Sustainable Brands New Metrics: The evolution of social and human capital management and disclosure

1. An ERM Group Company © 2018 BrownFlynn Ltd. All Rights Reserved. Mike Wallace, Partner, BrownFlynn, an ERM Group company Interim Executive Director, Social & Human Capital Coalition October 29, 2018 The Evolution of Social and Human Capital Management and Disclosure

2. / 2© 2018 BrownFlynn Ltd. All Rights Reserved. Speakers Cambria Allen Corporate Governance Director, UAW Retiree Medical Benefits Trust Libby Bernick Managing Director, Global Head of Corporate Business, Trucost, part of S&P Dow Jones Indices Christopher Earl Safety, Security, Health and Environmental Manager, Roche Mike Wallace Partner, BrownFlynn Manuela Werner Strategic Lead, Starting Ventures, BASF

5. © 2018 BrownFlynn Ltd. All Rights Reserved. / 5 Globally Crowd-Sourced ESG Topics Environmental  Materials  Energy  Water  Biodiversity  Emissions  Effluents and Waste  Products and Services  Environmental Compliance  Transport  Supplier Environmental Assessment  Environmental Grievance Mechanisms Economic  Economic Performance  Philanthropy  Market Presence  Indirect Economic Impacts  Economic Inclusion  Procurement Practices Human Rights  Non-discrimination  Freedom of Association & Collective Bargaining  Child Labor  Forced /Compulsory Labor  Security Practices  Indigenous Rights  Supplier Human Rights Assessment  Human Rights Grievance Mechanisms Labor Practices & Decent Work  Training and Education  Employment  Labor/Management Relations  Occupational Health & Safety  Diversity & Equal Opportunity  Equal Remuneration for Men and Women  Supplier Assessment for Labor Practices  Labor Practices Grievance Mechanisms Society  Anti-Corruption  Public Policy  Anti-competitive Behavior  Local Communities  Supplier Assessment for Impacts on Society  Grievance Mechanisms for Impacts on Society Product Responsibility  Customer Health & Safety  Product & Service Labeling  Marketing Communications  Customer Privacy  Product Compliance

12. / 12© 2018 BrownFlynn Ltd. All Rights Reserved. Investor Coalitions & Networks Interfaith Center on Corporate Responsibility (ICCR)  1972; nearly 300 members; representing over $400 billion Institutional Investors Group on Climate Change (IIGCC)  2001; over 150 members; representing over $20 trillion Carbon Disclosure Project (CDP)  2002; nearly 900 signatories; representing over $100 trillion Investor Network on Climate Risk (INCR)  2003; over 150 members; representing $25 trillion Principles for Responsible Investment (PRI)  2006; over 1,800 signatories; representing over $80 trillion United Nations Guiding Principles Reporting Framework  2013; over 67 investors; representing nearly $4 trillion Task Force on Climate-related Financial Disclosures  2015; over 32 members and 275 signatories; representing over $86.2 trillion

13. / 13© 2018 BrownFlynn Ltd. All Rights Reserved. UN Principles for Responsible Investment (PRI) The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. Source: http://www.unpri.org/ $7 $10 $13 $18 $21 $24 $32 $34 $45 $59 $62 $68 $82 63 185 361 523 734 890 1,050 1,186 1,251 1,384 1,501 1,714 1,961 - 500 1,000 1,500 2,000 $- $20 $40 $60 $80 $100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 UN PRI Growth Over Time Assets under management (US$ trillion) Number of Signatories

15. © 2018 BrownFlynn Ltd. All Rights Reserved. / 15© 2018 BrownFlynn Ltd. All Rights Reserved. RiskMetrics Group buys Innovest FEB 2009 Thomson Reuters buys Asset 4 NOV 2009 Bloomberg buys New Energy Finance DEC 2009 GMI and The Corporate Library merge JUL 2010 Vigeo and EIRIS merge OCT 2015 MSCI acquires GMI Ratings JUN 2014 ISS buys IW Financial JAN 2017 Morningstar buys 40% of Sustainalytics JUL 2017 SEP 2009 Sustainalytics and Jantzi Research Inc. merge NOV 2009 RiskMetrics Group buys KLD MAR 2010 MSCI buys RiskMetrics Group JUN 2012 Sustainalytics acquires Responsible Research SEP 2015 ISS acquires Ethix SRI Advisors OCT 2016 Standard & Poor’s buys Trucost JUN 2017 ISS acquires South Pole Group’s Investment Climate Data Division ESG Research Market Evolution

17. / 17© 2018 BrownFlynn Ltd. All Rights Reserved. A glimpse of the current ESG Ecosystem Based on sustainability reporting standards and frameworks, there are 100+ organizations producing lists, rankings, ratings, and scorecards of the “top companies” and “most sustainable” companies.

19. / 19© 2018 BrownFlynn Ltd. All Rights Reserved. Human Capital Activity Evolution of concepts fair labor practices; health and safety; responsible contracting and diversity 20152014 workforce demographics; workforce stability; workforce composition; workforce skills and capabilities; workforce culture and empowerment; workforce health and safety; workforce productivity; human rights; workforce compensation and incentives total headcount, “broken down by the division between full- time and part-time employees, gender, and diversity”; Annual turnover—including both planned and regrettable turnover; Investment in training, skills, and professional development; Employee engagement score 2016 gender diversity; employment type, such as full-time, part- time or agency workers; staff turnover; accidents, injuries and workplace illnesses; investment in training and development; pay ratios between the highest paid and median and lowest quartile workers across the company; and employee engagement scores. 2017 workforce composition, unionization, worker participation in decision-making, OHS practices, training and development and employee compensation policies. workforce composition, worker welfare, investment in skills and worker representation. Sources: Corporate Disclosure of Human Capital Metrics. October 2017. Retrieved from: https://lwp.law.harvard.edu/files/lwp/files/pension_paper_corporate_disclosure_of_human_capital_metrics_102317.pdf CSHS Human Capital Project. http://www.centershs.org/human-capital.php 2018

20. / 20© 2018 BrownFlynn Ltd. All Rights Reserved.  hiring and retention,  employee engagement,  training,  compensation,  fair labor practices,  health and safety,  responsible contracting,  ethics,  desired company culture, and  diversity, both with respect to a company’s direct employees and to the employees of vendors throughout the company’s supply chain. Human Capital Management Coalition Views Human Capital Management (HCM) as encompassing a broad range of corporate practices related to the management of employees, including, but not limited to: Members: UAW Retiree Medical Benefits Trust AFL-CIO Office of Investment Amalgamated Bank LongView Funds California Public Employees’ Retirement System California State Teachers’ Retirement System Calvert Research and Management Connecticut Retirement Plans and Trust Funds CtW Investment Group Domini Impact Investments LLC Hermes Equity Ownership Services Illinois State Board of Investment Office of Illinois State Treasurer Michael W. Frerichs International Brotherhood of Teamsters Legal and General Investment Management LiUNA The Nathan Cummings Foundation Office of the New York City Comptroller Scott Stringer Office of the New York State Comptroller Thomas P. DiNapoli Ohio Public Employees Retirement System Pennsylvania Treasury Segal Marco Advisors Sycomore AM Trillium Asset Management UAW Employees Pension and Severance Plan UFCW Pension Plan for Employees Zevin Asset Management Source: Human Capital Management Coalition. 2018. Retrieved from: http://uawtrust.org/hcmc

21. / 21© 2018 BrownFlynn Ltd. All Rights Reserved. Center for Safety & Health Sustainability – Human Capital Project (2017) Link to CSHS Website The Harvard research study looked at disclosure on twelve topics selected from the Human Capital section of RobecoSAM’s Corporate Sustainability Assessment (CSA).  Training Hours  Training Cost  Return on Training  Employee Development  Employee Development Business Benefits  Employee Development Qualitative  Operating Profit per Employee  OHS Framework  OHS Oversight  OHS Work Environment  Lost-Time Injuries  Fatalities Link to Harvard Research Report

22. / 22© 2018 BrownFlynn Ltd. All Rights Reserved. A sample of some of the influential and global participants: • Louise Davidson, CEO, Australian Council of Superannuation Investors • Martin Whittaker, CEO, JUST Capital • Scott Connolly, Assistant Secretary, Australian Council of Trade Unions • Kerrie Waring, Executive Director, and Joyce Haboucha, Co-Chair, Disclosure and Transparency Committee; International Corporate Governance Network • Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors • Ken Hall, General Secretary-Treasurer, International Brotherhood of Teamsters • Catherine Howarth, Chief Executive, ShareAction • Denise L. Nappier, State Treasurer, State of Connecticut • Gary Yee, Board Chair, British Columbia Municipal Pension Board of Trustees • Heather Slavkin Corzo, Director, Corporations and Capital Markets, AFL-CIO • Josh Zinner, Chief Executive Officer, Interfaith Center on Corporate Responsibility • Michael W. Frerichs, State Treasurer of Illinois • Ronald B. McKinley, Chair, ISO TC/260 • Paul Kearns, Chair, Maturity Institute • Anne Simpson, Investment Director, Sustainable Investments, California Public Employees Retirement System (CalPERS), and Anne Sheehan, Director of Corporate Governance, California State Teachers' Retirement System (CalSTRS) U.S. Securities & Exchange Commission (2017) Rulemaking Petition - https://www.sec.gov/comments/4-711/4-711.htm

24. / 24© 2018 BrownFlynn Ltd. All Rights Reserved. Recent Market Developments Investors are increasingly asking companies to disclose strategies for long-term value creation and incorporation of ESG into business strategies. I want to reiterate our request, outlined in past letters, that you publicly articulate your company's strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors…you must also understand the societal impact of your business as well as the ways that broad, structural trends — from slow wage growth to rising automation to climate change — affect your potential for growth.” – Larry Fink, BlackRock Letter to CEOs, 2018 “As part of our stewardship review, we classify companies according to how they have: 1) identified material environmental and social sustainability issues; 2) assessed and, where necessary, incorporated the implications into their long-term strategy; and 3) clearly communicated their approach to sustainability and its influence on strategy.” – Ronald O’Hanley, State Street Letter to Board Members, 2017 “Shareholders rely on a strong board to oversee the strategy for realizing opportunities and mitigating risks. Thorough disclosure of relevant and material risks enables share prices to fully reflect all significant known risks and opportunities…Climate risk is an example of a slowly developing and highly uncertain risk—the kind that tests the strength of a board’s oversight and risk governance..” – F. William McNabb III, Vanguard Letter to Directors, 2017 Further Reading: Why the world’s largest asset managers are pushing long-term thinking, Mark Tulay, Director, Strategic Investor Initiative, CECP

25. / 25© 2018 BrownFlynn Ltd. All Rights Reserved. January 2018 – Larry Fink’s Letter to CEOs “Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce?” March 2018 – Investor Stewardship on Human Capital “Research has consistently shown the importance of human capital to company performance. Companies included in Fortune magazine’s “100 Best Companies to Work For” lists earned, over the long-term, excess risk-adjusted returns of 3.5%.” October 2018 – BlackRock to Expand Access to ESG Data “BlackRock projects ETF assets in ESG to grow from $25 billion today to more than $400 billion by 2028.” Recent Market Developments Investor Activity

26. / 26© 2018 BrownFlynn Ltd. All Rights Reserved. April 2018 – CEO of Salesforce Closes the Gender Pay Gap  “One of the reasons we’re considered such a great place to work (Fortune rated them #1 this year) is that from the time we founded the company, we emphasized philanthropy and social responsibility. We pay employees to give their time to local schools and charities, and we have donated more than $180 million to non- profits.”  “The World Economic Forum says that it'll take more than 100 years for us to pay men and women equally.”  “We said we're going pay men and women equally at this company, and we're going to go through and level set every job, every division, and every department. We’re going make sure that we have gender equality.”  “It cost us about $3 million for us to do those adjustments the first year.” Recent Market Developments Corporate Activity

30. / 30© 2018 BrownFlynn Ltd. All Rights Reserved.  The Social & Human Capital Coalition is an initiative which aims to mainstream the measurement of social & human impacts for business – shifting the improvement of social & human performance from an optional extra to a core part of business decision making. The Protocol serves two purposes: 1. It provides a consistent process to guide companies through the journey of measuring, valuing and better managing social and human capital. 2. It provides a framework for collaboration to harmonize the currently fragmented landscape of social & human impact measurement and valuation, and to move towards standardized approaches for business. The Social & Human Coalition and Protocol The phrase “Social & Human Capital” is being defined through a public comment process that was launched on April 17, 2018.

31. / 31© 2018 BrownFlynn Ltd. All Rights Reserved. Built from existing best practice Targeted review and test Public consultation Analysis of consultation inputs Integration into Protocol Launch of updated Protocol Public consultation launched 17/04/2018 Formal consultation closed in July 2018Insights from 20 companies 2016 Review and release of Protocol Q4 2016/2017: Social Capital Protocol Advisory Group (20 external experts) 25 companies tested the Protocol in their organizations Q3/4 2018 Categorize comments Evaluate validity Consider options for update of Protocol content Resolution with Technical Committee input Report on resolution of comments (short summary) Q/4 2018 Overseen by Coalition Technical Director Approval by Coalition Executive Director Final sign-off by Coalition Board Protocol consultation and review process Q1 2019

32. / 32© 2018 BrownFlynn Ltd. All Rights Reserved. Board of Directors • Peter Bakker, CEO, WBCSD (chair) • Pavan Sukhdev, President, WWF International • Sharan Burrow, General Secretary, International Trade Union Confederation • Cécile Duflot, Director General, Oxfam France • Mark Gough, Executive Director, Natural Capital Coalition • Kathy A. Seabrook, Chair, Center for Safety & Health Sustainability (CSHS) • Jeremy Nicholls Former CEO, Social UK and Social Value International • Martine Durand, Chief Statistician and Director of Statistics and Data, OECD • Additional Board Members TBD

34. / 34© 2018 BrownFlynn Ltd. All Rights Reserved. Outreach & Engagement • Distribution list: >1,300 • Coalition Webinars: >100 participants at each webinar • Joint Statements: x4 key partners • International Integrated Reporting Council • Natural Capital Coalition • Roundtable of Product Social Metrics • Social Value International • Article Distribution >100,000

35. / 35© 2018 BrownFlynn Ltd. All Rights Reserved. Structural Alignment with the NCP The steps of the Social & human Capital Protocol (DRAFT) FRAME Step 1: Get Started SCOPE Step 2: Define the objectives Step 3: Scope the assessment Step 4: Determine the impacts and/or dependencies MEASURE & VALUE Step 5: Measure impacts and/or dependencies Step 6: Measure changes in the state of social & human capital Step 7: Value impacts and/or dependencies APPLY Step 10: Apply results into key business decisions Step 11: Interpret and test results Step 12: Take action

38. © 2018 BrownFlynn Ltd. All Rights Reserved. Do Good. Do Well. Win.™ © 2018 BrownFlynn Ltd. All Rights Reserved. For more information on BrownFlynn’s services, please visit www.brownflynn.com or contact us below. Thank You Mike Wallace Partner (424) 320 3501 mikew@brownflynn.com