As an update to the ever-evolving standards in ESG disclosure, on Aug. 27, State Street Global Advisors ("SSGA") released a letter announcing its expectations for additional disclosures regarding “risks, goals and strategy as related to racial and ethnic diversity” from the companies in which it invests.  Its letter lists five target areas for disclosure, as well as a request to describe impediments to recruitment and retention of diverse talent, especially at senior levels of the organization.  In setting this standard, SSGA writes, “our primary tool is engagement with management and the board with the objective of understanding a company’s plan and how the board is carrying out its oversight role. However, if required, we are prepared to use our proxy voting authority to hold companies accountable for meeting our expectations.”

These disclosures are already included in ESG reporting at many companies, but may be relevant for companies looking to prepare new ESG disclosures or those taking a fresh look at how they communicate their ESG goals and achievements to investors.  SSGA’s disclosure expectations provide a helpful framework not only for discussing racial and ethnic diversity but also for other material ESG factors.

Below is an excerpt of the relevant portions of the letter addressing SSGA’s expected disclosure:

"1. Strategy: Articulate what role diversity plays in the firm’s broader human capital management practices and long-term strategy.

2. Goals: Describe what diversity goals exist, how these goals contribute to the firm’s overall strategy, and how these goals are managed and progressing.

3. Metrics: Provide measures of the diversity of the firm’s global employee base and board. For example:

• Workforce - Employee diversity by race, ethnicity and gender, broken down by industry-relevant employment categories or levels of seniority, for all full-time employees. In the US, companies can use the disclosure framework set forth by the United States Equal Employment Opportunity Commission’s EEO-1 Survey. Non-US companies are encouraged to disclose this information in alignment with SASB’s guidance and nationally appropriate frameworks.

• Board Level - Diversity characteristics, including racial and ethnic makeup, of the board of directors.

4. Board: Articulate goals and strategy related to racial and ethnic representation at the board level, including how the board reflects the diversity of the company’s workforce, community, customers and other key stakeholders.

5. Board oversight: Describe how the board executes its oversight role in diversity and inclusion.

Further, we ask companies to assess the barriers to entry and impediments to recruitment and retention of diverse talent, especially at senior levels of the organization. We encourage companies to take steps that ensure that diverse talent pools are sourced, supported and developed.”

If you have any questions regarding the foregoing or would like to discuss your own ESG disclosures or strategy, please contact the attorneys below or your regular Baker Botts contact.

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