Critical Evaluation of Company ESG performance. This section is to present your thorough analysis of the firms ESG strategy and p

TECHNOLOGY & COMMUNICATIONS SECTOR

SOFTWARE & IT SERVICES Sustainability Accounting Standard

Sustainable Industry Classification System® (SICS®) TC-SI

Prepared by the Sustainability Accounting Standards Board

October 2018

INDUSTRY STANDARD | VERSION 2018-10

© 2018 The SASB Foundation. All Rights Reserved. sasb.org

SOFTWARE & IT SERVICES Sustainability Accounting Standard

About SASB

The SASB Foundation was founded in 2011 as a not-for-profit, independent standards-setting organization. The SASB

Foundation’s mission is to establish and maintain industry-specific standards that assist companies in disclosing financially

material, decision-useful sustainability information to investors.

The SASB Foundation operates in a governance structure similar to the structure adopted by other internationally

recognized bodies that set standards for disclosure to investors, including the Financial Accounting Standards Board

(FASB) and the International Accounting Standards Board (IASB). This structure includes a board of directors (“the

Foundation Board”) and a standards-setting board (“the Standards Board” or "the SASB"). The Standards Board

develops, issues, and maintains the SASB standards. The Foundation Board oversees the strategy, finances and operations

of the entire organization, and appoints the members of the Standards Board.

The Foundation Board is not involved in setting standards, but is responsible for overseeing the Standards Board’s

compliance with the organization’s due process requirements. As set out in the SASB Rules of Procedure, the SASB’s

standards-setting activities are transparent and follow careful due process, including extensive consultation with

companies, investors, and relevant experts.

The SASB Foundation is funded by a range of sources, including contributions from philanthropies, companies, and

individuals, as well as through the sale and licensing of publications, educational materials, and other products. The SASB

Foundation receives no government financing and is not affiliated with any governmental body, the FASB, the IASB, or

any other financial accounting standards-setting body.

SUSTAINABILITY ACCOUNTING STANDARDS BOARD

1045 Sansome Street, Suite 450

San Francisco, CA 94111

415.830.9220

[email protected]

sasb.org

The information, text, and graphics in this publication (the “Content”) are owned by The SASB Foundation. All rights reserved. The Content may be used only for non-commercial, informational, or scholarly use, provided that all copyright and other proprietary notices related to the Content are kept intact, and that no modifications are made to the Content. The Content may not be otherwise disseminated, distributed, republished, reproduced, or modified without the prior written permission of The SASB Foundation. To request permission, please contact us at [email protected]

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 2

Table of Contents

Introduction………………………………………………………………………………………………………………………………………………..4

Purpose of SASB Standards………………………………………………………………………………………………………………………..4

Overview of SASB Standards………………………………………………………………………………………………………………………4

Use of the Standards…………………………………………………………………………………………………………………………………5

Industry Description…………………………………………………………………………………………………………………………………..5

Sustainability Disclosure Topics & Accounting Metrics…………………………………………………………………………………..6

Environmental Footprint of Hardware Infrastructure……………………………………………………………………………………….8

Data Privacy & Freedom of Expression………………………………………………………………………………………………………..12

Data Security………………………………………………………………………………………………………………………………………….19

Recruiting & Managing a Global, Diverse & Skilled Workforce………………………………………………………………………..23

Intellectual Property Protection & Competitive Behavior…………………………………………………………………………………28

Managing Systemic Risks from Technology Disruptions………………………………………………………………………………….30

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 3

INTRODUCTION

Purpose of SASB Standards The SASB’s use of the term “sustainability” refers to corporate activities that maintain or enhance the ability of the

company to create value over the long term. Sustainability accounting reflects the governance and management of a

company’s environmental and social impacts arising from production of goods and services, as well as its governance and

management of the environmental and social capitals necessary to create long-term value. The SASB also refers to

sustainability as “ESG” (environmental, social, and governance), though traditional corporate governance issues such as

board composition are not included within the scope of the SASB’s standards-setting activities.

SASB standards are designed to identify a minimum set of sustainability issues most likely to impact the operating

performance or financial condition of the typical company in an industry, regardless of location. SASB standards are

designed to enable communications on corporate performance on industry-level sustainability issues in a cost-effective

and decision-useful manner using existing disclosure and reporting mechanisms.

Businesses can use the SASB standards to better identify, manage, and communicate to investors sustainability

information that is financially material. Use of the standards can benefit businesses by improving transparency, risk

management, and performance. SASB standards can help investors by encouraging reporting that is comparable,

consistent, and financially material, thereby enabling investors to make better investment and voting decisions.

Overview of SASB Standards The SASB has developed a set of 77 industry-specific sustainability accounting standards (“SASB standards” or “industry

standards”), categorized pursuant to SASB’s Sustainable Industry Classification System® (SICS®). Each SASB standard

describes the industry that is the subject of the standard, including any assumptions about the predominant business

model and industry segments that are included. SASB standards include:

1. Disclosure topics – A minimum set of industry-specific disclosure topics reasonably likely to constitute material

information, and a brief description of how management or mismanagement of each topic may affect value creation.

2. Accounting metrics – A set of quantitative and/or qualitative accounting metrics intended to measure performance

on each topic.

3. Technical protocols – Each accounting metric is accompanied by a technical protocol that provides guidance on

definitions, scope, implementation, compilation, and presentation, all of which are intended to constitute suitable criteria

for third-party assurance.

4. Activity metrics – A set of metrics that quantify the scale of a company’s business and are intended for use in

conjunction with accounting metrics to normalize data and facilitate comparison.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 4

Furthermore, the SASB Standards Application Guidance establishes guidance applicable to the use of all industry

standards and is considered part of the standards. Unless otherwise specified in the technical protocols contained in the

industry standards, the guidance in the SASB Standards Application Guidance applies to the definitions, scope,

implementation, compilation, and presentation of the metrics in the industry standards.

The SASB Conceptual Framework sets out the basic concepts, principles, definitions, and objectives that guide the

Standards Board in its approach to setting standards for sustainability accounting. The SASB Rules of Procedure is focused

on the governance processes and practices for standards setting.

Use of the Standards SASB standards are intended for use in communications to investors regarding sustainability issues that are likely to

impact corporate ability to create value over the long term. Use of SASB standards is voluntary. A company determines

which standard(s) is relevant to the company, which disclosure topics are financially material to its business, and which

associated metrics to report, taking relevant legal requirements into account1. In general, a company would use the SASB

standard specific to its primary industry as identified in SICS® . However, companies with substantial business in multiple

SICS® industries can consider reporting on these additional SASB industry standards.

It is up to a company to determine the means by which it reports SASB information to investors. One benefit of using

SASB standards may be achieving regulatory compliance in some markets. Other investor communications using SASB

information could be sustainability reports, integrated reports, websites, or annual reports to shareholders. There is no

guarantee that SASB standards address all financially material sustainability risks or opportunities unique to a company’s

business model.

Industry Description The Software & Information Technology (IT) Services industry offers products and services globally to retail, business, and

government customers, and includes companies involved in the development and sales of applications software,

infrastructure software, and middleware. The industry is generally competitive, but with dominant players in some

segments. While relatively immature, the industry is characterized by high-growth companies that place a heavy emphasis

on innovation and depend on human and intellectual capital. The industry also includes IT services companies delivering

specialized IT functions, such as consulting and outsourced services. New industry business models include cloud

computing, software as a service, virtualization, machine-to-machine communication, big data analysis, and machine

learning. Additionally, brand value is key for companies in the industry to scale and achieve network effects, whereby

wide adoption of a particular software product leads to self-perpetuating growth in sales.

1 Legal Note: SASB standards are not intended to, and indeed cannot, replace any legal or regulatory requirements that may be applicable to a reporting entity’s operations.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 5

SUSTAINABILITY DISCLOSURE TOPICS & ACCOUNTING METRICS

Table 1. Sustainability Disclosure Topics & Accounting Metrics

TOPIC ACCOUNTING METRIC CATEGORY UNIT OF

MEASURE CODE

Environmental Footprint of Hardware Infrastructure

(1) Total energy consumed, (2) percentage grid electricity, (3) percentage renewable

Quantitative Gigajoules (GJ), Percentage (%)

TC-SI-130a.1

(1) Total water withdrawn, (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress

Quantitative Thousand cubic meters (m³), Percentage (%)

TC-SI-130a.2

Discussion of the integration of environmental considerations into strategic planning for data center needs

Discussion and Analysis

n/a TC-SI-130a.3

Data Privacy & Freedom of Expression

Description of policies and practices relating to behavioral advertising and user privacy

Discussion and Analysis

n/a TC-SI-220a.1

Number of users whose information is used for secondary purposes

Quantitative Number TC-SI-220a.2

Total amount of monetary losses as a result of legal proceedings associated with user privacy2

Quantitative Reporting currency

TC-SI-220a.3

(1) Number of law enforcement requests for user information, (2) number of users whose information was requested, (3) percentage resulting in disclosure

Quantitative Number, Percentage (%)

TC-SI-220a.4

List of countries where core products or services are subject to government-required monitoring, blocking, content filtering, or censoring3

Discussion and Analysis

n/a TC-SI-220a.5

Data Security

(1) Number of data breaches, (2) percentage involving personally identifiable information (PII), (3) number of users affected4

Quantitative Number, Percentage (%)

TC-SI-230a.1

Description of approach to identifying and addressing data security risks, including use of third-party cybersecurity standards

Discussion and Analysis

n/a TC-SI-230a.2

Recruiting & Managing a Global, Diverse

Percentage of employees that are (1) foreign nationals and (2) located offshore5

Quantitative Percentage (%) TC-SI-330a.1

Employee engagement as a percentage6 Quantitative Percentage (%) TC-SI-330a.2

2 Note to TC-SI-220a.3 – The entity shall briefly describe the nature, context, and any corrective actions taken as a result of the monetary losses.

3 Note to TC-SI-220a.5 – Disclosure shall include a description of the extent of the impact in each case and, where relevant, a discussion of the entity’s policies and practices related to freedom of expression.

4 Note to TC-SI-230a.1 – Disclosure shall include a description of corrective actions implemented in response to data breaches. 5 Note to TC-SI-330a.1 – Disclosure shall include a description of potential risks of recruiting foreign nationals and/or offshore

employees, and management approach to addressing these risks. 6 Note to TC-SI-330a.2 – Disclosure shall include a description of methodology employed.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 6

& Skilled Workforce Percentage of gender and racial/ethnic group

representation for (1) management, (2) technical staff, and (3) all other employees7

Quantitative Percentage (%) TC-SI-330a.3

TOPIC ACCOUNTING METRIC CATEGORY UNIT OF

MEASURE CODE

Intellectual Property Protection & Competitive Behavior

Total amount of monetary losses as a result of legal proceedings associated with anti- competitive behavior regulations8

Quantitative Reporting currency

TC-SI-520a.1

Managing Systemic Risks from Technology Disruptions

Number of (1) performance issues and (2) service disruptions; (3) total customer downtime9

Quantitative Number, Days TC-SI-550a.1

Description of business continuity risks related to disruptions of operations

Discussion and Analysis

n/a TC-SI-550a.2

Table 2. Activity Metrics

ACTIVITY METRIC CATEGORY UNIT OF

MEASURE CODE

(1) Number of licenses or subscriptions, (2) percentage cloud- based

Quantitative Number, Percentage (%)

TC-SI-000.A

(1) Data processing capacity, (2) percentage outsourced10 Quantitative See note TC-SI-000.B

(1) Amount of data storage, (2) percentage outsourced11 Quantitative Petabytes, Percentage (%)

TC-SI-000.C

7 Note to TC-SI-330a.3 – The entity shall describe its policies and programs for fostering equitable employee representation across its global operations.

8 Note to TC-SI-520a.1 – The entity shall briefly describe the nature, context, and any corrective actions taken as a result of the monetary losses.

9 Note to TC-SI-550a.1 – Disclosure shall include a description of each significant performance issue or service disruption and any corrective actions taken to prevent future disruptions.

10 Note to TC-SI-000.B – Data processing capacity shall be reported in units of measure typically tracked by the entity or used as the basis for contracting software and IT services, such as Million Service Units (MSUs), Million Instructions per Second (MIPS), Mega Floating- Point Operations per Second (MFLOPS), compute cycles, or other. Alternatively, the entity may disclose owned and outsourced data processing needs in other units of measure, such as rack space or data center square footage. The percentage outsourced shall include On-Premise cloud services, those that are hosted on Public Cloud, and those that are residing in Colocation Data Centers.

11 Note to TC-SI-000.C – The percentage outsourced shall include On-Premise cloud services, those that are hosted on Public Cloud, and those that are residing in Colocation Data Centers.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 7

Environmental Footprint of Hardware Infrastructure

Topic Summary With the growth of cloud-based service offerings, companies in this industry own, operate, or rent increasingly more data

centers and other hardware; thus, managing the energy and water use associated with IT hardware infrastructure is

important to shareholder value. Data centers need to be powered continuously, and disruptions to the energy supply can

have a material impact on operations, depending on the magnitude and timing of the disruption. Companies face a

tradeoff between energy and water consumption due to data center cooling needs; cooling data centers with water

instead of chillers is a means of improving energy efficiency, but it can lead to dependence on significant local water

resources. Decisions about data center specifications are important for managing costs, obtaining a reliable supply of

energy and water, and lowering reputational risks, particularly as there is an increasing global regulatory focus on climate

change and as opportunities arise from innovations in energy efficiency and renewable energy.

Accounting Metrics

TC-SI-130a.1. (1) Total energy consumed, (2) percentage grid electricity, (3) percentage renewable

1 The entity shall disclose (1) the total amount of energy it consumed as an aggregate figure, in gigajoules (GJ).

1.1 The scope of energy consumption includes energy from all sources, including energy purchased from sources

external to the entity and energy produced by the entity itself (self-generated). For example, direct fuel usage,

purchased electricity, and heating, cooling, and steam energy are all included within the scope of energy

consumption.

1.2 The scope of energy consumption includes only energy directly consumed by the entity during the reporting

period.

1.3 In calculating energy consumption from fuels and biofuels, the entity shall use higher heating values (HHV),

also known as gross calorific values (GCV), which are directly measured or taken from the Intergovernmental

Panel on Climate Change (IPCC), the U.S. Department of Energy (DOE), or the U.S. Energy Information

Administration (EIA).

2 The entity shall disclose (2) the percentage of energy it consumed that was supplied from grid electricity.

2.1 The percentage shall be calculated as purchased grid electricity consumption divided by total energy

consumption.

3 The entity shall disclose (3) the percentage of energy it consumed that is renewable energy.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 8

3.1 Renewable energy is defined as energy from sources that are replenished at a rate greater than or equal to

their rate of depletion, such as geothermal, wind, solar, hydro, and biomass.

3.2 The percentage shall be calculated as renewable energy consumption divided by total energy consumption.

3.3 The scope of renewable energy includes renewable fuel the entity consumed, renewable energy the entity

directly produced, and renewable energy the entity purchased, if purchased through a renewable power

purchase agreement (PPA) that explicitly includes renewable energy certificates (RECs) or Guarantees of Origin

(GOs), a Green e Energy Certified utility or supplier program, or other green power products that explicitly ‐

include RECs or GOs, or for which Green e Energy Certified RECs are paired with grid electricity.‐

3.3.1 For any renewable electricity generated on-site, any RECs and GOs must be retained (i.e., not sold) and

retired or cancelled on behalf of the entity in order for the entity to claim them as renewable energy.

3.3.2 For renewable PPAs and green power products, the agreement must explicitly include and convey that

RECs and GOs be retained or replaced and retired or cancelled on behalf of the entity in order for the

entity to claim them as renewable energy.

3.3.3 The renewable portion of the electricity grid mix that is outside of the control or influence of the entity

is excluded from the scope of renewable energy.

3.4 For the purposes of this disclosure, the scope of renewable energy from hydro and biomass sources is limited

to the following:

3.4.1 Energy from hydro sources is limited to those that are certified by the Low Impact Hydropower Institute

or that are eligible for a state Renewable Portfolio Standard;

3.4.2 Energy from biomass sources is limited to materials certified to a third-party standard (e.g., Forest

Stewardship Council, Sustainable Forest Initiative, Programme for the Endorsement of Forest

Certification, or American Tree Farm System), materials considered eligible sources of supply according

to the Green-e Framework for Renewable Energy Certification, Version 1.0 (2017) or Green-e regional

standards, and/or materials that are eligible for an applicable state renewable portfolio standard.

4 The entity shall apply conversion factors consistently for all data reported under this disclosure, such as the use of

HHVs for fuel usage (including biofuels) and conversion of kilowatt hours (kWh) to GJ (for energy data including

electricity from solar or wind energy).

5 The entity may disclose the trailing twelve-month (TTM) weighted average power usage effectiveness (PUE) for its

data centers.

5.1 PUE is defined as the ratio of the total amount of power used by a computer data center facility to the

amount of power delivered to computing equipment.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 9

5.2 If disclosing PUE, the entity shall follow the guidance and calculation methodology described in PUE™: A

Comprehensive Examination of the Metric (2014) , published by ASHRAE and The Green Grid Association.

TC-SI-130a.2. (1) Total water withdrawn, (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress

1 The entity shall disclose the amount of water, in thousands of cubic meters, that was withdrawn from all sources.

1.1 Water sources include surface water (including water from wetlands, rivers, lakes, and oceans), groundwater,

rainwater collected directly and stored by the entity, and water and wastewater obtained from municipal

water supplies, water utilities, or other entities.

2 The entity may disclose portions of its supply by source if, for example, significant portions of withdrawals are from

non-freshwater sources.

2.1 Fresh water may be defined according to the local laws and regulations where the entity operates. Where

there is no legal definition, fresh water shall be considered to be water that has less than 1,000 parts per

million of dissolved solids per the U.S. Geological Survey.

2.2 Water obtained from a water utility in compliance with U.S. National Primary Drinking Water Regulations can

be assumed to meet the definition of fresh water.

3 The entity shall disclose the amount of water, in thousands of cubic meters, that was consumed in its operations.

3.1 Water consumption is defined as:

3.1.1 Water that evaporates during withdrawal, usage, and discharge;

3.1.2 Water that is directly or indirectly incorporated into the entity’s product or service;

3.1.3 Water that does not otherwise return to the same catchment area from which it was withdrawn, such

as water returned to another catchment area or the sea.

4 The entity shall analyze all of its operations for water risks and identify activities that withdraw and consume water

in locations with High (40–80 percent) or Extremely High (>80 percent) Baseline Water Stress as classified by the

World Resources Institute’s (WRI) Water Risk Atlas tool, Aqueduct.

5 The entity shall disclose its water withdrawn in locations with High or Extremely High Baseline Water Stress as a

percentage of the total water withdrawn.

6 The entity shall disclose its water consumed in locations with High or Extremely High Baseline Water Stress as a

percentage of the total water consumed.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 10

TC-SI-130a.3. Discussion of the integration of environmental considerations into strategic planning for data center needs

1 The entity shall describe its approach to the integration of environmental considerations, including energy and water

use, into strategic planning for data centers.

2 Discussion shall include, but is not limited to, how environmental factors impact the entity’s decisions regarding the

siting, design, construction, refurbishment, and operations of data centers.

2.1 Environmental factors and criteria may include, but are not limited to:

2.1.1 Location-based environmental factors, such as regional humidity, average temperature, and water

availability.

2.1.2 Environmental regulations, such as energy efficiency standards and national- or state-level carbon

legislation on pricing, and carbon intensity of grid electricity.

3 The scope of disclosure includes considerations for existing owned data centers, development of new data centers,

and outsourcing of data center services, where relevant.

SUSTAINABILITY ACCOUNTING STANDARD | SOFTWARE & IT SERVICES | 11

Data Privacy & Freedom of Expression

Topic Summary As software and IT services companies increasingly deliver products and services over the Internet and through mobile

devices, they must carefully manage two separate and often conflicting priorities. On the one hand, companies use

customer data to innovate and provide customers with new products and services and to generate revenues. On the other

hand, there are privacy concerns associated with companies having access to a wide range of customer data, such as

personal, demographic, content, and behavioral data. This dynamic is leading to increased regulatory scrutiny in many

countries around the world. The delivery of cloud-based software and IT services also raises concerns about potential

access to user data by governments that may use it to limit the freedoms of citizens. Effective management in this area is

important to reduce regulatory and reputational risks that can lead to decreased revenues, lower market share, and

regulatory actions involving potential fines and other legal costs.

Accounting Metrics

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