Amid growing pressure from investors, America’s largest corporations are embracing sustainability reporting.
Nine in ten companies on the S&P 500 index, one bellwether of U.S. stock market performance, published sustainability, corporate responsibility or citizenship reports in 2019. That’s up from only 20 percent in 2011 and 86 percent in 2019, according to the Governance & Accountability (G&A) Institute findings released this week. And companies are deploying significant resources to detail their environmental, social and governance (ESG) performance against a wide range of voluntary standards and frameworks utilized by investors, raters and rankers. Foremost among these, G&A found, are CDP (65 percent of reporters) GRI (51 percent), the UN Sustainable Development Goals (36 percent) and SASB (14 percent).
Investors help spur sustainability reporting
What’s driving such a big shift in sustainability reporting in under a decade? The first and likely most important factor is investors. Pressure is growing on companies to manage ESG risk and harness related opportunity from across the investment spectrum. Half of all U.S. individual investors now practice sustainable investing, while 80 percent of institutional asset owners use an ESG lens in their investment process, according to surveys by Morgan Stanley.
Global asset management firms, in particular, are increasingly vocal in their demands for greater sustainability disclosure, especially on climate risk and impacts. BlackRock, for example, has voted against 53 portfolio companies so far this year that it judged to be making insufficient progress integrating climate risks into both business models and disclosures. Chevron, ExxonMobil, Daimler and Volvo were among the culprits and the investment giant has put a further 190 companies “on watch.” Both BlackRock and State Street Global Advisors have urged public companies to use SASB’s reporting standards which focus on sector-specific material ESG issues.
Consumers and employees are engaged in ESG performance
More than ever, consumers and employees are also making purchasing and employment decisions with an eye to how brands behave on environmental and social issues. In a 2019 Fast Company survey of 1,000 employees at large U.S. companies, more than 70 percent said they were more likely to choose to work for an organization with a strong environmental agenda. And in recent months, workers have flexed their muscle at Facebook and Amazon over providing a platform for misinformation, climate change and working conditions, respectively.
This trend is likely to intensify as employees voice concern, and demand employer action, over the systemic social and racial inequities unmasked by the COVID-19 pandemic. For example, 71 percent of U.S. adults now say corporate brands have a role to play in responding to racial injustice, according to a recent survey by Opinium.
Adding to the pressure on companies, regulators are also getting in on the act. There are now more than 180 ESG-related corporate disclosure regulations in place globally, with the European Union’s Nonfinancial Reporting Directive at the forefront. The United Kingdom government also expects all listed companies, by 2022, to report material information on climate change governance, risks and metrics in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
Bottom-line benefits of sustainability reporting
There are also more positive incentives for companies to embrace sustainability disclosure, namely growing evidence that doing so can boost the bottom line. For example, analysis by Boston Consulting Group found that top performers in ESG information benefit from stock market valuations as much as 19 percent higher than average ESG performers, while margins can be up to 12 percent higher.
Of course, disclosure alone doesn’t equate to meaningful action. But it is harder for companies to stand still on sustainability issues when their record and progress—or lack of it—is on public display.
According to Hank Boerner, Chairman and Chief Strategist of the G&A Institute, embracing greater ESG disclosure has pushed corporations, in turn, “to achieve industry leadership, gain a competitive advantage and, very importantly, to excel in the competition for capital. We would ask the remaining 10% of non-reporters in the S&P 500 universe, what are you waiting for?”
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