Sustainability Reporting: Too Much to Ask?
What can we learn about the state of sustainability reporting from the 2013 proxy season? A review of shareholder proposals on sustainability reporting and the related board responses reveals some interesting findings:
The number of shareholder proposals on sustainability reporting continues to grow. According to the latest proxy voting research from The Conference Board, during the first half of the year there were 24 shareholder proposals on sustainability reporting, composing over 9 percent of shareholder proposals on social and environmental issues. During the same period last year, there were 18 such proposals, and in 2009 there were 9 proposals on sustainability reporting, composing only 4 percent of proposals on social and environmental issues submitted that year.
Support levels have been low, although steadily growing. The Conference Board report shows that while average support for sustainability proposals this year was low (26.3 percent as a percentage of votes cast), that level represents an increase of 50 percent from 2009, when average support was 17.5 percent. Proposals on sustainability reporting also received the second-highest support levels among environmental and social issues this year, just behind proposals on board diversity, for which there were only two voted proposals.
Of the 24 sustainability reporting proposals submitted during the first half of the year, 15 were voted, and 1 proposal passed. The successful proposal, submitted to CF Industries by the Board of Pensions of the Presbyterian Church, received 57.2 percent of votes cast. The following is the text of the proposal:
“RESOLVED: Shareholders request that CF Industries issue a sustainability report describing the company’s ESG performance including a review of opportunities to increase the energy efficiency of operations. The report (prepared at reasonable cost and omitting proprietary information) should be published within approximately 12 months of CF Industries’ 2013 annual meeting.” (Source: CF Industries proxy statement, filed April 3, 2013, p. 58).
Board of directors are still reluctant to commit to sustainability reporting. Despite the fact that more than half of S&P 500 companies publish sustainability reports, board responses to this year’s proposals on sustainability reporting nearly unanimously recommended voting against the proposals, based on a claim that sustainability reporting is too resource intensive. Below is an excerpt of the response by CF Industries’ board, which was similar to many board responses to such proposals:
“We feel that preparing a broad sustainability report would result in unnecessary and imprudent consumption of our resources. Creating and distributing the report would require substantial human and financial resources without resulting in a meaningful additional benefit to our stockholders or employees or the communities in which we operate. (Source: CF Industries proxy statement, filed April 3, 2013, p. 59).
Similarly, the board of Emerson Electric (#123 in the Fortune 500) stated in response to a similar proposal by Walden Asset Management:
“We believe that preparing a ‘sustainability report’ is not a prudent use of our human and financial resources, nor are such expenditures in the best interest of our stockholders.” (Source: Emerson Electric proxy statement, filed December 7, 2012, p. 47).
Board of directors frequently cite the GRI guidelines as too onerous. A review of the board responses for the 15 voted proposals reveals a recurring theme: boards routinely criticize GRI reporting as too complex, lengthy, and vague. For example, the board of Health Management Associates (#376 in the Fortune 500) stated:
“We have reviewed the GRI Guidelines and have concluded that they are lengthy, complex and inherently vague.” (Source: Health Management Associates proxy statement, filed April 8, 2013, p. 59).
The board of Equity Residential offered a similar response to a proposal on sustainability reporting:
“We believe that preparing a report in compliance with GRI’s complex and technical guidelines would require a substantial commitment of time and money without adding any meaningful benefit to our management team in the way we currently run our business.” (Source: Equity Residential proxy statement, filed April 15, 2013, p. 46)
The response of the board of directors of The Chubb Corporation stood out among the group. It described the company’s previous experience with GRI reporting and explained that the company instead chose to use an alternate web-based reporting strategy:
“Recognizing that the 2008 [GRI] Report proved not to be an effective means of sharing our positions and performance on environmental, social and governance (ESG) matters, we explored alternative means of communicating updated information on these subjects in lieu of preparing a new sustainability report. Leveraging the corporate website to deliver ESG information has been very effective. It has generated substantially more interest than the 2008 Report, allowing stakeholders to quickly identify and access areas of interest…this approach has allowed us to deliver the ESG content at a fraction of the cost to produce the 2008 Report.” (Source: The Chubb Corporation, proxy statement, filed March 15, 2013, p. 72).
The latest proxy season confirmed the continued reluctance of board of directors to recommend sustainability reporting. While this reluctance is arguably understandable, given the real resource commitments inherent in sustainability reporting, it would be prudent for boards to consider that sustainability reporting is increasingly becoming the norm rather than the exception. For instance, the latest sustainability benchmarking research from The Conference Board reveals that 25 percent of S&P 500 companies release GRI-checked reports. Among S&P Global 1200 companies the rate of GRI reporters is even higher: almost half of those companies release GRI-checked reports.
As more investors and buyers factor sustainability data into their investment and procurement decisions, companies are increasingly leveraging sustainability reporting to gain a competitive advantage—an advantage company boards may want to consider in future proxy seasons.
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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