEAM

Best Practices in ESG: Internal Management of Public Company ESG Programs 7 Tips for a “Health Check” on Your ESG Report (TheCorporateCounsel.net, 2021) BlackRock Pushes Companies on Human Rights Risks (TheCorporateCounsel.net, 2021) Activist Shareholder Proposals and HCM Disclosures in 2021 (Harvard.edu, 2021) ESG and Sustainability Webinar (Where From Here series) (Orrick.com, 2021) Values at Work: Sustainable Investing and ESG Reporting (United Nations Institute for Training and Research, April 2021) How 2020 Forever Changed the Conversation Around Human Rights for Businesses (Chief Executive, 2020)

Additional Market Resources:

10 ESG Principles for Life Sciences Companies (PracticalESG.com, 2022) ESG and the Earnings Call (CEO Investor Forum, 2020) Edelman Trust Barometer 2021 Science-Based Targets 2021 Focus on the “E” in ESG (Forbes, 2021)

Resources for companies building on existing ESG programs

Orrick Resources:

ESG-Related Risk Factors The SEC’s Proposed New Cybersecurity Disclosure Requirements: Key Takeaways for Issuers Best Practices in ESG: Internal Management of Public Company ESG Programs (Orrick.com, 2021) Corporate Governance Outlook 2022 With Equilar 4 Ways to Move the DEI Needle in the Workplace 7 Tips for a “Health Check” on Your ESG Report (TheCorporateCounsel.net, 2021) Activist Shareholder Proposals and HCM Disclosures in 2021 (Harvard.edu, 2021) BlackRock Pushes Companies on Human Rights Risks (TheCorporateCounsel.net, 2021) Takeaways From the Second Edition of the DOJ and SEC's FCPA Resource Guide (Orrick.com, 2020) Thoughts on Revised DOJ Corporate Compliance Guidance, and New Emphasis on Real-Time Risk Assessment, Use of Data and More (Orrick.com, 2020) Human Rights and Renewable Energy (Project Finance International, 2020) How 2020 Forever Changed the Conversation Around Human Rights for Businesses (Chief Executive, 2020) Mitigating Supply Chain Risks Related to Uighur Forced Labor (Law360, 2020)

Mastering The SEC’s Climate Challenge: A Guide For Directors (BoardMember.com, 2022) Preparing for Severance Policy Proposals: Consider Policies That Limit Cash Severance (CompensationStandards.com, 2022) A Practical Guide to Sustainability Reporting Using GRI and SASB Standards (SASB, 2021) Sustainability Accounting Standards Board (SASB) Principles for Sustainable Investment (PRI), Environmental, Social and Governance Issues Task Force on Climate-related Financial Disclosures (TCFD) Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (TCFD) Greenhouse Gas Protocol Technical Guidance for Calculating Scope 3 Emissions Global Reporting Initiative (GRI) Standards Carbon Disclosure Project (CDP) Climate Disclosure Standards Board (CDSB) United Nations Sustainable Development Goals (SDG) United Nations Guiding Principles on Business and Human Rights (UNGPs) Science-Based Targets Science-Based Targets, Net Zero Larry Fink's 2022 Letter to CEOs

Additional Market Resources:

Resources for investors evaluating ESG factors

Orrick Resources:

BlackRock Pushes Companies on Human Rights Risks (TheCorporateCounsel.net, 2021) SEC Focuses on ESG Investing (PracticalESG.com, 2021) How 2020 Forever Changed the Conversation Around Human Rights for Businesses (Chief Executive, 2020) What Is the Long-Term Stock Exchange? LTSE: An Exchange Focused on Long-Term Value

ESG Scores and Ratings: What They Are, Why They Matter (Diligent Insights, 2020) MSCI ESG Ratings ISS ESG Sustainalytics: ESG Risk Ratings for every company Refinitiv: Overview of ESG Bloomberg: Global ESG Data Fitch: ESG Products Global Impact Investing Network: Research and Opinions 2020 Impact Investing Survey (Global Impact Investing Network, 2020) Making the Mark: Investor Alignment With the Operating Principles for Impact Management (Tideline, 2020) Green Bond Principles (ICMA, 2021) Social Bond Principles (ICMA, 2021) Sustainability Bond Guidelines (ICMA, 2018) Integrating ESG Holistically in Private Equity: A Strategic Approach Long-Term Stock Exchange (LTSE) Larry Fink's 2022 Letter to CEOs

Additional Market Resources:

Should our company have an Environmental Policy?

ORRICK ESG SOLUTIONS

Reporting & Disclosure

Priority Assessments

Impact Investing & ESG Transactions

Litigation & Investigations

Governance & Training

Resources for companies seeking to innovate in ESG

Orrick Resources:

3 Ways to Put Your Corporate Purpose Into Action (HBR, 2020) ESG Scores and Ratings: What They Are, Why They Matter (Diligent Insights, 2020) Delaware Public Benefit Corporation B Corps Impact Alpha Impact Management Project

Additional Market Resources:

What processes should we adopt to ensure our ESG disclosures are accurate?

Companies should consider adopting the following best practices:

How often should the full Board discuss information security?

ESG rating firms and institutional investors are increasingly seeking disclosures from companies about information security (including both cybersecurity and data privacy) oversight, in particular, the frequency with which the full Board addresses these issues. The SEC’s proposed cybersecurity disclosure rules would also seek proxy reporting on how often boards address cybersecurity. While the National Association of Corporate Directors’ 2020 Cyber-Risk Oversight report recommended that the full Board receive cybersecurity reports quarterly, that is still a relatively rare practice. Many companies situate cybersecurity oversight overwhelmingly, or exclusively, with the audit committee or a special technology-based committee, and address these issues with the full Board only in response to critical events. Many companies were caught off guard by ISS’s recent decision to include in its QualityScore rating system consideration of how often senior management briefs the full Board on information security, and are actively considering whether to increase the frequency of full Board involvement to meet that expectation. While information security issues are among the most serious risks that companies face, your company should carefully consider how information security is best governed within the context of your own Board and information security risk profile. While disclosures of full Board involvement can publicly signal company focus on information security and can help ensure that those risks are integrated into the Board’s overall company strategy, exclusive full Board oversight is not always the most effective method of actually governing these issues. In particular, given the number of competing demands on the full Board, committee oversight can, in some companies, give an opportunity for more robust discussion. There can also be advantages to tasking a smaller number of directors with understanding these issues more deeply, given their technical complexity. Increasingly, however, because of investor and SEC interest, more companies are providing for full Board review at least once annually, alongside delegation to a committee (usually the audit committee) for more frequent oversight. You should review your company’s unique information security risk profile with your directors and management, and your current governance practices, including the nature of the information security briefing materials and the skills and experience of your particular directors, and peer practices as well as the preferences of your investors, before making this important decision.

Should our company have an Environmental Policy?

Creating an environmental policy can be a valuable exercise for any company. An environmental policy conveys your company’s consideration of important environmental risks and opportunities and serves as a foundation for internal implementation and execution to address market expectations of environmental responsibility. ESG ratings firms typically consider whether a company has an environmental policy as part of the rating process. Most companies already have related policies and practices in place, which can inform an umbrella policy and provide stakeholders with visibility into your company’s approach.

Should our company have a Human Rights Policy?

Companies are often dinged by ratings firms for not having a stand-alone Human Rights Policy. The good news is that you probably already have certain elements of a Human Rights Policy in place through your Code of Business Conduct, Data Privacy Policy, Modern Slavery and Human Trafficking Statement, Supplier Code of Conduct or your adoption of the Responsible Business Alliance Code of Conduct. Having a stand-alone Human Rights Policy creates a single document that your Board can approve and regularly review that contains the most important principles regarding human rights for your company, as well as company-specific approaches to relevant international human rights law commitments, identification of your company’s salient human rights risks, and an explanation of how your company will respect these rights, including through due diligence and grievance mechanisms.

Diligence

The incorporation of ESG topics at the diligence stage is now an integral part of any transaction. Adverse ESG issues can represent meaningful risk to investors, acquirers or strategic partners, with major ESG controversies linked to sustained and significant loss of value. Orrick’s ESG diligence solution opens the box on ESG and gives meaningful insight into potential risks and opportunities. We offer an effective ESG due diligence solution for funds and other serial investors – and also assist with post-investment integration, monitoring and reporting. Our business intelligence-led approach to ESG is built on two pillars – a deep understanding of best practice on ESG policies, and a data-driven review to assess performance against leading market standards. Powered by Orrick Analytics, our ESG Diligence work can include:

Policies, Program Development and Performance Measures

Orrick assists clients with building a framework in which to establish or advance an ESG program. Clarity in approach is essential to such programs, and we advise companies on preparing or updating ESG policies addressing such issues as human rights, responsible innovation, modern slavery, minerals sourcing, environmental, director nomination and supplier/vendor codes of conduct. Orrick’s proprietary ESG Maturity Model is a tailored framework for internal ESG program development that drives continual improvement year over year and is designed to ensure that all legal and listing requirements, stakeholder expectations and other inputs are taken into account in constructing a program from the beginning so there is no need to “cut twice.” We also assist clients with developing and tracking performance measures, including KPIs, in order to monitor ESG performance over time and report to appropriate stakeholders with respect to ESG performance. Our team includes an experienced ESG Business Intelligence Advisor who helps clients create customized reports based on unique business needs.

Reporting and Disclosure

Companies face increasing stakeholder pressure to disclose ESG information and metrics, and pending legislative and regulatory action could soon result in additional mandatory ESG disclosure requirements. Whether made within SEC filings or within voluntary reports, ESG disclosure presents significant potential liabilities, and increased focus on such disclosures by the SEC heightens risk. Our team prepares and reviews ESG disclosures for public companies, including disclosures incorporated into SEC filings (e.g., proxy statements and annual reports) and disclosures published within voluntary ESG reports. We assist with preparing and reviewing ESG disclosures, and advise on establishing appropriate disclosure controls and procedures relating to the preparation, review and approval of such disclosures.

ESG Governance and Training

We advise clients seeking to set up or enhance Board and committee oversight of ESG, and to adopt governance practices that can help increase their company’s long-term sustainable value. Our work ranges from advising companies who are just going public about how to best structure their Board governance to helping more established companies update their governance to reflect new requirements and expectations. We also work with companies to create innovative governance approaches that establish thought leadership on the issues most important to them. We also help companies determine the appropriate cadence and materials to ensure effective Board review of ESG issues and establish effective programs for topics like Board and committee evaluations, director selection and screening, and ESG disclosure controls. We provide training in ESG for directors, general counsels and corporate secretaries who are seeking a deeper understanding of this rapidly evolving area. In addition, we help companies respond to shareholder and regulatory inquiries and demands regarding ESG issues, seeking first to avoid escalation, but prepared to respond formally when appropriate. Our advice is based on legal, regulatory and listing agency requirements and an understanding of what is important to investors, proxy advisors, ratings firms and other stakeholders, as well as experience with the needs and expectations of directors and the C-Suite.

Litigation and Investigations

Our top priority is helping our clients avoid ESG-related litigation by building and enhancing programs that leverage best practices and effective responses to regulatory and other inquiries. We bring deep expertise building and enhancing compliance programs and have earned the confidence of regulators, having been appointed compliance monitors by DOJ, SEC and international regulators. We help our clients respond to issues when they arise and conduct thorough investigations to address and remediate misconduct and control vulnerabilities. Where litigation is unavoidable, our ESG team collaborates with our market-leading trial and appellate teams to achieve the best outcome for our client. From issues ranging from Board diversity and pay equity, to supply chain human rights and corruption, to environmental claims, we develop strategies that are sensitive to stakeholder and reputational considerations over the long term.

Impact Investing & ESG Transactions

Today, over $715 billion is allocated toward impact investing, and $17.2 trillion of assets under management consider ESG factors. Businesses are seeking strategies to contribute to positive environmental and social outcomes, and ESG objectives are increasingly integrated across a wide range of investment strategies and transactions. Orrick’s Impact Finance and Investment Platform

Renewable Energy

Pay Equity

Cyber, Privacy & Data Innovation

Impact Finance & Investing

FCPA & Anti-Corruption

Compensation & Benefits

International Trade & Investment

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J. T. Ho

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Ashley Walter

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Hayden Goudy

See the full team

Uyghur Forced Labor Prevention Act in Effect: What Importers Need to Know

Trends for Employers to Watch in the Pay Equity Landscape

Disclosure: What’s Material?

Reporting to Your Board: What Matters to Your Company

What do the SEC's Proposed Rules for Cybersecurity and Climate Mean for ESG Disclosure and Internal Controls?

• Consultations at the pre-transaction stage to identify which ESG issues and opportunities matter the most • The collection and benchmarking of priority ESG key performance indicators through standardized forms and questionnaires readily available by industry, sector and location • Assistance with post-transaction integration, helping companies onboard and adjust to higher ESG standards through targeted engagements • Post-transaction monitoring on ESG performance, including an ongoing collection of key performance indicators (KPIs) and assistance with reporting to company stakeholders on ESG

Business & Human Rights

Don’t Chase the Ratings

5 Steps Companies Can Take Now to Improve their Data Privacy and Security Environmental, Social and Governance (ESG) Best Practices (Orrick.com, 2022) The New EU Approach to the Regulation of Artificial Intelligence (Orrick.com, 2021) Recorded Webinar: Data as an Asset – How to Acquire it and Use it Safely (Orrick.com, 2021) How 2020 Forever Changed the Conversation Around Human Rights for Businesses (Chief Executive, 2020) Tech and Black Lives—Firms Can Mitigate Discrimination in Tech (Bloomberg Law, 2020) “Human Rights by Design” Approach Can Guide Companies Developing Digital Contact Tracing Tech (Corporate Counsel, 2020)

Q & A

7 Tips for a “Health Check” on Your ESG Report

A Case Study in Innovative Solutions for Clients Facing ESG Challenges

SEC Proposes Climate Change Rules: What Public Companies Need to Know

Navigating the Path to Net Zero

Diligence

Policies, Program Development & Performance Measures

Climate Advisory

Playbooks, Benchmarking & Analytics

Priority Assessments

Our ESG Priority Assessment helps you identify priority ESG topics that are the most relevant to you and to your stakeholders. Also known as a materiality assessment, we help set the foundation for effective strategic decision-making, identifying priority ESG topics for inclusion in your sustainability reporting and to set strategy, goals and KPIs. Our approach assesses a wide range of inputs to identify relevant ESG topics and measure their relative importance.

• Assessing the Sustainability Context: We review of ESG issues relevant to your industry and business activities, and the scope and location of your operations. • Peer Benchmarking: We review the ESG programs and disclosure practices of your peers, including a review of the ESG frameworks, standards and metrics included in peer reporting, and help make your ESG program meet or exceed peer practices. • Investor Review: We assess the ESG priorities of your investors through a review of proxy voting policies, stewardship principles, ESG policies and equivalent documents, and can work with your IR department to support direct engagement with investors. • Internal Engagement: We engage with members of management and the Board through surveys and interviews to collect data on your relevant ESG topics and prepare a priority ranking based on management and Director input and comments.

Playbooks, Benchmarking & Analytics

We offer sophisticated ESG Playbooks and benchmarking services, combined with the state-of-the-art technology from Orrick Analytics, a team of lawyers, statisticians and other professionals which has earned repeated accolades in the annual Financial Times Innovative Lawyers Report for creative solutions to client needs:

• Board presentations and trainings on ESG fundamentals and priority issues including climate-change reporting • Management level workshops on priority ESG topics and setting your ESG strategy from the top • Practical, solutions-focused advice on building internal ESG structures • Peer benchmarking to aid your decision process, covering both sustainability reporting practices and internal approaches to ESG management

If your organization may benefit from understanding how your peers are setting their ESG goals or approaching ESG governance and oversight, we can offer a bespoke benchmarking research on best practices and internal management approaches to ESG within your industry or sector.

Climate Advisory

Our Climate Advisory offers solutions to help identify, prioritize, and respond to climate-related risks and opportunities. We help companies navigate growing stockholder expectations and emerging regulatory requirements covering internal governance, management, and disclosure of climate initiatives, programs, and progress. From start-ups through to large-cap companies with best-in-class ESG programs, we help our clients navigate as the ESG and climate reporting landscape moves under their feet.

• Bespoke Climate Playbooks which offer specific, actionable recommendations for meeting regulatory requirements and for advancing your internal climate program year-over-year • Board presentations and trainings on the SECs proposed climate rule, disclosure practices, and climate risks and strategy • Management level workshops on priority climate-related workstreams and setting your climate strategy from the top • Practical, solutions-focused advice on building internal climate structures • Peer benchmarking to aid your decision process, covering both climate-related reporting practices and internal approaches to climate management

• Pioneering | Orrick was one of the first major firms to establish an impact practice. We fostered partnerships with early innovators in the impact ecosystem like Kiva and Acumen to create many of the models that are most commonly used today and continue to set the standards as a leader in the space. • Global | Our clients are located around the world, providing us a distinct opportunity to identify and act on new trends in emerging and developed markets. • Cross-Cutting | Our clients and legal services are cross-practice. Representative work includes leveraging expertise from across the firm to develop blended finance investment vehicles for off-grid solar projects in Africa, India, and Latin America. • Unique Considerations | Work includes advising clients on mission-driven strategies, including as Delaware PBC's and certified B Corps, and advising clients on Program Related Investments from private foundation, as well as working with development finance institutions. • Integrated and Aligned | Aligned with our broader ESG offerings, Impact Finance and Investment is a key part of Orrick’s broader strategy to advise clients on their journey to a more sustainable future.

In concert with our ESG work, Orrick advises a wide range of clients on mission-driven investment strategies. Our recent work towards a more sustainable and equitable future has included:

• Advising PayPal on the investment strategy for its Economic Opportunity Fund, a $530 million commitment to support Black and minority-owned businesses and communities. • Assisting the California Health Facilities Financing Authority in the $500 million inaugural bond issuance under the “No Place Like Home” program, which finances permanent supportive housing the mentally ill. • Partnering with Blue Forest Finance to develop the first ever Forest Resilience Bond, a financing mechanism that raises private capital to finance forest restoration work to reduce the risk of severe wild fires, improve watershed health and protect water resources. • Advising an array of clients, including private equity, venture capital and private companies, on the integration of mission-related considerations, including conversions into a Delaware public benefit corporation and related governance issues.

Find out more about Orrick’s Impact Finance and Investment practice here.

ESG

ESG Factors: Unpacking the Terms

Resources for companies seeking to innovate in ESG

Resources for investors evaluating ESG factors

Resources for companies building on existing ESG programs

Resources for companies just getting started with ESG

RESOURCES BY PHASE OF YOUR ESG JOURNEY

ESG Business Intelligence

ESG Program Development

Securities, Compensation & ESG

Corporate Governance & ESG

What can we do to avoid state government backlash, SEC regulatory actions and private litigation about ESG?

How do I level up my ESG program?

How do we better integrate ESG into our ERM program?

With all the developments from the SEC, the CSRD, and the ISSB, what comes next for ESG reports?

How can we help our Boards and executive leadership understand what’s going on in ESG?

How do we integrate ESG metrics into Executive Compensation program?

With so much going on in ESG, how do people know where to start?

How are companies responding to attacks on their DEI initiatives from activist shareholders trying to move the DEI needle the other way?

Why investors care about ESG

How does pay equity play into a company's overall ESG strategy?

Should we consider structuring our new company as a Public Benefit Corporation or B Corp?

DEI Initiatives Under Attack by Activists

• Creating a calendar of required and voluntary disclosures, and evaluating whether certain disclosures should be coordinated – particularly aligning timing of ESG report and 10-K to enhance consistency • Creating a formal system for evaluating consistency across SEC disclosures and voluntary disclosures (ESG and CSR reports, as well as responses to ESG and other ratings surveys) • Creating a responsibility chart for legal review of disclosures, ensuring the right in-house and outside counsel are involved in review of the appropriate questions • Whether additional individuals should be added to the Disclosure Committee to address these new disclosures • Whether the Disclosure Committee has the time to handle all of this, or if it would be better to create a subcommittee or rely on the leader of an operational office responsible for ESG disclosures • Whether sub-certifications should be required for voluntary disclosures • Having a dialogue with the independent auditor about their expectations for audit scope and needs in light of the pending climate change rules • Obtaining third-party assurance providers to provide assurance of key ESG metrics, such as greenhouse gas emissions

Companies should consider adopting the following best practices: