We believe that the market currently lacks a meaningful, simple, and credible mechanism through which a private company can demonstrate its environmental, social and governance (ESG) credentials to investors as it seeks to transition to a public company.
Accordingly, we have supported the creation of the ‘Sustainable Public Equity Offering Framework’ (the “SPO Framework”). The SPO Framework aims to apply well-established ESG principles to address a specific gap in today’s financial markets for companies who are transitioning from private to public or are newly public. A SPO is intended to identify public equity offerings by companies with ESG profiles that have been assessed by one or more independent third-parties as having satisfied objective and clearly defined ESG criteria. It is our hope that the creation of the SPO Framework will further focus attention on the fundamental importance of sustainability in business, and particularly in the public markets, and will provide a valuable tool for companies, investors and other market participants in their efforts to facilitate and support sustainability and ESG practices.
The Sustainable Public Equity Offering Framework
The requirements of an SPO are designed to ensure that an issuer takes into consideration positive ESG outcomes, as well as the need to mitigate negative ESG factors, and is dedicated to meeting a high standard of ESG criteria across its business.
Under the SPO Framework, in order for a public equity offering to be designated as an SPO, the issuer should meet pre-defined evaluation criteria (the “Issuer Criteria”) across several ESG categories, as well as issuer-specific offering process principles. These criteria have been established in conjunction with, and supported by, an advisory council (the “Advisory Council”), such as a minimum ESG rating, a stakeholder-centric mission and purpose, best practices on climate responses, value chain, people management, and corporate governance, transparent reporting of ESG practices and matters, and commitments to make meaningful progress on important ESG matters. Prior to the completion of the issuer’s public equity offering, an independent third-party must also assess the issuer’s compliance with the Issuer Criteria.
SPO Issuer Criteria
The Issuer Criteria1 are (in their current form) as follows:
Category No. 1
Criteria No. 1
Issuer undergoes environmental, social, and governance (ESG) assessment from a widely recognized third- party ESG reviewer and discloses a summary of the assessment and credentials of the ESG reviewer. Issuer ESG performance should be in the top third of the ESG reviewer’s coverage universe. Issuer self- assessment is not permitted.
Category No. 2
Criteria No. 2
Issuer clearly articulates how positive social and/or environmental impact is embedded in its business model, products and services as they relate to key stakeholders (e.g., customers, employees, suppliers, shareholders and external stakeholders) as evidenced through company reporting/S-1/other SEC registered filings. Issuer can also meet this criterion through Public Benefit Corporation, Benefit Corporation or Social Purpose Corporation status.
Criteria No, 3
Issuer has either already reported, or commits to report annually on key ESG factors. Company may use one or more comprehensive reporting frameworks on financially material industry-specific sustainability-related risks and opportunities for an investor audience (e.g. the Sustainability Accounting Standards board, or SASB) and/or report on holistic economic, environmental and social impacts of the company’s activities and contributions for a stakeholder audience (e.g. Global Reporting Initiative, or GRI) or pursue an integrated reporting approach, in addition to meeting regulatory disclosure requirements. This reporting will also include clear and explicit reference to the issuer’s performance against each of the SPO issuer criteria.
Commit at IPO; Report annually
Category No. 3
Criteria No. 4
Issuer has either already reported according to Task Force on Climate Related Financial Disclosures recommendations, or commits to do so within 24 months of IPO, to demonstrate forward-looking understanding, management, and disclosure of climate- related risks.
Commit at IPO; Report within 24 months of IPO
Criteria No. 5
- Issuer has already reported scope 1, 2, and 3 emissions AND
- Issuer has already verified scope 1 and 2 emissions at IPO and commits to verify scope 3 emissions within 6 months of IPO or explain why scope 3 emissions cannot be verifie AND
- Issuer commits to report and verify Scope 1, 2, and 3 emissions annually.
Report Scopes 1, 2, 3 at IPO; Verify Scope 1, 2 at IPO; Commit at IPO to verify scope 3 emissions within 6 months of IPO or explain why Scope 3 emissions cannot be verified; Report annually.
Criteria No. 6
Issuer commits to establish, within one year of IPO, a carbon emissions reduction target that:
- Aims for net zero emissions covering Scopes 1, 2 and 3 as soon as possible, and no later than 2040 AND
- Is aligned to a 1.5°C temperature scenario, with interim targets measured no later than 2030.
Issuer commits to make all viable efforts to reduce emissions before looking to purchase carbon offsets, which should be transparently disclosed, of high quality and verified by a credible third-party. If a company has significant Scope 3 emissions (over 40% of total Scope 1, 2 and 3 emissions), it should include all material categories of Scope 3 emissions in the target.
Commit at IPO; Establish targets within one year of IPO
Criteria No. 7
Issuer has enterprise-wide policies or programs to address its most material environmental issues (e.g., water, waste/circularity, biodiversity, land use, chemical use, energy use, and natural resource use), as well as applicable occupational health and safety principles for employees. Issuer commits to report annually on progress.
Category No. 4
Criteria No. 8
Issuer has policies or programs designed to require Tier 1 suppliers to address its most material environmental issues (e.g., water, waste/circularity, biodiversity, land use, chemical use, energy use, and natural resource use). Issuer commits to report annually on progress.
At IPO; Report annually
Criteria No. 9
Issuer has policies or programs in place to monitor and enforce Tier 1 supply chain labor standards based on core labor standards as defined by the International Labour Organization, or local legal requirements, whichever is higher. Such policies and programs are supported and verified by assessment and issuer commits to report annually on progress.
At IPO; Report annually
Category No. 5
Criteria No. 10
Issuer has made a commitment to achieve and maintain employee diversity (e.g., Gender/Race/Ethnicity/National Origin/Sexual Orientation/Religion/Disability/Age if legally permitted to collect such employee data) and reports currently and annually on progress, including aggregate data on representation, targets, job category, and compensation, and, in addition, commits to conduct ongoing training for personnel, leadership, and board members.
At IPO; Report annually
Criteria No. 11
Issuer commits to report annually on progress towards its goals regarding the median pay gap and mean pay gap, as defined by local regulations or, where those do not exist, the Organization of Economic Cooperation and Development or International Labour Organization on gender and minority groups appropriate for their geography/ies.
Commit at IPO; Report annually
Criteria No. 12
Issuer commits to establish, within one year of IPO, a human rights policy consistent with the UN Guiding Principles on Business and Human Rights.
Commit at IPO; Establish policy within one year of IPO
Criteria No. 13
Issuer commits to establish and implement, within 24 months of IPO, a living wage requirement for all employees using a credible third-party measurement framework.
Commit at IPO; Establish requirement within 24 months of IPO
Category No. 6
Criteria No. 14
Issuer has clearly articulated how the Board will oversee ESG-related matters, including strategy, risk, and reporting, as formally documented in the charter for one or more Board committees.
Criteria No. 15
Issuer has made a commitment to achieve and maintain board diversity (e.g., Gender/Race/National Origin/Sexual Orientation/Religion/Disability/Age, where legally permissible) and report annually on progress.
Commit at IPO; Report annually
Criteria No. 16
Issuer has tied, or commits to tie within one year of IPO, executive remuneration to performance on ESG metrics, with disclosure of how the metrics relate to material ESG issues.
Commit at IPO; Ties remuneration to ESG performance within one year of IPO
Criteria No. 17
Issuer has one or more dedicated ESG-focused executives, such as Chief Sustainability Officer or similar role.
Criteria No. 18
Issuer commits to align, within six months of IPO, its policy advocacy, political contributions, and trade association engagement with these sustainability criteria.
Commit at IPO; Align activities within 6 months of IPO
Criteria No. 19
Issuer has a company-wide ethics policy and confidential channel for reporting concerns.
1 Materiality as used throughout the Advisory Council’s Issuer Criteria draws upon various recognized ESG reporting frameworks and may differ from the interpretation and application of that term as used in other settings.
In order to qualify as an SPO, the issuer’s compliance with the Issuer Criteria must be assessed by one or more independent third-parties, who will issue a report based on the results of their findings confirming that the issuer has satisfied the relevant Issuer Criteria and will publish that report publicly prior to the completion of the public equity offering.
Meet the Advisory Council Members
The Issuer Criteria have been created in conjunction with, and have been supported by, the Advisory Council hosted by BSR and comprised of representatives from companies and investors, as well as cross- sector thought-leaders, market participants, and stakeholders from across the investment community, academia, ESG framework providers, ratings agencies, law, and nonprofits, each serving in their individual capacities. The issuer and certain transaction partners of the first SPO facilitated the formation of the Advisory Council and together, participated in discussions with the Advisory Council. In assembling the Advisory Council, various partners, including BSR, endeavored to create a group that is able to draw on the knowledge, experience, and expertise of stakeholders from across the spectrum of both groups that are involved in public equity offerings and those familiar with the evaluation and support of corporate ESG efforts. In doing so, the intent was to bring a balanced view and practical approach to the establishment of objective Issuer Criteria. The current members of the Advisory Council are:
Senior Program Officer, Mission Investments, Ford Foundation
Chief Financial Officer, Allbirds
Head of Governance and Sustainability, Baillie Gifford
President and Chief Executive Officer, BSR
Chief Executive Officer and Chief Information Officer, Inherent Group, LP
Chief Operating Officer and Chief Compliance Officer, Inherent Group, LP
Head of Sustainability, Allbirds
Cora Lee Mooney
North American Service Lead, Corporate Sustainability and Climate Change, ERM
Susan (Suz) Mac Cormac
Partner, Morrison & Foerster LLP
Chief Sustainability Officer, Persefoni AI Inc.
Managing Director, Global Head of ESG Ratings, MSCI Inc.
Professor of Law, Georgetown University Law Center
Associate Vice President, EDF+Business
Bridget Realmuto LaPerla
Co-Head of ESG Research, State Street Associates, State Street Global Markets
Director of ESG Metrics and Analytics, JUST Capital
Head of Private Companies, Baillie Gifford
Director, Mission Investments, Ford Foundation
Chief Executive Officer, JUST Capital
Managing Director, Investor Solutions, JUST Capital
The Advisory Council plays no role in determining whether an issuer’s performance is consistent with the Issuer Criteria. Further, the hope is that the SPO framework, including the Issuer Criteria, will eventually be transferred to a third-party entity, such as a capital markets infrastructure provider, who will further develop the on-going governance structure for any future SPO, and facilitate further refinements of the criteria, in consultation with an ongoing advisory council or other mechanism.