February 22, 2021

Lockheed Martin: Pushing the disclosure envelope

Raheem Cash
Senior Manager, Corporate Sustainability, Lockheed Martin

Lockheed Martin, the aerospace, defense, security, and advanced technologies company headquartered in the Washington, DC, area, recently issued its first SASB and TCFD reports, building on a suite of reporting for investors that also includes GRI and CDP. Raheem Cash, Senior Manager, Corporate Sustainability, participated early on in SASB’s Resource Transformation sector Industry Working Group, which shaped our Aerospace & Defense standard, and now contributes to maintaining SASB Standards through our Standards Advisory Group. We met with Raheem and his team to get their feedback on creating their first SASB report.

 

Making fighter jets and secret weapons systems doesn’t exactly lend itself to transparency. Does Lockheed Martin have unique disclosure challenges?

I like that SASB has an Aerospace & Defense standard, compared to other reporting frameworks that don’t allow for that tailored approach. Still, SASB’s A&D standard is mostly oriented toward commercial aviation and the ‘D’ can be a challenge in terms of disclosure. Take product safety, for example. A lot of the time we don’t hear from customers about product safety, or if we do, we may not be able to talk about it. There are also some topics that are important to our business but that are not in SASB’s A&D standard. For example, SASB’s metrics don’t dive into finding replacements for the substances being restricted or banned by REACH and similar regulations in Europe and Asia. That’s a major challenge for the defense industry.

Ethics is another key topic for Lockheed Martin because defense is one of the highest risk industries for corruption, which is why we have such a robust program around ethics. While the SASB Standard looks at some aspects of ethics as a governance, risk, and compliance issue, there may be further opportunity to measure and communicate how we drive ethics in our culture as a human capital issue.

Does the SASB Standard for Aerospace & Defense push the envelope in terms of what Lockheed Martin discloses?

Yes, reporting to SASB was an opportunity to explore some areas where we traditionally hadn’t reported specific numbers, and that was a positive outcome. Hazardous waste management is an example. We went to our environmental team and said, “This metric is relevant to our business and we have the numbers, so why not disclose them?” So now there’s a precedent that this is something we will communicate and share with the world.

Our SASB report, along with our new TCFD disclosure, are both in line with our stance to make sure we are communicating with investors in the way they want—and they’ve made it loud and clear what they want. Our data-driven SASB and TCFD reports are standalone, concise, and accessible to investors, and they help meet the needs of rating and ranking firms, but they also connect to our other ESG disclosures.

Investors’ ESG questions keep coming, and their questions are getting more and more sophisticated, so our investor relations and corporate secretary teams are glad to have the sustainability team involved in investor discussions.

Where will Lockheed Martin’s sustainability reporting go next?

We’re exploring doing an Excel version of our SASB table, because if investors really want the data for their analysis, which is the mantra we’ve been hearing, then let’s give it to them in a way that’s easiest for them to use. Doing that frees us up to provide more information and more context through our main sustainability report and other disclosures that speak to a broader audience than investors.

However, packaging everything in different ways to satisfy the needs of different groups may not be sustainable in the long run. While we’ll continue to have standalone SASB and TCFD reports, we are also working to integrate reporting in a way that looks at information holistically rather than framework by framework. We’re looking at what is most useful to all stakeholders and what would be the most efficient way of disclosing it to them. ESG reporting has generally been moving toward “more and more,” but at some point we need to pause and ask, “What’s the right way of doing this?”

Do SASB Standards play a role in strategic planning around Lockheed Martin’s sustainability activities?

The SASB Standards are one part of an internal materiality analysis we call our “core issues assessment.” We start with the universe of issues and ask what’s most relevant to Lockheed Martin. And that doesn’t just mean asking people inside Lockheed Martin; it means asking customers, NGOs, academics, suppliers, and even competitors. After engaging with stakeholders both externally and internally, we use Datamaran’s AI technology to benchmark our key issues against other companies in our sector. It’s a reality check to identify the areas that investors are saying are critical for A&D, and how we can align our business to them. Out of around 40 issues at the start, we get down to around 15 that we set goals for and report against. We also use Datamaran for a continuous materiality assessment to stay current and to dive deeper into what other companies are saying and doing. So instead of waiting four years to do another materiality assessment, we stay on top of it as we go along.

How do senior management and other business functions contribute to Lockheed Martin’s sustainability efforts?

As we work with other business areas within Lockheed Martin, getting them used to this reporting cycle and into the habit of providing data, we operate with a clear mandate, which is that sustainability is real and it’s here to stay.

Lockheed Martin’s governance around ESG is set up very clearly, with roles and responsibilities all the way up to the board and the executive leadership team, including our SVP of Ethics and Enterprise Assurance, Leo Mackay, who chairs our sustainability working group and reports directly to our CEO, James Taiclet. Dr. Mackay has responsibility across enterprise risk and sustainability as well as ethics and the environmental safety and health team, so it’s all integrated under one leader and he’s able to elevate it directly to the CEO. There is also regular, direct oversight from the board, ensuring that directors are aware of our sustainability management plan and reviewing our sustainability reporting and disclosure.

Lockheed Martin’s approach to sustainability is strategic, and that’s reflected in our Sustainability Management Plan (SMP). The SMP has a unique focus in that it takes existing activities, metrics, and goals within different business areas and draws connections, essentially saying, “Hey, did you know that this is related to a sustainability issue?” We take their existing goals, make them part of the SMP, and then start pushing the boundaries, making a portfolio of goals that gets built up over the years. As a product that goes directly to our CEO, his executive leadership team, and the board of directors, the SMP gives the sustainability team a level of authority to get people involved and get things moving. But the heart of the SMP is about getting all the different functions within Lockheed Martin to understand how they’re already part of sustainability.