Monday, 4 February 2013

Sustainability reporting becomes mainstream

Just before the end of 2012 news about "Environmental reporting more than doubles" made headlines. There has only been little (if any) discussion about this issue which deserves more attention. To begin with, the data on which the news is based reflects on much wider sustainability and responsibility trends, rather than just "environmental reporting"; the latter is part of the agenda for responsible business.

The findings are attributed to research made by the Governance & Accountability Institute, (G&A Institute) which also serves as the data partner for the Global Reporting Initiative (GRI) in the US,UK and Ireland.

In detail, only 19% of the S&P 500 companies reported in in 2011 while in 2012 the reporting companies were 53%. Similarly, in 2011, only 20% of the Fortune 500 companies produced reports in contrast to 57% for 2012. It is therefore fairly obvious that sustainability reporting is being adopted by large corporations rather rapidly. It also becomes clear that for the first time companies that report are the majority.

So, does reporting provide reputational benefits for companies? 
G&A Institute's results show that although there is a positive association, the answer is not that simple. 58% of the companies included in the Newsweek's Green rankings are reporting; however, another 42% are not. The Corporate Responsibility magazine's list of the 100 best Corporate Citizens includes 47 companies that are not reporting. It's only the Ethisphere's list of the World's most Ethical Companies where 76% of those included are reporting. 

Apart from the direct reputational benefits for companies, they can be included in indices with a focus on sustainability and responsible citizenship. Most exchanges operate a number of such indices; the World Federation of Exchanges (WFE) reports that there are at least 75 such indices in the main exchanges internationally. So, are the reporting companies more likely to be included in the high profile indices for sustainable and responsible business? 

On this issue reporting seems to be a strong determinant. Out of the companies listed in Dow Jones Sustainability Index (DJSI) North America, 85% produce reports the vast majority of which (91%) are based on the GRI standard. The DJSI World is dominated by companies that report by 98%. Finally, the results are pretty similar with the NASDAQ OMX CRD Global Sustainability 100 where 97% report their sustainability performance.  

The benefits from reporting are generally intangible, since they do not translate directly into profits. However, it is important to see that the effort that companies put in developing that aspect of their communications is acknowledged. Any vagueness should be not be attributed to the market not picking up the signals but to the lack of a single definition or methodology for responsible and sustainable business reporting.

Companies may choose to  discuss their environmental and social impact in qualitative terms or disclosure quantified details about their resource management and emissions. Standards like the ones provided by GRI or the Carbon Disclosure Project (CDP) allow corporates and organisations to produce in depth reports. Selecting between a rough qualitative or a detailed quantitative approach defines the degree of commitment and the expected public acknowledgement that companies should expect.

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