The ABCs (and Fs) of Sustainability Reporting

May 21, 2015

Sustainability Reporting has gone through several waves of evolution over the past decade.  As I presented at the 2012 MAPI conference and the 2013 Sustainable Brands New Metrics conference, these waves flowed from simple website posting of information, to the creation of CSR/Sustainability reports, to then reporting across the value chain with suppliers.   

Now, we are seeing a fourth wave arrive in integrated reporting. Or, in other words, it’s the consolidation of sustainability information and data into normal company reporting activities like annual reports. This is occurring for variety of reasons, from making it easier for stakeholders to find key information to sending a signal to the investment community that sustainability is a core component of company operations.

Now, companies seeking to become leaders in reporting must ask themselves two key questions: Are we covering the full spectrum of environmental, social, governance (ESG) and financial (F) metrics and are we meeting and meeting/exceeding our stakeholders’ expectations for reporting? These are questions of breadth of reporting, and no one company is doing it at the exact same level, quality or approach as the next.

So how can we know who is doing it the “best” if everyone is doing it differently, and what does “best” mean anyway?

Let’s investigate.

 

The As, Bs C/Ds, and Fs

I decided to devise a grading system or set of categories to help me decipher between the different types of reporters out there. This system is based on the breadth of issues covered (ESGF), what type and location of reports are being produced, and where the Global Fortune 500 fall within these categories. Here is what I found. Note: all data was sourced from PivotGoals.com in April 2015.

 

The A+ and A level (19% of Global Fortune 500)

The “A+” level (an elite 1% of GF500) are covering all ESG and F metrics, and have secured the third-party Integrated Reporting (IR) Standard. This puts these companies in a leadership position. Being a part of the Integrated Reporting Network provides access to knowledge and experiences from other reporting leaders. Check out GDF Suez, Diageo and Coca Cola’s integrated reports as prime examples.  

The “A” companies such as Japan Post Holdings and L’Oreal, are still covering off on ESGF without the IR standard.  Their data is integrated into their Annual Report, signaling to stakeholders that sustainability is core to their business.


B+ and B level (32%)

This group typically does standalone sustainability reports covering ESG metrics. “B+”ers, including the likes of Unilever, are following the Global Reporting Initiative (GRI) G4 Standards, a well-established and respected reporting standard.

 “B” companies like Toyota are producing a sustainability report on some level, but not necessarily following any recognized standards. About a third of GF500 companies fall within this category, likely because they find it simpler to compile all of their ESG data into one report and worry about the financial reporting separately.

 

C and D level (38%)

A good chunk of companies just aren’t ready to take on full reporting and thus start off by only reporting on one or two of the ESG metrics. This can take the shape of either producing multiple, smaller reports on specific topics (e.g., Aeon) or hosting sustainability data only on their website (e.g., United Technologies). For these companies, there is typically a lack of inertia internally to take reporting to the next level, resulting in the replication of past efforts because it’s less expensive or they don’t have full support from the top.

 

F level (11%)

If a company isn’t reporting, they get no benefits.  But what they might get is flack from their stakeholders for not reporting – this could manifest in the form of receiving a shareholder resolution to produce a sustainability report, negative media coverage or activist campaigns against them for not being as transparent as they could’ve been.

 

What are the Takeaways?

The key takeaways are that the Integrated Reporting Standards are on the cutting edge for sustainability reporting. But if you aren’t there yet, work your way up to and learn from those leading the charge. Part of what makes IR so attractive to stakeholders is this idea of “data centrality” - which offers consolidated data to stakeholders in one, easy to access and easy to analyze location.

If you are within the group of common reporters who are doing standalone sustainability reports (ESG), take note that those companies receiving the “+” grade are those whose reporting adheres to the leading third party standards for that level of reporting.

And if you’re just beginning to explore the idea of reporting, know that any transparency is good transparency in the sustainability space. You’ve just got to get your feet wet, jump on the wave and start reporting at the level your company is comfortable with today.

 

 

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