'THE DAILY CORPORATE GOVERNANCE DIGEST’ (for public company boards, the C-suite and GCs)

????Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)

???????(i)?frameworks for making the decision to get involved in social issues/Deloitte survey on CEOs speaking out on social issues:?

????????(a) At the end of October, the?Public Affairs Council?(the "leading association for public affairs professionals worldwide) released these two useful reports on corporate engagement on social issues, "Lobbying for Good" and "Taking a Stand: How Corporations Engage on Social Issues." They are described in the related new release, "Pressure for Corporate Engagement in Social Issues is Growing",?as follows:?

???????????"Major corporations are feeling increased pressure from stakeholders — especially employees — to take a stand on social issues, according to a new report from the Foundation for Public Affairs. Released today,?Lobbying for Good?explores why companies decide to embrace social issues?and how they set priorities, determine key strategies and spokespeople, and measure results.?The comprehensive study provides new survey data as well as practical insights and examples for professionals, including detailed case studies of major organizations driving change.

???????????"In tandem with?Lobbying for Good, the Public Affairs Council is releasing?Taking a Stand: How Corporations Engage on Social Issues,?which provides results of a new Council survey on how and why companies get involved in issues related to discrimination, sustainability, human rights, immigration reform and other causes......“Public expectations have risen substantially for large corporations when it comes to addressing important social issues, but each company needs to determine its own path to engagement,”?said Public Affairs Council President Doug Pinkham.?“Our survey and report provide useful data and important guidance as leaders step into the spotlight and take a stand on vital, but sometimes controversial causes.”

???????????Of particular interest, note that the "Lobbying for Good" report includes (as discussed in this?Society for Corporate Governance?blog post last Monday, "Corporate Social Engagement Frameworks"): "insightful?case studies?that illustrate how well-established companies including?Aflac, Microsoft, Levi Strauss, McKesson, Pfizer, Southwest Airlines,?and?Target,?determine whether and how to engage on social issues. The examples show how varying approaches to managing involvement in these types of issues that are tailored to the company’s culture and organizational structure can be equally effective."

???????????Also of interest, note that at p. 14 in the "Lobbying for Good" report, the section "Building an Engagement Framework"?provides a link to, and discusses, this third?Public Affairs Council?document,?"A Strategic Guide to Social Issue Engagement", which itself?provides a "framework for companies considering implementing a process for identifying issues, considering engagement and implementing plans." Here is how this strategic guide is described in the?Society for Corporate Governance?blog post:

???????????"The Council’s “Strategic Guide to Social Issue Engagement” suggests a sound,?logical framework companies may consider?that includes creating a cross-functional social issues team; establishing guidelines and a core set of principles for engagement; identifying particular social issues the company may wish to lead, support, or monitor; assessing the issue relative to key stakeholders; determining the level of company engagement; and establishing a communications plan......"

?????????(b) Last August,?Deloitte?posted on its website the results of a joint?Deloitte/Society for Corporate?Governance?survey conducted in July, "Board Practices Quarterly: The outspoken corporation" (see item (iii)(a) from Sept. 8/21). The findings are?discussed in this?WSJ-sponsored?article last week by a Deloitte national?managing partner (with others), "Corporate Leaders Are Speaking Out on Social Issues." Below are excerpts:

????????????"......The survey of primarily corporate secretaries, counsel, and other in-house governance professionals drew 125 responses representing primarily public companies of varying sizes and industries.?Nearly half (45%) of all respondents say their CEOs made a public statement on a political, social, environmental, or other public policy matter on behalf of the company over the past year;?14% of respondents say other officers or directors made such statements. Among respondents who indicate their organizations took public stances,?the most common topic addressed was racial injustice, followed by social justice and environmental issues.

????????????"Where a company decides to speak out on social, political, environmental, or other public policy issues, the CEO is the designated spokesperson for 65% of respondents,?while this duty falls to a corporate communications leader for 32% of respondents. One-third indicate the designated spokesperson would depend on the issue being addressed.?Companies may rely on certain documents or policies to govern when or whether a company’s leadership might speak out or engage publicly on controversial or sensitive issues on the company’s behalf.?Survey respondents indicate that governing documents include a company-specific framework (31%), a code of ethics (15%), or corporate governance guidelines (15%). For 11% of respondents, the document or policy was board approved.?Nearly one-third (30%) say they do not document such decisions, and 12% note their organization does not document such decisions but is considering doing so........

????????????"More than one-third (37%) of respondents say their boards or board committees have discussed whether and when a company or any of its officers or directors should speak on the company’s behalf on these types of issues over the past year.?An additional 8% say the topic is under consideration or on an agenda for an upcoming meeting of the board or a board-level committee.?A plurality (42%) of respondents say their CEO is permitted to speak out or engage publicly without approval of the board;?however, most identify one or more board-level committees, the full board, or a combination of the full board and one or more committees as having oversight responsibility for such engagement.?

????????????"Some respondents say oversight responsibility falls to the nominating and governance committee (24%) or a sustainability or similarly focused committee (5%), while 20% say the body charged with oversight responsibility depends on the nature of the issue.?Most companies document or memorialize board or committee oversight through committee charters (57%) and corporate governance guidelines (42%)......"

???????(ii)?(more on)?office re-openings: As?follow-up to item (ii) on Monday on office re-openings at major U.S. corporations (as discussed?this?WSJ?article, "Companies Face a Dilemma: Delay Office Reopenings Again, or Take a New Approach?"),?and at several of the?largest Canadian financial institutions (as discussed in?this?Globe and Mail?article), note the following two articles:

??????????(a) This?NY Times?feature today, "Wall Street Grudgingly Allows Remote Work as Bankers Dig In", highlighted in today's?NY Times?DealBook Newsletter?(under, "Bankers aren’t racing to return to the office"):

?????????????"Even as many bank chiefs declared that it was time to return to the office this summer, most bankers are slow-walking their return,?The Times’s Lananh Nguyen reports.....Here’s a roundup of where some banks stand on return-to-office plans:

???????????????--?At?Citi,?which asked staff members to come back for at least two days a week starting in September, offices are about 70 percent full on the highest-traffic days.

???????????????--?Goldman Sachs,?one of the first banks to ask workers to return, said its downtown Manhattan base was staffed at about 60 percent.

???????????????--?Most?JPMorgan Chase?employees have returned to the office in recent months, with many of them on hybrid schedules, “just as our senior management team has requested,” a bank spokesman said. “In fact, roughly half of our Midtown employees are working from our offices on any given day.”

???????????????--?At?Morgan Stanley’s Times Square headquarters, about 65 percent of employees are coming in at least three days a week. The?bank’s C.E.O., James Gorman, has eased his opposition to flexible schedules from this summer.?At an October town hall event, he said that “we have learned to function very differently during the pandemic.”......

??????????????"Many bank executives are privately irritated:?From the employer perspective,” said Kathryn Wylde of the Partnership for New York City, “the longer this goes on, the more difficult it is to get people back, the greater their frustration.”?Managers said it was unfair for highly-paid staff to keep working from home while others, like bank tellers and maintenance workers, come in every day.?Two senior executives, who declined to be identified when discussing personnel matters, said they may push out subordinates who are not willing to return to the office regularly."

???????????(b) And this?Bloomberg?article yesterday (re-printed in today's?National Post), "Toronto Bankers Trickle Back Downtown, Echoing Wall Street Peers":

??????????????"After languishing for months while Wall Street, by comparison, charged back to the office, Toronto’s financial district is finally starting to stir.?Many of Canada’s large financial firms say they have a growing portion of their workforces back in the office and the numbers are expected to swell in the new year. Bank of Nova Scotia has said it will begin a phased return-to-office plan on Jan. 17 and Manulife Financial Corp. will reopen its Canadian offices Jan. 24. CI Financial Corp. is planning to bring its Canadian employees back in January as well......

??????????????"(A)?tentative worker return to downtown towers, which began late in the summer, turned into a steady stream in September and October — though still well below peak levels.?At?National Bank of Canada,?a 30 per cent cap on the number of workers allowed in the office at one time will be bumped to 50 per cent by the end of the month, said?Danny Dery, vice president of employee experience. The bank, which is headquartered in Montreal but has significant operations in Toronto, is planning an even larger-scale return early next year. Right now, 15 per cent to 20 per cent of workers are voluntarily back in the office on any given day, he said.?“We’re building slowly,” Dery said. “We’re basically allowing people to come back, and they’re coming back.”

???????????????"Meanwhile, executives at?Canaccord Genuity Group Inc.?have been celebrating the fact that?almost everyone is back in its largest Canadian offices in Toronto and Vancouver, said chief executive Dan Daviau.?The securities firm, which focuses on mid-market companies in Canada and the U.S., has been offering plenty of social lunches and free pizzas to stoke the back-to-the-office energy, he said......Canaccord also recently gathered its global management team for a strategy session in Florida and?held its board meeting in person this month, the type of gatherings that just aren’t the same via video conference, Daviau said.?“It’s just way more efficient being in the office,” he said. 'If your job is primarily interacting with people, certainly it’s good when you’re all in the same place. So it has worked out really well.'......"

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???????(iii)?two?prominent?board members on the board's role today and its focus on ESG issues?As discussed in this?Fortune CEO Daily Newsletter?last Friday, "The world has changed but many boards ‘have not moved on’",?Fortune?met last Thursday?with?a "group of prominent members of corporate boards, in partnership with Diligent,?to discuss the boards’ role in dealing with what Walgreens CEO Rosalind Brewer referred to.......as a "massive change in business attitudes and actions brought about by the confluence of a technological revolution, a pandemic, a mental health crisis, a racial and social justice crisis, a climate crisis and a rethinking of where and when work occurs."?Among the board?members were?Gabrielle Sulzberger, who sits on the boards of?Eli Lilly?and?Mastercard, and?Amy Chang, board member at?Disney?and?Procter & Gamble, who are quoted as follows:

??????????"Gabrielle Sulzberger, who sits on the?boards of?Eli Lilly?and?Mastercard,?among other companies, put it this way:?"It's almost been a perfect storm of, you know, factors that have made us as board members focus on ESG. Between the pandemic, social justice issues, climate, conversations around recruitment and retention, salary inflation…the pace at which we are having to make these decisions and really look in a fundamental way at how we are approaching and engaging with our employees...It is really very challenging.”

??????????"And Amy Chang, board member at?Disney?and?Procter & Gamble, offered this:?“The thing that I am so excited about, and that kind of lights me up, is the fact that we have employees pushing so hard on CEOs.?If we look at it in the U.S., we're already at 25% of the population is Gen Z, and they have $150 billion dollars in purchasing power. So, you can't really afford to ignore them…I can't even think of a CEO I work with that doesn't think about that on an almost weekly or monthly basis.”

??????????"Brian Stafford, CEO of Diligent added this insight:?“ESG is the single most frequently asked question we get from our 750,000 board member users.?Literally the single most frequently asked question. But it’s still super high level.”.......

??????????"Former?Unilever?CEO Paul Polman posed the challenge for the group in particularly stark terms:?“This is going very, very fast… When you have this enormous scale of change—bigger than the Industrial Revolution—boards struggle with that. They're just not equipped to deal with today's challenges. It might sound harsh but that is the reality. They don't reflect the real world anymore.?They grew up at a different time and did an outstanding job, but then the world has moved on.?And, frankly, many of the boards have not moved on—be it in digital knowledge, in ESG [environmental, social, and governance] knowledge, in fair representation of the population… We do have a problem that, frankly, with the urgency that we need to act right now, that boards might become a bottleneck.”

????????(iv)?mandatory TCFD-aligned climate disclosure coming to the largest U.K. companies in 2022/top banking?regulators on?climate-related financial risk:

???????????(a) As reported in this recent?Reuters?article, "Britain says company climate disclosures will be mandatory from 2022", the U.K. Government announced in?this news release?"that a set of global voluntary company disclosure standards on climate-related risks will become mandatory for large UK companies from April 2022.". Below is from the news release of?the U.K. Government's Department for Business, Energy & Industrial Strategy:

?????????????"The UK will become the first?G20?country to enshrine in law mandatory?TCFD-aligned requirements for Britain’s largest companies and financial institutions to report on climate-related risks and opportunities.?From 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis – in line with recommendations from the Task Force on Climate-Related Financial Disclosures. This will include many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and ￡500 million in turnover.....

?????????????"The new requirements will help investors and businesses to better understand the financial impacts of their exposure to climate change, and price climate-related risks more accurately, while supporting the greening of the UK economy. By applying a common set of requirements aligned with the?TCFD?recommendations, UK companies will be provided with a uniform way to assess how a changing climate may impact their business model and strategy, and ensure they are well placed to harness opportunities from the UK’s transition to net zero.....Today’s legislation will become law in April 2022 subject to Parliamentary approval...."

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???????????(b)?Earlier this month,?the?acting head of the?Office of the U.S. Comptroller of the Currency?(OCC),?Michael?Hsu,?gave this speech?on the?role of bank boards in promoting improvements in climate risk management practices?at their banks,?"Five Climate Questions Every Bank Board Should Ask" (see item (iii)(a) from Nov.16/21). Last Wednesday, he made further remarks at the?WSJ Pro’s Sustainable Business Forum, as?reported in this?WSJ?article, "U.S. Climate Risk Guidance Will Be in Line With Global Principles, Bank Regulator Says":

?????????????"The acting head of the U.S.’s top banking regulator called for banks to be screened for climate risk as part of their periodic stress tests and said the agency’s own regulatory approach was focused on maintaining the safety and soundness of the financial system.?“Banks face all sorts of risks everyday—credit risk, market risk, liquidity risk,”?said Michael Hsu, acting comptroller of the currency. “What’s emerging now is that climate change is going to be impacting a number of those risks in different ways, and we need banks to prepare for that.”?

????????????"Mr. Hsu, who spoke at WSJ Pro’s Sustainable Business Forum on Wednesday, detailed efforts by the Office of the Comptroller of the Currency to push banks to get a better handle on the risks posed to their balance sheets by climate change and extreme weather events.?The OCC has said it plans to release guidance for large banks about how to manage the financial exposure created by climate change later this year.?Mr. Hsu said the guidance would be consistent with the principles discussed in international forums such as the Network for Greening the Financial System, a network of central banks and financial supervisors.?The guidance won’t be the agency’s last word on climate risk, Mr. Hsu said, adding that the agency would continue to drill down into different areas of climate risk.?“Really what does it mean, brass tacks, to take physical and transition risks and integrate that in, so we know what good looks like?” he said......"

???????????(c) Note that last Tuesday,?the?Basel Committee on Banking Supervision?issued proposed?new?guidance?for supervising climate-related risks,?announcing in?this news release?the launching of a "public consultation on principles for the effective management and supervision of climate-related financial risks", as set out in this "Consultation Document."?Below is from the news release:

????????????"The Basel Committee on Banking Supervision today issued a public consultation on principles for the effective management and supervision of climate-related financial risks.....Through this public consultation, the Committee seeks to promote a principles-based approach to improving both banks' risk management and supervisors' practices related to climate-related financial risks.?The principles seek to achieve a balance in providing a common baseline for internationally active banks?and supervisors, while retaining sufficient flexibility given the evolving practices in this area.?The Committee intends to monitor implementation across member jurisdictions to promote a common understanding of expectations, support the development of harmonised practices and facilitate implementation of the principles as soon as possible......."

???????????(d) As reported in this?FT?article?yesterday, "Eurozone banks told to do more to tackle climate change risks", on Monday, the?European Central Bank (ECB) publishedits?report on the state of climate-related and environmental (C&E) risk management in the banking sector, "The state of climate and environmental risk management in the banking sector", inter alia calling on banks to?“urgently” improve plans to protect their businesses from climate change risk after a review found widespread shortcomings in lenders’ approach to environmental challenges." From the?FT?article, with reference to?this blog post?by?Frank Elderson, ECB executive board member and vice-chair of the ECB’s supervisory board:

??????????????"The ECB, which has directly supervised the biggest banks across the eurozone for seven years, has completed its first assessment of banks’ preparedness to deal with increased climate and environmental risks.?It found that no bank under its watch was close to meeting the ECB’s expectations. The central bank said lenders might “eventually” face higher capital demands as it integrated climate risk assessments with its regular work on setting individual banks’ capital levels.?The biggest risks to banks comes from exposure to energy companies that do not pivot to more sustainable activities and energy-intensive sectors such as aviation, according to the assessment. Other risks include lending on buildings which are less energy efficient and therefore may have a lower resale value.

??????????????"The ECB’s study focused on 112 banks with combined assets?of €24tn.?Half of those lenders said climate change would have a “material” impact on their businesses over the next three to five years. None of the banks that reported climate risks as “immaterial” had carried out sufficient analysis,?wrote?Frank Elderson, ECB executive board member and vice-chair of the ECB’s supervisory board, in?a blog post. Other shortcomings highlighted by the ECB included a lack of stress testing to see what would happen to banks’ businesses in various climate change scenarios, and poor planning for how they should make their business models more resilient in the face of climate change. The banks with the biggest shortcomings have been urged to fix them as part of the ECB’s regular supervision. “Banks urgently need to set ambitious and concrete goals and timelines — including measurable intermediate milestones — to mitigate their exposure to current and future climate and environmental risks,”?Elderson wrote.......

??????????????"The ECB did find some bright spots. Elderson said two-thirds of banks had made “meaningful progress” in factoring climate risk into their lending decisions, by doing extra due diligence on borrowers’ climate risks or phasing out lending to some of the most exposed industries.?The ECB will publish a report on banks’ climate risk disclosures in the first quarter of 2022 and is planning a broader review on banks’ strategy, governance and risk management around climate change risk in the first half of next year. The review will only announce results for the financial system, not for individual lenders......"

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