stronger linkage between finance and sustainability reporting

Finance: Stronger Linkage Needed Between Finance and Sustainability Reporting

June 5, 2013
While CSR disclosure is commonplace these days, establishing linkage between sustainability efforts and bottom-line results has been random at best.

If you're of the opinion that corporate social responsibility (CSR) reporting is just a fad, consider this: Every manufacturer on the S&P 500 reported some form of sustainability disclosure last year. In fact, almost every company on the S&P 500 issued a sustainability report of some kind. (The lone exception was Zions Bancorporation, a financial services firm.)

See Also: Manufacturing Industry Finance News & Trends

One of the reasons for this increased CSR activity is financial, and it's tied just as much to personal finance as it is to corporate finance. According to a study conducted by the Investor Responsibility Research Center Institute (IRRCI) and the Sustainable Investments Institute (SI2), almost half (43.4%) of the companies link executive compensation to some type of sustainability criteria. So there is a tangible, albeit individual, cause-and-effect dynamic driving executive-level championing of CSR initiatives. However, exactly what is being reported, and the relationship between sustainability programs and corporate performance, tends to be all over the map.

The most frequently disclosed CSR effort was environmental management, particularly in the area of environmental controls, as 68% of the companies reported on capital investments in equipment or other expenditures related to the reduction of operational risks. Workforce issues were the second most frequently cited area (67%), centering on programs designed to attract, engage and retain talent. In third place was climate change initiatives (66%).

While CSR disclosure is commonplace these days, establishing linkage between sustainability efforts and bottom-line results has been random at best.

"Isolated sustainability disclosures are of limited value, both to corporate management trying to improve the bottom line and to investors trying to gauge risks and opportunities," points out Jon Lukomnik, executive director of the IRRCI. "The challenge today is to connect the dots between sustainability initiatives and corporate earnings, and then to quantify the causal relationship. For far too many sustainability factors, across far too many reports, quantification is lacking, leaving managers without tools and investors to wonder how carefully they are being managed."

A separate study, conducted by Ernst & Young and GreenBiz Group, comes to a similar conclusion: Companies aren't focusing enough on aligning sustainability with risk management. Only 30% of the companies studied are engaged in scenario planning of sustainability risks.

About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

Call: (941) 208-4370

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During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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