Corporate Disclosure of Non-financial Metrics on the Rise, but Still Has a Ways to Go
Corporate disclosure of non-financial metrics has come a long way since the first environmental reports of the 1980s. Data from the Global Reporting Initiative (GRI), which oversees the most widely recognized framework for non-financial reporting, show that in 2012 there were almost 2,500 GRI reports â€“ about three times the number of reports released only five years earlier. Companies are now tracking and reporting on a greater variety of non-financial data metrics, a growth driven by a number of factors including the rise of corporate sustainability strategies as well as increased data requests from stakeholders. The wider availability of company non-financial data creates a number of interesting opportunities for analysis, allowing companies to benchmark their performance on non-financial metrics against their peers and identify trends and implications related to sustainability disclosure.
This week The Conference Board released its second edition of Sustainability Practices, a report benchmarking corporate disclosure and performance across 76 environmental, social, and reporting metrics. Sustainability data for S&P Global 1200 companies are compared with the S&P 500 and Russell 1000, and further analyzed across 10 business sectors, four revenue groups, and four regions. The breadth of data makes it is easy to get lost in numbers and charts, but behind the numbers lie some interesting implications. For instance, letâ€™s take a look at the following three areas:
Climate change risk. The group of companies most likely to be affected by climate change or climate change regulation are failing to identify this as a business risk. Of the ten sectors analyzed in the report, it should come to no surprise that the utilities and energy sectors had the highest median greenhouse gas emissions. As such, these sectors are at the forefront of climate change impact and regulation, and it seems difficult â€“ perhaps even irresponsible â€“ to ignore that climate change could pose a material risk to companies operating in these sectors. The reality, however, is that very few utility and energy companies actually discuss climate change as a business risk in their annual filings. Only 10 out of the 71 utility companies in the S&P Global 1200 included discussion of climate change risks in the MD&A sections of their 10-K (or equivalent) filings. Similarly, only 9 out of the 92 energy companies in the S&P Global 1200 included this type of discussion.
For a good example of this type of disclosure, take a look at page 14 of Hessâ€™s 2012 10-K filing.
Water consumption. Water has become a central issue in any conversation regarding sustainability. Population growth, economic development, and desertification, among others, have sharpened the tension between supply and demand for freshwater. Companies that are high consumers of water know the importance of ensuring access to clean and reliable water sources, yet this access is often taken for granted. Water has become such a global imperative that I find the following finding particularly troubling: Companies in the utilities sector report by far the highest water consumption of all ten sectors â€“ almost four times the median consumption of the next water-intensive sector (materials) â€“ yet less than half of utilities companies report on this metric. Of the 71 utility companies in the S&P Global 1200 only 33 disclosed their total water consumption. Given how material water is to this sector I would argue that virtually all utility companies should be tracking and reporting on total water consumption. The fact that fewer than half of companies are doing so is a signal that we still have a ways to go.
For a good example of water disclosure in the utilities industry, take a look at page 36 of Pinnacle Westâ€™s 2012 Corporate Responsibility Report.
Human rights. A surprising finding from our report is that corporate human rights policies are far from universal. Less than half of S&P Global 1200 companies have a human rights policy, and just over one quarter are signatories to the United Nations Global Compact. In fact, the consumer discretionary sector, which includes apparel and consumer electronics companies, reported the second-lowest percentage of Global Compact signatories. Only 37 out of 170 consumer discretionary companies were Global Compact signatories, especially significant given recent labor issues surrounding the supply chains of companies in this sector. Rates are even lower when looking exclusively at U.S. companies: among the S&P 500, only 22 percent have a human rights policy, and just 8 percent are signatories to the Global Compact.
For an example of a corporate policy on human rights, take a look at Coca-Colaâ€™s Human Rights Statement.
The point of this article is not to discredit the great progress that companies have made in disclosing non-financial metrics. To the contrary, the very fact that sustainability benchmarking is now possible is a testament to the growth in availability of non-financial data. However, growth in disclosure has been far from uniform, and the gap between disclosure leaders and laggards continues to be significant. The challenge is twofold: to ensure greater adoption of sustainability disclosure as an expected practice, and perhaps more importantly, to ensure that disclosure covers the most relevant and material metrics for a company.
Thomas Singer is a researcher in corporate leadership at The Conference Board. His research focuses on corporate social responsibility and sustainability issues. In addition to his work at The Conference Board, Singer serves as an independent consultant advising on corporate sustainability strategy.
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