Governance & Internal Oversight1 April 2019Liaison Delegate Meeting

Today’s Agenda

Introduction and overview It is Boards’ duty to take the leadGovernance & sustainability Project phases & collaboration Panel Breakout discussionQuestions & close

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Introduction and overviewMario Abela, WBCSD

TARGETED SOLUTIONSEach system transformation is set up as a WBCSD Program with practical Projects

Redefining Value Vision We work with business to improve decision-making and external disclosure which will transform the financial system to reward the most sustainable companies

Business makes better decisions and discloses

more meaningful information

We work with business to improve decision-making and external disclosure

Financial system uses this

information to make more informed

decisions

to transform the financial system Capital flows are

directed to more sustainable companies

to reward the most sustainable companies.

Investor Decision-Making

Redefining Value Structure

External Disclosure

Investor Decision-Making

Business Decision-Making

External DisclosureBusiness Decision-Making• Enterprise Risk Management*• Integrated Performance Management*• Measurement & Valuation• Governance & Internal Oversight*

• The Reporting Exchange*• Purpose-Driven Disclosure*• Assurance & Internal Controls*• TCFD Preparer Forums**• Reporting Matters

• Aligning Retirement Assets

* Project funding by the Gordon and Betty Moore Foundation** Project funding by Bloomberg Philanthropies

Our work is split into three Program Areas and ten Projects

Why look at governace?

• Decisions are always bounded by the business model and the law

• Directors have a general duty of care along with their fiduciary duties

• Those responsibilities are mirrored in those of the management of the company

• Breaching these responsibilities can result in severe sanctions which ultimately harm the success of the company

• Increasingly directors and management are being held to account for their actions (and inactions)

Supported by our Global Network Partners in the 11 countries and local chapters of Deloitte and Baker McKenzie

Governance & Internal Oversight Partners

Theory of change

We are working with companies and partners across the world to integrate sustainability considerations into corporate governance strategies.

We’re collaborating with key stakeholders to ensure that the solutions presented are useful and effective for board directors in key jurisdictions.

This project will help board directors improve their decision-making processes to protect and preserve long-term value.

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It is Boards’ duty to take the leadPhilippe Joubert, Earth on Board

Business is recognized as a solutionbut business must change

A collective responsibility starting at board level

2015, a tipping point

196 parties have agreed to:Limit warning well below 2°C above pre-industrial levelsAim for a net-zero emissions world between 2050 and 2100

It is Board’s duty to take the leadDirectors duties

2. Exercise due diligence or reasonable care

3. Comply with disclosure requirements

1. Act in the interest of the company

1. Act in the interest of the company

Shareholders own shares…Not the company

JACK WELCHGE CEO 1981-2001

“On the face of it, shareholder valueis the dumbest idea in the world”

The narrow focus on short-term returns has affected the very core of corporate governance

Are we creating and bringing value to all stakeholders?

We need to go back to the purpose of business

LAURENCE FINKBLACKROCK CEO2018’s letter to CEOs of S&P500

« Society is demanding that companies, both public and private, serve a social purpose […]the board is essential to helping a company articulate and pursue its purpose »

A company purpose is

What attracts and inspires your staff,

Why your customers value you, your supply chain ishonestly proud of working for you and your shareholders invest

2. Exercisedue diligence / reasonable care

Boards can no longer claimto ignore climate change

and its risks

PHYSICALRISKS

LEGALRISKS

TRANSITION RISKS

There are new risks

Thailand, 2011World Bank estimated US$45.7bn Economic damages and losses

We have disruptedthe water cycle

Brazil dam bursts…October 201619 PEOPLE DEADJanuary 2019

“We will create a cushion of safety far superior to what we have today to guarantee this never happens again”VALE CEO, SCHVARTSMAN

171 PEOPLE DEAD141 PEOPLE STILL MISSING

66%of water used foragricultureis obtained throughenergy-intensivepumping

15%of global water resources every year

The energy sectorwithdraws

Sustainability regulations are increasing

Stock of climate change legislation by the end of 2016

1,400

1,200

1,000

800

600

400

200

0Tota

l law

san

d ex

ecut

ive

polic

ies

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Total legislative

Total executive

“Even people who act accordingly to the law must be held responsible for damage they cause”The judges said.

SAUL LUCIANO LLIUYA,PERUVIAN FARMER VS

What is yourSocial Licence to Operate ?

"It takes 20 years to build a reputation and 5 minutes

to ruin it."WARREN BUFFET

You can externalize operations Not responsibilities

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Rana Plaza, 2013: more than 1000 dead workers

Mark Carney & Michael R. Bloomberg

Mainstreamingclimate-relatedfinancial disclosures

3. Duties to comply with reporting and disclosure requirements

September 2018:The China Securities Regulatory Commission (CSRC) introduces new requirements:by 2020, all listed companies and bond issuers must disclose ESG risks

Chin-UK TCFD Pilot Group issuesThree-years plan for pilot commercial banks in China to apply TCFD

We need Earth Competent Boards

Boards with members who are

• proficient in sustainability, • with the right governance, • asking management the right questions

Where aresustainabilitytopicsdebated?

Audit & Risk

Strategy &Sustainability

Nomination &Compensation

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Boards proficient in sustainabilityCorporate

governance Environment Social Investments Business operations International Legal Digital

On what topics is your boardspending its time?

Casal & Caspar, McKinsey Quaterly 2014, « Building a forward-looking board »

“Directors still spend the bulk of their time on quarterly reports, audit reviews, budgets, and compliance –70 percent is not atypical.”

How should we go froma 2°C strategy

to a net-zero emissions one?

What are the possible environmental and social government regulations that could affect our companyin the future?

Where do we spend our lobbying budget?

Have we assessedthe risks of strandedassets?

How is ourinternal carbon price helping us to progress?

« We, future workers, are ready to question ourcomfort zone so that society changes profoundly.»

~30’000 students have signed

Are we attracting and retaining new talents?

We need Earth Competent Boards

Companies have a critical role to playin securing a better world

It is Boards’ duty to take the lead

There is no businessin a world in shambles

Business as usualconsidering nature as unlimitedand freeis…

Socially unacceptable

Legally dangerous

Economically stupid

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Governance and sustainability Eleanor Leach, WBCSD

Recently launched WBCSD governance report• Sustainability issues are relevant to all

businesses and are increasing in prevalence and severity.

• Governance is evolving fast and investors alongside other stakeholders are demanding greater transparency and improved oversight.

• Effective governance structures and metrics are key element to improving investor confidence in non-financial information and provide a better understanding of a companies’ prospects

• No longer can boards focus solely on maximising shareholder value.

Recently launched WBCSD governance report

Recently launchedSustainability can no longer be considered in isolation.

Whilst each country specific governance paradigm is different from the next, there are common themes and practices that support effective and responsible governance & oversight

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Project phases & CollaborationEleanor Leach, WBCSD

Governance & Internal Oversight Approach

Phase 1(a)Understanding the

governance landscape - literature

and regulation

Phase 1(b)Interviews with board members to discuss

sustainability agenda

Phase 2Development of

materials to integrate sustainability

October – April 2019 April – October 2019

Company Interviews

Three-pronged approachTo maximise impact and scale of this project we are operating with a three-pronged approach.

Directors Advisors Investors

We are not seeking to re-invent the wheel, but rather build on the work done by others and ensure our projects are carried out by collaborating and engaging with key parties in this field

Alignment and collaboration

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Panel discussion

Panel DiscussionModerated by Mario Abela, Director - Redefining Value

David Hackett, Partner, Baker McKenzie

Gloria SantonaOf Counsel, Baker McKenzie

Olivier JanPartner, Deloitte

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Breakout discussion

Breakout DiscussionIn small groups discuss the following questions:

What challenges do you face when engaging with your board on sustainability?

How and what training materials might support your engagement with the board?

Oct

Oct

JanPhase 1 (b) - InterviewsBeginning interviews with non-executive directors identified at companies in 11 countries

DecWBCSD LD MeetingJoint presentation at WBCSD LD Meeting

Phase 1 (a) - ResearchWe have begun researching the current landscape in 11 countries.

Oct

Apr

Governance & Internal Oversight Timeline

May

Phase 1 ReportPhase 1 report with findings from research and board interviews launched.

Meeting held with HLAG to share ideas for proposed tools.

Jan

WBCSD Council Launched completed board training materials at Council Meeting in Lisbon

Oct

May

AprPhase 2 - MaterialsWBCSD to develop training materials for boards to use to better integrate sustainability into governance

AprINSEAD Conference8-9 April –Fontainebleau, Paris Board director training on sustainability in partnership with INSEAD and the Hoffman Institute.

ecoDa Conference 7 May, in partnership with ecoDaand PwC we will be holding a 1 day conference in Brussels

Oct

AprCeres ConferenceBreakfast session, Wednesday 1 May 29 April – 1 May

INSEAD Board director training

Register here.

Board director training at INSEAD Paris Campus, Fontainebleau

8-9 April 2019

This high impact two-day event aims to address sustainability from multi-level perspectives including both macro and micro approaches with a particular focus on boards’ responsibilities and on validating what a curriculum for board members committed to such a responsibility might look like.

Redefining Value Montreux Sessions

Monday11:00 - 13:00 Investing Responsibly. Retiring Responsibly11:00 - 16:00 Social & Human Capital Workshop

Wednesday 09:00 - 10:30 Briefing Session Redefining Value11:00 - 13:00 Performance & Risk Management14:30 - 16:00 Disclosure Dilemmas & Decisions

Thursday09:00 - 10:30 Building Resilience through Enterprise Risk Management11:00 - 13:00 Turning Sustainability into a Competitive Advantage

Questions & closeMario Abela, WBCSD

WBCSD (Geneva)Maison de la PaixChemin Eugène-Rigot 2BCP 2075 1211 Geneva 1

WBCSD (New York)29 East 19th Street, 4th FloorNew York, NY 10003USA

WBCSD (Delhi)WBCSD India, 4th Floor, Worldmark 2,Aerocity New Delhi 110 037India

WBCSD (London)WeWork Mansion House33 Queen StreetLondon EC4R 1BRUK

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