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The Drive for Disclosure: What Matters and What Doesn’t

AEPIt’s sustainability reporting season.

CDP’s climate change questionnaire is due June 30. The Dow Jones Sustainability Indices questionnaire deadline was at the end of last month. And then there’s a company’s own annual report for shareholders outlining sustainability and financial performance that must be completed.

It’s enough to make sustainability managers feel more than a little overwhelmed.

Sandy Nessing, managing director of sustainability at American Electric Power says she feels your pain. “You’re feeling the pressure of being bombarded,” Nessing said in her talk on The Drive for Disclosure at Environmental Leader’s conference on Wednesday. “And no two questionnaires or surveys are alike, so which ones do we report to?”

How to report carbon emissions and other environmental information is changing, too. The Global Reporting Initiative (GRI), arguably the most widely used global sustainability reporting framework, is transitioning from reporting guidelines to reporting standards.

“But what’s really changing here is not just about the frameworks,” Nessing said. “We’re seeing a lot more interest in disclosure from investors, whether shareholder activists or real institutional investors. The challenge: when you report, which do you report to and how deep do you go?”

The key, she said it to connect financial performance with nonfinancial performance.

AEP, for example, has a chart showing that it has reduced its carbon footprint by 39 percent since 2000. The same chart shows how the company has invested $8.5 billion to achieve this emissions reduction. “When we talk about our emissions and environmental footprint, we overlay the investments we are making,” she explains.

Also, determine what is material to your company and stakeholders. “Materiality really helps you cut through the noise and focus on what is most important — and identify trends on the horizon,” Nessing said. “And then you drive the story: this is what’s material to us.”

Nessing suggests reading the Corporate Reporting Dialogue’s recently published Statement of Common Principles on Materiality, which aims to clarify the concept of materiality. In this short document, eight of the world’s biggest names in corporate reporting — CDP, GRI, Climate Disclosure Standards Board, Financial Accounting Standards Board, International Accounting Standards Board, International Integrated Reporting Council, International Organization for Standardization and Sustainability Accounting Standards Board — compare materiality definitions and approaches.

“The bottom line is that there is an increasing interest in the ESG performance of companies,” she said. “The past proxy season was very telling of that and it points to the shift we are seeing in disclosures. It’s not just about numbers anymore.”

For example, AEP got a request from the Connecticut State Treasurer’s office, an institutional investor that wanted a report analyzing current and future trends around energy and efficiency, how AEP would change its business model accordingly, how this will affect rate structures and what public policy changes would help, among other analysis. “They asked for a board-level report. We said no to that but did agree to several things and it did result in resulted in more disclosure around carbon risks, current and future. Our corporate accountability report this year does address several of those issues.”

And the group didn’t file a shareholder proposal. In fact, since 2006 only one of 12 shareholder sustainability requests has gone to a vote — the rest were withdrawn — and Nessing says the one is because the shareholder refused to engage and wanted to make a political statement.

How has AEP avoided such votes? “Pick up the phone. Let’s have a conversation. We don’t have to go down this path. We can collaborate,” Nessing says, adding the utility has a good relationship with environmental groups including the Sierra Club and the Natural Resources Defense Council.

“Transparency does help to mitigate the activists and it helps protect your reputation,” she says. “When you engage, you start to see each others’ points of view. It’s not an us versus them.”

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One thought on “The Drive for Disclosure: What Matters and What Doesn’t

  1. Nessing rightly mentions “It’s not just about numbers anymore”, but the reason must be fully understood: for all too long the primary reporting schemes require numbers that are painstakingly collected and reported, but lack CONTEXT. How do companies compare? How do you normalize the information submitted? What business units or supply chain components require action? These questions remain unanswered for decision-makers, investors and stakeholders alike. In fact, if the numbers had market and science-based context, it would be MOSTLY about the numbers. As relevant for sustainability as it is for economics.

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