In 2011, just under 20% of the companies in the Fortune 500 and S&P 500 issued some kind of sustainability report, Hank Boerner, chairman of the Governance & Accountability Institute, told IndustryWeek. Last year, that number had increased to more than half.
What is driving sustainability reporting? Governments, environmental groups and various NGOs all play a role, but in corporate offices and boardrooms, as EHS consultant Kathy Seabrook told the recent America's Safest Companies conference, "It is the investment community."
Financial reporting is designed to provide investors with the information they need to make an informed decision about whether or not to invest in a company. That includes an expanding understanding of material risks, those that could impact a company's financial condition or operational results. Among those risks, Wall Street is becoming increasingly conscious of risks to sustainability, not simply environmental issues but a host of factors that could harm a company not just in the next quarter but for years to come.
Consider Coca-Cola's latest 91-page sustainability report, issued Nov. 7. The report puts particular emphasis on three issues – the empowerment of women, management of water resources and the well-being of the global population. There are important business reasons for calling out those issues, given that women make up half the world's population, water is vital to Coca-Cola's products and concern mounts about the role of sugary beverages in obesity, particularly among the young.
In its Form 10K financial report, Coca-Cola noted it has not experienced significant water supply difficulties, but points out that "water is a limited natural resource in many parts of the world, and our company recognizes water availability, quality and sustainability, for both our operations and also the communities where we operate, as one of the key challenges facing our business."
Coca-Cola has invested over $1 billion in the past decade in wastewater treatment initiatives. And in its new 2020 sustainability goals, it aims to improve water efficiency by 25%, work with the World Wildlife Fund to protect freshwater systems across five continents and replenish 100% of the water it uses in its beverages (currently, the company replenishes 52% of the water used).
As sustainability reporting grows, there are accompanying efforts to standardize the data that companies report so that it is more comparable and transparent, and to more closely integrate sustainability data into financial reports.
The Sustainability Accounting Standards Board, an independent standards-setting organization based in San Francisco, recently issued its first set of guidelines on sustainability metrics for the health care industry. SASB is just starting on the process of rolling out standards for 88 industries in 10 major sectors. The goal is to produce a set of the most important sustainability metrics that all public companies will report in their Form 10K.
"Companies spend a lot of time and money producing those sustainability reports," says Dr. Jean Rogers, founder and executive director of SASB. "It's a shame they are not comparable. Having a small set of metrics on industry issues really helps that dialogue and helps with the comparability."
Manufacturing is largely in the sector identified by SASB as "resource transformation." It includes aerospace and defense, chemicals, electrical and electronic equipment, industrial machinery and containers and packaging. SASB will begin research on this group early next year. Other manufacturing industries will fall under non-renewable resources (oil and gas, coal, metals and mining, construction materials) and transportation.
Also at work on integrating financial and sustainability data in reports is the International Integrated Reporting Council. This group's mission is to "create the globally accepted Integrated Reporting framework that elicits from organizations material information about their strategy, governance, performance and prospects in a clear, concise and comparable format."
Some 100 corporations and financial institutions have been working on developing the initial framework that is expected to be released this month. From there, IIRC will be testing the framework through September 2014.
|To review a copy of the SASB sustainability metrics for the biotechnology industry, visit our website at www.iw.com/sasb_biotech.|
Sustainability reporting may be mainly the domain of large public companies today, but with growing recognition of how their fortunes can be affected by their supply chain partners, expect these large firms to exert increasing pressure on their suppliers to make sustainability a priority.