Transcription:

Course Intro

Welcome to ESG 101 training with VLU. This course is designed to give you a deeper understanding of ESG standards within the Visual Lease Platform.

By the end of the course, you should be able to:

• Understand the components of ESG
• What standard the ESG Steward will focus on within the Visual Lease Platform.
• And the different groups that support ESG.

Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Topic 1: What is ESG?

In this video we will discuss what ESG is, the different groups associated with ESG, and how Visual Lease’s ESG Steward will be tied into the standards.

ESG stands for Environmental, Social, and Governance. ESG refers to a set of principles for a company’s behavior used by socially conscious investors to screen potential investments.

These new principles will help investors see a more holistic view of a company. ESG will provide company responsibility and accountability to socially conscious policies. Essentially, ESG will give investors better insight into how the company operates instead of solely based on financial outcomes.

As mentioned before, ESG is comprised of three components.

Starting with the G in ESG, we have Governance, which tends to deal with

• Executive compensation
• Shareholder Rights
• Takeover Defense
•  Staggered Boards
• Independent Directors
•  Board Elections and Political contributions

The S in ESG is the Social Component that will track the following

• Discrimination
• Diversity, Equity, and Inclusion
• Human rights
• Community Relations
• And Animal Rights

Visual Lease ESG Steward will focus on the Environmental principle as it ties very well into the rest of the Visual Lease platform.

The ESG Steward will focus on the environmental tracking and impact of an organization using GRI Standards 302-306. This means the Steward will focus on data inputs for things such as the following:

• Carbon emissions
• Energy consumption
• Waste disposal
• and Water Usage

Please note: The ESG Steward is intended to track your organization’s actual performance and impact on various environmental factors and allow you to perform analysis on the data. It is not meant to be an “all-in-one” ESG compliance tool, an aggregator reporting tool, or a forecasting tool that predicts the impact of environmental events on corporate financial statements.

Topic 2: ESG Organizations

Groups that are involved in ESG are typically going to fall into
one of three different categories. There are groups that provide guidance, groups that make the standards, and groups that establish regulations.

First, let’s discuss the Guidance Groups

• Probably the best known of these groups is the TCFD. That’s the Task Force on Climate-Related Financial Disclosures.
  • They will drive what is needed to leverage and how to take information and put it into disclosures.
• Another Group is CDP. The Carbon Disclosure Project. They behave more like a rating agency. Information is submitted, and they determine a score based off the data provided.
• A third is SBTI, Science Based Target Initiative.
  • Science based targeting has been discussed throughout regulatory standards presentations across the board.

Topic 3: Groups that make the standards

• GHG

• One of the agencies that the ISSB is going to leverage very heavily is the Greenhouse Gas Protocol or GHG protocol.
• The GHG protocol has been around for a long time, and it’s really become the standard of greenhouse gas emissions, which is the one part of all of this ESG that everyone seems to pay the most attention to.
• What the greenhouse gas protocol has done, is they’ve come up with various emissions factors for anything combustible.

• GRI

• Global Reporting Initiative
•  GRI establishes a number of standards, they actually give real disclosure standards.
• For example – You must report in metric tons of CO2 equivalent. That’s a very specific standard. Tell us whether any of these components go into the calculation of a CO2 equivalent.
• It is important to note: these only are standards. They are not regulations.
• The GRI standards are broken down segments. Which are the basic principles to which the GRI standards apply.
•  The GRI Standards that the ESG Steward will focus on are
  • GRI 302, which deals with energy,
  • GRI 303 which is water and affluence
  • GRI 304 is biodiversity,
  • GRI 305 is emissions, and
    GRI 306 which is for waste.

Our visual lease platform is going to focus on those five particular components

• SASB

• Is the Sustainability Accounting Standards Board, which is a European agency.
•  Last year they merged with IIRC – International Integrated Reporting Council, to come up with standards for ESG reporting.
• They merged again into the Value Reporting Fund, or VRF which has then since been subsumed into the ISSB, the International Sustainability Board.
• The ISSB is really an offshoot of the IASB, which is the International Accounting Standards Board.

Topic 4 Groups that Establish Regulations

• CSRD

• The European Union has developed what they call the CSRD, which is the Corporate Sustainability Reporting Directive for companies that operate in the European Union.
  • Companies in the EU will have to report on their environmental impacts and other ESG issues.
  • This set up the regulator framework.
  • What EU has done, is they have outsourced to an independently chartered nongovernmental organization called EFRAG. That’s the European Financial Reporting Advisory Group.
  • A company not domiciled in the EU, but is a company that has a substantial business presence in the EU and reaches certain volumes of business, has the requirement to report under the ESRS.

• ISSB

• The ISSB is just like the IASB in that it’s an international agency. As an international agency, they don’t have any regulatory authority to require anybody to report in a certain way. But what they’ve done, is they’ve built a framework to which member nations will align.
  • They will align their regulations to the ISSB standards. So just like with IFRS 16 accounting, which is also supported in the VL Platform.
  • So we’re going to see that same sort of effect here. The ISSB will finish building its umbrella of standards, and we will start seeing individual countries tweaking or developing their individual national standards, which will have the force and effect of the law.
• In the United States, that rule-making authority right now sits with the Securities and Exchange Commission. The SEC only has the authority to regulate the activity of SEC member companies. Companies whose securities are traded on public exchanges.
  • Those companies that are not directly regulated by the SEC, those companies may have to track and report their ESG information because their scope, one in scope 2 emissions, are a regulated companies scope 3 emissions. So this starts filtering all down through the economy and bringing in all kinds of other companies as well.

Key Takeaways

That concludes our ESG 101 Course.

Remember…
• The purpose of ESG is to give companies a set of standards for socially conscious investors to screen potential investments.
• Visual Lease will follow GRI Standards within the ESG Steward.
• ESG will have organizations like the SEC, ISSB, and EFRAG that will create regulations that member nations will align to.

Thank you for attending this course – any questions, suggestions or feedback can be sent to support@visuallease.com