The director of environmental, social, and governance and corporate sustainability at Rite Aid said during her opening keynote address at Compliance Week's virtual ESG Summit on Monday that the retail pharmacy chain is preparing to comply with the Securities and Exchange Commission's (SEC) climate-related disclosure rule regardless of whether the proposed mandate faces any delays.
According to Amanda Patrick's fireside chat, "Moving the Needle on ESG Compliance," Rite Aid has adopted a "enterprise-level awareness" about the need to establish, record, and report ESG practices and policies since the SEC's proposal was published in March.
Patrick recommended risk professionals to get actively involved in their company's ESG compliance and transparency processes "from Day 1." They ought to be aware of the various rating systems and the criteria that support them.
She said, "Get yourself a seat at the table so you can be part of the process."
Rite Aid has experience on its side, since it started publishing its ESG milestones yearly in June 2019.
A 2018 shareholder motion led to Rite Aid's reporting, which is currently published every July. Patrick, who has worked for Rite Aid in a variety of capacities since 2007, was appointed as the organization's first sustainability director in 2019. She is in charge of guiding the company's ESG initiatives, including meeting investor demands and observing any prospective SEC disclosure obligations relating to climate change.
According to Patrick, Rite Aid established an ESG steering council to direct its initiatives.
According to Patrick, the firm chose to adopt a risk-based strategy and sought direction from the guidelines developed in 2017 by the Financial Stability Board's Task Force on Climate-Related Financial Disclosures (TCFD).
"We were looking to report through a risk-based, investor lens," she added. Patrick, the steering committee, and the board of directors of Rite Aid began to work after receiving approval from its institutional investors, which included BlackRock and State Street.
In order to ascertain "where we were" in terms of what ESG actions the business already had under way and what still needed to be done, Patrick said Rite Aid first conducted internal interviews and analyses.
The company's annual reports have changed from optional disclosure to requirement during the last four years, according to Patrick.
According to her, Rite Aid changed the entire structure of its ESG governance such that it is now managed by the chief legal officer rather than investor relations.
By delegating supervision to three of the board's four committees, including the auditing committee, which focuses on climate implications, Rite Aid significantly enhanced its governance surrounding ESG. The pay committee is in charge of overseeing inclusion, equality, and diversity. Before they are made public, the annual reports are reviewed by management and the nominating and governance committee, according to Patrick.
Patrick remarked, "Strengthening that governance piece has been key. They are all working independently but together."
The Sustainability Accounting Standards Board (SASB), a nonprofit organization established in 2011 to support businesses as they move toward sustainability, also provides guidance for the company's disclosures. In addition to using some of the subjects from the SASB standards for food retailers and distributors, multiline and specialty stores, and distribution, Rite Aid also applied the criteria the SASB defined for a retail pharmacy, according to Patrick.
Choosing which ESG ratings to employ has proven to be a significant difficulty. There are many different methods and approaches; according to Patrick, Rite Aid asked its investors which rating agencies it should pay attention to from a regulatory standpoint.
She gave other people the following advice: Determine which rating agency is crucial, then interact with stakeholders to make sure your ESG practices and reporting are in line with that.
The CDP, a global NGO that assesses how well businesses are doing on climate targets, received a questionnaire about climate change from Rite Aid in 2021. Rite Aid voluntarily disclosed the answers of the questionnaire.
It was a transparency exercise, according to Patrick. "Our peers had been reporting to CDP and had been for quite some time."
Patrick said, "It helped us set our baseline and understand our climate risk." According to her, the corporation discovered it had "work to do" in terms of risk and governance.
Rite Aid is changing course once more and is ready for any regulatory-driven disclosures that the SEC may demand.
Now, Patrick said, "you’re going to have these regulators coming in and saying, ‘Let’s see the data and analysis."
Implementing new financial procedures and controls for the corporation, monitoring climate impacts on official financial accounts, particularly extreme weather occurrences, and aligning disclosures with financial reporting periods would be the biggest challenges, according to her.
Rite Aid engaged a consultant to guide it through a compliance gap assessment so it could truly get a feel for what the SEC's rule will probably demand.
Patrick commented, "It was worth every penny we spent." Rite Aid's study revealed the holes it needed to close and suggested its next actions.
"If you don’t have an expert internally, lean toward a good partner to get you set up and ready to go," Patrick advised.
By fLEXI tEAM