Sustainability Reporting Part 1: Expectations Are Building Fast
July 10, 20123
The pressure from investors and market influencers to begin or enhance reporting on sustainability (a.k.a. corporate social responsibility or CSR) is mounting, particularly for companies with multinational footprints.
Sustainability reporting is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organizational performance toward the goal of sustainable development, which encompasses economic, environmental and social impacts. This is the so-called “triple bottom line” or the Three Ps of “people, planet and profit.” Further, corporate governance performance is now often considered as a fourth element – under an umbrella called ESG (environment, social and governance) reporting.
Nearly one out of every nine investment dollars under professional management in the United States today – 11 percent of the $25.1 trillion in total assets under management – is devoted to socially responsible investing. This “mainstreaming” of sustainability into investing is expected to continue. According to one recent estimate, socially responsible investing will reach between 15 percent and 20 percent of total assets under management by 2015.
In just the past few weeks, expectations for sustainability reporting have reached an unprecedented high level. Consider these recent developments:
- In Rio de Janeiro, at the U.N. Conference on Sustainable Development (also known as the Rio+20 or the Earth Summit), corporate sustainability disclosure was at the very top of the agenda. Many influential companies are now joining with investor groups and national governments (led by Brazil, Denmark, France and South Africa) in commitments to make corporate sustainability reporting a global mainstream practice.
- NASDAQ and several overseas stock exchanges have agreed to urge, and perhaps eventually require, listed companies to report material information about environmental, social and governance risks. They want their companies to report on issues such as greenhouse gas emissions, water usage and gender equality, or explain why they won’t. They and several socially responsible investor groups have called for common international standards to unify the reporting.
- The London Stock Exchange will force companies listed on the main market to publish the full details of their greenhouse gas emissions for the year beginning April 2013.
- Kohlberg Kravis & Roberts & Co. L.P., the private equity firm, said that its companies reported $365 million in cumulative cost savings and additional revenue by participating in KKR’s Green Portfolio Program since 2008. Twenty-three out of KKR’s more than 70 portfolio companies now participate in the program, which is focused on reducing greenhouse gas emissions, waste and water use, and reporting the results.
- In Australia, a multifund investors council is threatening a “name and shame” campaign, publicly naming listed companies that do not provide “meaningful” environmental, social and governance data that could affect share price.
- The Indian government is considering requiring companies operating in India to report on environmental, social and economic performance within the formal framework of corporate governance.
The Global Reporting Initiative, which originated in the United States but has grown mostly in Europe, is the world’s most widely accepted, integrated reporting framework. Approximately 4,000 organizations have used the GRI framework, while others choose to communicate their sustainability performance under various standards or internal guidelines. Formats vary – some organizations develop stand-alone annual sustainability reports, while others prefer printed scorecards, often supplemented by robust online portals. Integrated reporting, where sustainability performance is part of financial reporting in the annual report, is also gaining momentum.
When done well, sustainability reporting communicates goals and “the journey,” and is not merely a list of outcomes and data points without context. That’s because transparency, and visibility into the successes and opportunities for continued improvement, are perhaps the most important traits of sustainability reporting.