EY-Lets-talk-sustainability2

Let’s talk:
sustainability
April 2014
Issue 2
A new point of view for business leaders
Proxy season 2014
Preview of environmental/social
shareholder proposals
Credible sustainability goals
Setting goals that drive real
business value
Accounting for GHG emissions
Banking on the benefits
Sustainability’s advantage
Gaining the edge in government
procurement

Join the conversation.
An effective sustainability strategy needs to look at all of the components that can affect your
business. In Let’s talk: sustainability, we help you demystify the highly complex world of sustainability,
and assist you in taking concrete actions to identify competitive advantages, increase operational
efficiency and mitigate risk. EY has identified nine key elements that frame the discussion:
Tax
implications
Climate
change
Supply
chain
Beyond
compliance
Social
impact
Sustainability
Emissions
Reporting
Energy
agenda
Innovation
Continue the dialogue
For more insights or to browse our archive of webcasts and videos, visit ey.com/us/sustainability.

Climate change | Beyond compliance | Emissions | Reporting | Social impact | Supply chain
Proxy season 2014:
Preview of environmental and
social shareholder proposals
Allie Rutherford
Center for Board Matters
allie.rutherford@ey.com
Environmental and social topics
continue to be the dominant category
of shareholder proposals based on the
number of proposals submitted – more
than half to date. They also represent
the leading area for proposals withdrawn
in connection with successful companyinvestor
engagement and agreement
prior to the proposal going to a vote. This
agreement may include implementation
of the proposal in part or full, providing
additional disclosure, or a commitment to
ongoing dialogue on the topic.
Three of the 10 most commonly submitted
shareholder proposals – across all topics –
focus exclusively on sustainability:
1. Requests for first time or enhanced
sustainability reporting is the most
heavily filed sustainability proposal
to date with a growing number asking
for reports on the sustainability
performance of suppliers or to
require significant suppliers to issue
sustainability reports. Some proposals
seek more targeted disclosure based
on a company’s specific situation,
e.g., water usage and impacts and the
energy efficiency of operations.
2. Investors are also showing renewed
interest in greenhouse gas (GHG)
emissions cuts, asking companies to
disclose quantitative goals. Some of
these proposals focus on the impact
of a financial institution’s lending and
financing portfolios. GHG proposals
more than quadrupled from the same
period in 2013.
3. Investors also seek a review of and
reporting on global labor practices
and human rights, and include new
proposals on risk assessments across a
company’s global supply chain. These
proposals are up about 20% from the
same period last year.
The top 10 list includes two other
proposals that share an overlapping
focus on sustainability topics: proposals
requesting increased disclosure and
oversight of political and lobbying
spending. These are the two most
common proposals submitted to date.
At least 25% of these proposals focus on
whether corporate expenditures align
with a company’s stated policies and
practices on environmental sustainability;
an even greater portion are likely driven
by environmental sustainability interests
based on a review of the investors
submitting the proposals. •
Top 10 most common shareholder proposals in 2014
Publicly disclosed through March 21
Report on sustainability
Set and report on GHG emissions reduction targets
Assess and report on global labor practices/human rights
Disclosure and oversight of political spending
Disclosure and oversight of lobbying spending
Increase diversity on the board
Eliminate classified board
Limit executive compensation
Appoint independent board chair
Adopt majority vote to elect directors
Environmental and
labor sustainability
Other proposals overlapping
environmental sustainability
Governance proposals
0 10 20 30 40 50 60 70
ey.com/us/sustainability 1

Beyond compliance | Innovation | Reporting
Setting credible
sustainability goals that
drive real business value
Ben Miller
Senior Manager,
Ernst & Young LLP
benjamin.l.miller@ca.ey.com
Stakeholders are asking companies to set
goals to manage environmental and social
impact. So far this year, more than half of
total shareholder proposal submissions
relate to Environmental and Social (E&S)
matters, up from 45% for the same period in
2013. Proposals asking companies to adopt
quantitative goals are also on the rise.
Goal setting plays a crucial role in ensuring
that an organization’s sustainability
program is driving real business value.
Weak goals, and a weak supporting
infrastructure to execute on those goals,
Goal setting plays a
crucial role in ensuring
that an organization’s
sustainability
program is driving real
business value.
not only compromise this opportunity,
but could also misuse resources an
organization depends on for success.
Goals should be ambitious but achievable,
drive value for the business and take into
account the impact on the key resources
and relationships the organization
depends on for success. Organizations
face many challenges when embarking on
the journey to set relevant and contextual
goals that reflect the organization’s
strategy, including:
••
Clearly defining your commitments
••
Aligning your commitments with
your business strategy
••
Engaging top-level executives and
middle-management
••
Determining what counts and
setting priorities
••
Identifying potential progress
statements (metrics that can be
quantified) while balancing the costs
for reporting and the usefulness of
the information
••
Building infrastructure to produce
reliable and complete data for
progress statements
In terms of driving business value, many
environmental goals can be directly
linked to increased cost savings, such
as energy efficiency, which increases
financial capital and reduces dependency
on natural capital. While environmental
goals offer the most apparent value in
regard to resource efficiency, setting and
achieving social goals can have an impact
on business success as well, especially
over the long-term. Reputational risks can
be hiding in the supply chain and impact
a company’s social license to operate.
Additionally, goals related to employee
satisfaction, training, remuneration,
health and safety directly impact
employee retention, which impacts the
bottom line and your organization’s stock
of human or intellectual capital.
When setting goals, there are a number of
things to consider:
1. Assemble the right team. As a
first step, ensure that you engage
the correct people across your
organization in the goal-setting
process. Executive input and buy-in
is critical, as is input from those on
the front line who will be charged
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Let’s talk sustainability

with implementation. This will
help ensure goals are tied into the
business strategy.
2. Do not overextend. Setting a goal
for every environmental, social
and governance (ESG) area could
potentially stretch internal resources
too thin, limiting performance and
impact. Well-focused goals can
maximize limited resources. Consider
goals that can be measured with
suitable criteria and allow for thirdparty
assurance. Suitable criteria are
defined by the American Institute of
Certified Public Accountants’ AT101
Attestation Standard.
3. Don’t put the cart before the horse.
Think about how your company
is going to measure and manage
progress toward goals before you set
them. Goals need to be achievable,
measurable and realistic.
4. Assess relevance and context for
goals. Sustainability goals must be
relevant to your business model and
the key resources and relationships
you depend on for success. They
should also consider the context
in which your business is, or could
be, impacted by externalities, such
as natural resource and skilled
labor availability, energy reliability,
distribution infrastructure, etc.
5. Be prepared for the naysayers.
Sustainability goals will be scrutinized,
and external parties will try to poke
holes in your plan. Clearly define
key terms in your commitments and
consider third-party assurance of your
progress statements.
6. Practice patience. Multiyear goals can
allow for more meaningful progress
to be enacted. It takes time to develop
the infrastructure to drive progress.
Targets should be set in a way that
provides the most value for the
business over time.
In today’s business environment, being
a good neighbor and employer is very
important in building and sustaining
success. Setting goals to drive E&S
benefits will serve as a guide to building
and achieving business value and brand
reputation. With pressure for transparency
on the rise, it is imperative that these
goals also have objective, measurable and
relevant criteria for credibly reporting on
the company’s progress. •
Setting goals to drive
E&S benefits will serve
as a guide to building
and achieving business
value and brand
reputation.
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Climate change | Beyond compliance | Emissions | Reporting
Banking on the benefits
of accounting for GHG
emissions
Chris Hagler
Southeast Practice Leader,
Ernst & Young LLP
chris.hagler@ey.com
The financial services industry is
playing an increasingly important
role in the transition toward a lowcarbon
economy while simultaneously
discovering new business opportunities.
Like other organizations, banks have
worked to reduce the GHG emissions of
their operations. However, banks can
have an even bigger impact through
their financing of “low or no carbon”
investments.
External stakeholders recognize this,
and a growing number of socially
responsible investors, shareholders
and non-governmental organizations
(NGOs) are asking financial institutions
to account for their financed emissions
in addition to the GHG emissions they
generate directly from their operations.
These NGOs and investor groups seek
to engage financial institutions on this
topic, by often submitting shareholder
proposals requesting that the company
report quantitative measures of direct
and indirect emissions and set goals
for reducing the financed emissions in
their portfolio. As these committed and
vocal groups seek to reach investors
and consumers with their messaging,
the measuring and reporting of the
environmental impact of investment
portfolios is becoming a reputational
challenge that is demanding more
attention than ever.
Measuring banks’ Scope 3 GHG
emissions — indirect emissions that result
not from an organization’s activities,
but arise from sources that are owned
or controlled by others – throughout
their investment portfolios is far from a
refined science. Organizations like the
World Resources Institute (WRI) and the
United Nations Environment Programme
(UNEP) have convened working groups
to create Financial Sector Guidance for
the Greenhouse Gas Protocol’s Corporate
Value Chain (Scope 3) Accounting and
Reporting Standard, which will form the
basis of future reporting requirements.
Meanwhile, some financial institutions are
taking the lead and developing methods to
measure their financed emissions.
For banks, financing low or no carbon
emitting projects not only mitigates
reputational risks, but also has tangible
business value by uncovering new
opportunities. Indeed, large financial
institutions are already acting on these
opportunities. Take for example the
recent green bond and “green” or energy
efficient mortgage programs. These
programs offer fixed or discounted
interest loans to fund renewable energy
and home energy efficient projects and
have opened up new markets for banks
while providing a valuable service to
their clients. The opportunities are great,
and financial institutions now have the
opportunity to accelerate the transition to
a lower-carbon economy.
Measuring and reporting on the
environmental impacts of financing low
or no carbon projects and investments
can position banks as leaders in moving
toward a lower carbon society. Credible
measurement and reporting helps
to demonstrate a clear commitment
to strong environmental, social and
governance (ESG) programs and reporting
on them helps improve brand reputation
and bolster transparency and credibility. •
A growing number of
socially responsible
investors, shareholders
and NGOs are asking
financial institutions to
account for their financed
emissions.
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Let’s talk sustainability

Innovation
Gaining the edge
in government
procurement
Nancy Gillis
Senior Manager,
Ernst & Young LLP
nancy.gillis@ey.com
The government procurement process,
especially at the federal level, is fiercely
competitive. With government dollars
exceptionally tight, companies are looking
for any way to gain an edge. For these
companies, sustainability is an important
distinguisher that can give them a
competitive advantage when bidding on
lucrative government contracts.
Government agencies, like any business,
are always looking for ways to reduce
costs. Agencies are already buying more
energy-efficient products, and they are
now looking for cost savings related
to reducing environmental impacts
across the total life cycle of a product.
If a company can demonstrate that
its solution uses less energy or is less
expensive to dispose of, those benefits
equate to real cost savings for the agency.
Agencies have been directed to engage in
sustainable acquisition. Federal Acquisition
Regulation (FAR) 23.103 requires
agencies to include sustainable products
in 95% of new contract actions for the
supply of products and services. In May
2012, the United States Department of
Defense (DoD) also included completion
of a “streamlined lifecycle analysis” as a
requirement in Chapter 4 of the Defense
Acquisition Guidelines.
Furthermore, agencies are judged on their
sustainability performance in the yearly
Office of Management and Budget (OMB)
Sustainability and Energy Scorecard.
Scorecard performance can influence
an agency’s budget. The sustainability
practices of federal suppliers impact an
agency’s Scorecard.
There are several sustainability drivers
companies should account for to gain
an advantage in the government
procurement process. Effectively
communicating the sustainability benefits
of your company’s products is critical.
Elements companies should consider are:
1. Know your company and your
competitors. Review your
sustainability initiatives and your
company’s products’ or services’
sustainability impacts. Also be aware
of how your competitors match up.
2. Know your customer. Review agency
Strategic Sustainability Performance
Plans (SSPP) to understand
expectations.
3. Effectively tell your story. Translate
all of your sustainability initiatives into
a compelling, agency-specific, costsavings
story in your procurement
response.
Government agencies see sustainability as
an opportunity for cost savings. They are
building it into procurement processes to
reduce costs and maximize limited budget
dollars. Ensuring that you’ve maximized
the environmental performance of your
company, products and services; being
aware of each agency’s SSPP; and
communicating your sustainability value
effectively could make the difference
between winning and losing an important
contract. •
ey.com/us/sustainability 5

EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and
advisory services. The insights and quality services we
deliver help build trust and confidence in the capital
markets and in economies the world over. We develop
outstanding leaders who team to deliver on our
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a critical role in building a better working world for our
people, for our clients and for our communities.
EY refers to the global organization, and may refer to
one or more, of the member firms of Ernst & Young
Global Limited, each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients.
For more information about our organization, please
visit ey.com.
Ernst & Young LLP is a client-serving member firm of
Ernst & Young Global Limited operating in the US.
About EY’s Climate Change and Sustainability Services
Climate change and sustainability continue to rise
on the agendas of governments and organizations
around the world with rapidly evolving drivers
and expectations. Your business faces regulatory
requirements and the need to meet stakeholder
expectations as well as respond to the opportunities
presented for revenue generation and cost reduction.
This means a fundamental and complex transformation
for many organizations and the embedding of climate
change and sustainability into core business activities
to achieve short term objectives and create long-term
shareholder value. The industry and countries in
which you operate as well as your extended business
relationships introduce additional complexity,
challenges, responsibilities and opportunities. Our
global, multidisciplinary team combines our core
experience in assurance, tax, transactions and advisory
with climate change and sustainability skills and deep
industry knowledge. You’ll receive a tailored service
supported by global methodologies to address issues
relating to your specific needs. Wherever you are in the
world, EY can provide the right professionals to support
you in achieving your potential. It’s how we make a
difference.
Let’s continue
the conversation.
EY is a leading brand for sustainability services,
according to the 2013 Verdantix survey. Find out
how we can help you tackle your sustainability
challenges at ey.com/us/sustainability.
©2014 Ernst & Young LLP.
All Rights Reserved.
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1403-1219234
ED 0115
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