| Climate change: Sustainability

E1.) If the company does not have an Environmental Sustainability Committee chaired by a board director, or if the company is outside the FTSE 350 and does not have a named board member with responsibility for this area as evidence of appropriate concern, vote against the chair of the board.

Explanation
It is important for shareholders that companies maintain a close watch on these sources of risk to their reputation and business sustainability, and that this is actively overseen at board level.

Guidance
This is in furtherance of Principles 7, 8 and 9 of the UN Global Compact.

The remit of a committee is material, not the title and the company may decide that this committee should also have responsibility for corporate social responsibility and health & safety. This committee should have clear board accountability and be chaired by or reporting to a named board member. The committee should have oversight of policies and operational controls of environmental and health & safety risks and this should be integrated into the board agenda on strategy and business performance.

In terms of the effectiveness of operational controls, the committee should

• cover material issues relating to the risks of the company’s operations and markets;
• provide evidence that they are meeting regularly: the frequency should reflect the nature of the business but minimum twice a year; and
• provide evidence that the meetings are well attended by board members. There must always be at least one present and unless there are exceptional circumstances each board member appointed to the committee should attend every half-yearly meeting or, if there are more than two per year, at least 66% of them.

| Climate change: Information disclosure 

E2.) If the company has failed to disclose quantitative and qualitative environmental information through CDP’s climate change, water and forests questionnaires, vote against the re-election of the chair of the Environmental Sustainability Committee or, in the absence of such a committee, against the re-election of the Chair of the main Board.

If for the third consecutive year a company has received lower than a C grade in any of CDP’s scoring methodologies, vote as above.

Explanation
The effectiveness of a company in this area must be transparent if shareholders are properly to assess its strengths and weaknesses and that of its management. Building a sustainable and resilient business model should be at the core of the corporate strategy.

The key areas, depending on the nature of the business and sector, are climate change and energy, water scarcity and quality, biodiversity and forests, other natural resources, waste, general pollution and environmental accidents. Clearly these will vary in the weight given to them depending on the nature of the business. The risk mapping should not only identify risks but also new business opportunities that it presents and consider the impact on direct operations, supply chain and the products and services the company produces.

For example companies exposed to water risk must be expected to conduct a water risk assessment that accounts for the impacts of current and future direct and indirect water use and discharge. The assessment must encompass the availability of a stable supply of adequate quality freshwater as well as reflect the local hydrological, social, economic and regulatory context in which the company operates, buys from or sells to, i.e. direct operations and/or supply chain, products and services, and/or business partners.

The action plan should reflect the risks identified and include clear targets and key performance indicators related to activities within the direct control of the company or its suppliers – e.g. water conservation, improvements in water discharge quality and waste‑water treatment. In order to meaningfully mitigate water risks however, the action plan should also incorporate catchment based actions – e.g. contributing to sustainable water management within the catchment through positive water policy engagement.

In addition, the action plan must incorporate monitoring, evaluation and reporting systems of impacts of activities.

CDP, formerly called the Carbon Disclosure Project, is a global not‑for‑profit organisation which holds the largest and most comprehensive collection globally of primary corporate climate change, water and forest risk information. United Nations Secretary General Ban Ki Moon has stated: “No other organisation is gathering this type of corporate climate change data and providing it to the marketplace.” CDP has separate questionnaires for climate change, water and forests plus sector‑specific modules within these. CDP sends the appropriate questionnaires to each FTSE‑listed company based on sector relevance. For example they would not send the forest and water questionnaires to a bank.

In 2014 71% of the FTSE 350 responded to the CDP’s climate change information request.

Guidance
This is in furtherance of Principles 1, 7 and 8 of the UN Global Compact.

A company’s environmental performance is assessed as part of the CDP climate change, water and forests scoring methodologies which are publicly available, and so their CDP grade will reflect this.

Three years is an adequate length of time to allow a company to put the appropriate reporting requirements and management systems in place in order to achieve an adequate CDP grade.

The scores of UK companies in 2014 can be found here: www.cdp.net/CDPResults/UK-corporate-environmental-report-2014.pdf.

| Climate change: International agreement

E3.) If the company has answered “No” to the CDP’s question on whether it supports an international agreement between governments on climate change, vote against the chair of the Environmental Sustainability Committee.

Explanation
It is extremely relevant for shareholders to ascertain whether companies are confident that they will continue to thrive in the wake of the pledged government action to reduce carbon emissions and the expected rise of global temperatures by 2°C.

Guidance
All major states including the UK have agreed to the Copenhagen Accord 2009 which recognised the scientific view that the increase in global temperature must be kept below 2°C if disastrous effects are not to ensue for life on earth. Signatory countries pledged to reduce carbon emissions to ensure that a greater increase does not occur.

In 2015, in advance of the Paris Climate Conference, the CDP included a question in its climate change questionnaire which every company received: “Would your organization’s board of directors support an international agreement between governments on climate change, which seeks to limit global temperature rise to under two degrees Celsius from pre‑industrial levels in line with IPCC scenarios such as RCP2.6?” (The Intergovernmental Panel on Climate Change is a scientific intergovernmental body under the UN which produces information relevant to understanding the scientific basis of risk of human‑induced climate change; RCP 2.6 is the most conservative of four projections of global warming.)

This is in furtherance of Principles 7, 8 and 9 of the UN Global Compact.

| Climate change: Emission reduction

E4.) Year one: If the company has failed to introduce and disclose emission reduction targets vote against the re-election of the chair of the Environmental Sustainability Committee.

Year two: If the company has failed to commit to introducing and disclose science-based emission reduction targets with a coherent strategy and action plan in line with a 2 degree scenario vote against the re-election of the chair of the Environmental Sustainability Committee.

Year three: if the company has failed to introduce and disclose the above, vote against the re-election of the chair of the Environmental Sustainability Committee.

Explanation
The effectiveness or otherwise of a company in this area must be transparent if shareholders are properly to assess its strength and that of its management.

Building a sustainable model should be at the core of the business strategy. The goals should be relevant, material and authentic.

Guidance
This is in furtherance of Principles 7, 8 and 9 of the UN Global Compact.

Meaningful targets means those developed in line with accepted existing methodologies as set out in Science Based Targets, a joint initiative by CDP, the UN Global Compact, the World Resources Institute and WWF.

For newly listed companies ‘year one’ will be deemed to be the first year that ends after listing.

| Environmental damage

E5.) If the company has a history of major incidents of environmental damage, or a major incident in the year under report, and the directors’ report does not include a substantial account of how it is responding to resulting criticism and of the ways in which it proposes to minimise the risks of repetition, vote against the reappointment of the chair. If the remuneration policy proposes any increase in salary or bonus for directors employed at the time of the incident, vote against the remuneration report.

Explanation
It is of the highest importance to their shareholders that companies should not shrug off environmental damage they cause, that they should learn lessons of incidents of such damage and that they should take appropriate steps to secure and deserve a reputation for responsibility in the future.

Guidance
Major incidents can be defined by whether there is an evident impact on the accounts.

It would be helpful for trustee boards to have feedback on how those judgements are exercised.

This is in furtherance of Principles 7, 8 and 9 of the UN Global Compact.