There’s a clear link between reporting transparency and corporate performance
About 6,000 corporate social responsibility reports were published in 2011, according to CorporateRegister.com. Some 1,200 were from companies publishing a sustainability report for the first time. The number of reports published annually has doubled since 2006, with European, and particularly British, companies far in the lead.
It sounds impressive. But sustainability reporting is in fact a fairly select activity. According to the World Federation of Exchanges, 46,223 companies were listed on the world’s stock exchanges at the beginning of 2012: only a minority publishes CR reports.
This seems surprising. Companies face growing pressure to think and act sustainably: higher costs, for example for resources and energy; investor, consumer and campaigner pressure, made ever-easier by the internet; and regulatory pressure, as governments try to future-proof their economies against risks such as climate change.
On top of all that, sustainability makes companies more competitive and profitable. The 2011 Sustainability & Innovation Global Executive Study and Research Project, published by MIT and the Boston Consulting Group, found that, 67% of 4,000 managers believe a sustainability strategy is a competitive necessity, while an additional 22% believe it will be in the future. A small minority, 7%, see no need to pursue sustainability.
Richard Ellis, group head of CSR at Alliance Boots plc, says the rationale for sustainability reporting is clear. “Businesses will increasingly realise the value of sustainability information for the bottom line.” There is, for example, a “correlation between efficient management of energy and efficient management of a company”.
Governments are taking action either by adopting regulations on reporting, or by passing other legislation requiring companies to collect sustainability-related information. Despite stalemate in international climate talks, for example, a number of countries, including Australia, China and South Korea, are following the European Union’s lead and introducing some form of greenhouse gas emissions trading. De facto, this forces companies to think about sustainability: they must produce data on their emissions, and then seek to reduce them.
Direct reporting obligations are multiplying, in part also because of a backlash against perceived corporate misbehaviour in the run up to the economic crisis. The Johannesburg stock exchange now obliges companies to produce integrated reports bringing together financial and non-financial information, or to explain why they are not doing so.
France has introduced wide-ranging social and environmental reporting requirements, from a company’s use of nanomaterials to its impact on local development. In the US, thanks to the Dodd-Frank Act, companies that report to the Securities and Exchange Commission must now disclose their use of conflict minerals, and report payments to governments relating to oil, gas or mineral exploitation.
Enter the CFO
In light of all this activity, it is no surprise that “chief financial officers are coming to the table” on sustainability, as a report, published in September 2012 by Deloitte, found. Only 13% of CFOs saw no connection between sustainability and financial performance, and accountability for sustainability is increasingly being transferred to CFOs and chief operating officers, who are now given direct responsibility for sustainability in 36% of corporations, up from 20% in 2011, according to the report.
The trends are clear: companies will have to report more and report better. If they cannot grasp the business case and secure early-mover advantage by voluntarily assembling and disclosing their sustainability performance, they might find themselves forced to do so.