“The time has come to question whether institutional investors’ continued emphasis on climate disclosure is justified,” writes Thomas O’Neill in Responsible Investor. He adds, “Investors overwhelmingly view climate risk disclosure as uninformative and imprecise. ESG ratings are wildly inconsistent.”
Ken Picker, former Chief Operating Officer of Timberland, agrees, stating that corporate sustainability reporting isn’t a proxy for progress. “Research on the efficacy of measurement and the endless refinement of non-financial reporting are actually distractions from the much-needed work of systems change,” he says.
Perhaps this is the reason that, while trillions of dollars have flowed into ESG investing over the past decade according to US SIF, at the same time global emissions have continued to climb as reported by the IEA. It is not so surprising then that many energy leaders say that sustainability initiatives are nothing more than PR.
Yet, according to The KPMG Survey of Sustainability Reporting 2020, now in its 11th edition, 80% of companies globally now report on sustainability, a figure that has grown every year for the past twenty years. Additionally, many companies participate in dozens of ESG rating and ranking products, even though these products are fraught with challenges as noted above.
While regulators have recently become more engaged in working towards improving sustainability disclosure standards, it’s not clear this will solve the underlying issue, though it may result in some consolidation and tighter alignment.
To be fair, sustainability management is still a relatively new discipline. An early mover in sustainability management education, Columbia University launched its Graduate Program in Sustainability Management in 2010. More recently, the University has added a Masters in Sustainability Science and a Masters in Climate and Society.
From a performance measurement and management perspective, a slate of newer initiatives may hold promise for a better approach going forward. The Future Fit Benchmark is a strategic management tool grounded in science based targets and aligned with the UN Sustainable Development Goals (SDGs). Becoming a Certified B Corporation explicitly requires companies to balance profits with purpose. The Shared Value Initiative, with its Purpose Playbook, aims to help companies better understand what it means to have a purpose-led organization that is focused on shared value across a wide spectrum of stakeholders. The Value Balancing Alliance is an alliance of multinational companies collaborating to create a measurement approach that translates environmental and social impacts into comparable financial data. BASF, a founding member of the Alliance, is among the early testers of the product.