Company sustainability has a reporting downside — it all the time has. Corporations sometimes don’t get pleasure from creating them and buyers, clients, workers and most different stakeholders don’t experience studying them. But, with buyers extra excited about environmental, social and governance (ESG) points than ever earlier than, this long-standing downside has grow to be a direct legal responsibility for corporations seeking to maximize shared worth.
At the moment, some 90 p.c of corporations within the S&P 500 produce company sustainability stories, and the observe has grow to be so ingrained in company sustainability tradition that few query its goal or efficacy. Reporting has risen to prominence for good purpose — there by no means has been a extra crucial time for corporations to speak their methods and actions for company sustainability.
Many buyers consider nonfinancial efficiency based mostly on company disclosures, with most discovering worth in assurance of the power of a corporation’s planning for local weather and different ESG dangers. In the meantime, shoppers more and more are demanding accountable merchandise, and a focus to sustainability points has grow to be an worker expectation.
However one thing isn’t proper with the established order of reporting.
“By attempting to fulfill the calls for of a number of stakeholders, sustainability stories have grow to be bloated, overly complicated and costly to supply,” mentioned Nathan Sanfacon, an ESG skilled at thinkPARALLAX, a sustainability technique and communication company. “This leads to corporations spending scarce assets on a report that doesn’t fairly fulfill the wants of any stakeholder group.”
To be more practical at partaking buyers and different crucial audiences on ESG, corporations must shift in the direction of speaking related information in a extra agile and real-time format.
That is notably problematic for giant, publicly traded corporations searching for to draw and retain institutional buyers. “To be more practical at partaking buyers and different crucial audiences on ESG, corporations must shift in the direction of speaking related information in a extra agile and real-time format,” Sanfacon mentioned.
Addressing this disconnect is on the core of the brand new thinkPARALLAX white paper, “The New Period of Reporting: How you can Have interaction Traders on ESG,” which examines the pitfalls of sustainability reporting up to now and current and presents a greater method ahead for company sustainability practitioners.
A brief historical past of sustainability reporting
Whereas reporting may appear a latest phenomenon, its origins return practically half a century — rising first in Europe within the 1960s and later in the US within the 1970s after the primary Earth Day launched the fashionable environmental motion. Most of the earliest stories have been strictly environmental and extra about addressing public picture issues than speaking something which may resemble a proactive sustainability technique.
What we’d name the fashionable period of sustainability reporting started in 1997 when public outcry over the environmental injury of the Exxon Valdez oil spill compelled Ceres and the Tellus Institute to create the International Reporting Initiative (GRI). The intention was to create the primary accountability mechanism to make sure corporations adhere to accountable environmental conduct rules, which was then broadened to incorporate social, financial and governance points, GRI says on its web site.
“Previous to GRI, there was no framework to make sure that reporting was constant or reflective of stakeholder wants,” mentioned Eric Hespenheide, chairman of GRI, in an e mail. “First by way of variations of the GRI Pointers and since 2016, the GRI Requirements, we now have been furthering our mission to make use of the facility of transparency, as envisaged by efficient disclosure, to result in change.”
Since then, a number of different reporting frameworks have emerged to cater to the ever-growing checklist of company sustainability stakeholders, such because the investor-focused Sustainability Accounting Requirements Board (SASB) and Job Pressure on Local weather-related Monetary Disclosures (TCFD).
“Whereas sustainability reporting has come a great distance, a scarcity of standardization means that there’s a disconnect between what buyers are on the lookout for and what corporations are speaking,” Sanfacon mentioned.
Giving buyers what they need
Right here’s a billion-dollar query: What do buyers search for when evaluating corporations on ESG? The easy reply: information; information; and extra information.
“Traders inform us they’re on the lookout for uncooked ESG information that’s constant, comparable and dependable — information that’s targeted on the subset of ESG points most carefully linked to an organization’s potential to create long-term worth,” Katie Schmitz Eulitt, director of investor outreach at SASB, wrote in an e mail.
Schmitz Eulitt often engages with the funding group on disclosure high quality, together with with members of SASB’s 50-plus member Investor Advisory Group, who collectively handle greater than $40 trillion in belongings.
“When corporations extra explicitly join the dots between how they handle sustainability-related dangers and alternatives and their monetary outcomes, it’s each a possibility to reinforce transparency and strengthen efficiency,” Schmitz Eulitt added.
When corporations extra explicitly join the dots between how they handle sustainability-related dangers and alternatives and their monetary outcomes, it’s each a possibility to reinforce transparency and strengthen efficiency.
However that is simpler mentioned than carried out as a result of company leaders, buyers and different stakeholders should work with two separate and disjointed reporting programs: one for monetary and the opposite for ESG efficiency.
“Corporations will be screened in or out utilizing numerous standards, however there isn’t any method to combine the info into earnings projections or valuation evaluation,” wrote Mark Kramer et al. in a latest piece in Institutional Investor. “The result’s two separate narratives, one telling how worthwhile an organization is, the opposite highlighting whether or not it’s good for individuals and the planet.”
The brand new period of reporting
Traders, in fact, aren’t the tip all, be all of company sustainability communication — corporations additionally need to attain clients, shoppers, regulators and workers, amongst others. However restricted money and time usually leads to company sustainability practitioners trying to make use of annual or bi-annual stories as a one-size-fits all answer.
Most of the time, these stories are heavy on human-centric tales and light-weight on quantitative info. Whereas non-investor stakeholders have a tendency to understand the human tales, additionally they sometimes aren’t taking the time to obtain and devour a portly PDF. In the meantime, whereas buyers are individuals too and might get pleasure from a superb human story, they in the end aren’t getting sufficient of the exhausting information they need.
Within the new whitepaper, thinkPARALLAX proposes addressing this downside by dividing sustainability communication into two drivers — demonstrating efficiency and constructing repute — in order that corporations can higher make investments time and assets to higher have interaction buyers and different stakeholders.
Demonstrating efficiency includes conveying the effectiveness of an organization’s sustainability technique and administration of fabric ESG points, equivalent to disclosing information round carbon emissions or range and inclusion by way of a digital reporting hub.
Constructing repute focuses on exhibiting that an organization is appearing responsibly, limiting its environmental impression and delivering societal advantages. This might take the type of communications actions equivalent to social media campaigns, microsites, movies, talking or op-eds, amongst others.
“Corporations most excited about partaking buyers ought to focus extra on demonstrating efficiency by speaking the exhausting ESG information they’re on the lookout for, versus human curiosity tales,” Sanfacon mentioned. “But when non-investor stakeholders like shoppers, workers or clients are a main viewers, the corporate ought to make investments extra in constructing repute by bringing the info to life by way of inspiring tales.”
Whereas this gained’t single-handedly clear up company sustainability’s reporting downside, it’s a begin. As corporations shift away from huge PDF stories and towards extra focused, real-time investor communication, they’ll unlock time and assets to higher have interaction shoppers, workers and different key stakeholders on company sustainability.