Businesses of all sizes may be overlooking a goldmine of competitive information in their own corporate sustainability reports.
What's more, executives could expose their companies to long-term business risks by failing to look at this data more closely or by failing to disclose all of the information that they've collected, according to a new report by consulting company Deloitte & Touche. It turns out that what you don't know can, in fact, hurt you.
"If a company in today's world is not paying attention to the long-term or short-term resources that they need to operate, they will be in trouble," said Eric Hespenheide, partner and global leader of business risk for Deloitte & Touche. "I would argue that all companies, public or private, really ought to be looking at these things."
Hespenheide is one of the authors of a new Deloitte & Touche report, "Disclosure of Long-Term Business Value: What Matters?" (His coauthor is Dinah Koehler, senior research manager for Deloitte Research.) The report contends that companies of all sizes should consider factors such as resource efficiency, business-model efficiency, the potential for innovation, brand strength and corporate culture as part of their strategic decision-making.
For example, if a manufacturer is considering a new factory, it should open its scope to look at more than just the raw financial investment involved, Hespenheide sad. Those considerations might include the long-term outlook for water supplies in the region or local development plans that might affect energy prices over time.
"It is more likely that you will come to a better decision if you include these things," he said.
The report (one of a planned three-part series on environmental, social and governance investing -- also known as ESG -- and business-value metrics) suggests that chief financial officers are in a unique position to encourage the inclusion of ESG considerations in the corporate decision-making process.
The authors note: "CFOs, with their unique, cross-functional vantage point, need to consider more than their results for the next quarter and a wider range of stakeholders -- customers, suppliers, consumers, employees, nongovernmental organizations and communities -- that play an important role in an organization's success."
The catch is, of course, that what is material to my company might not be material to your company. "All issues are not material to all entities. There should be a more thoughtful way for companies to figure out the material factors to their business," Hespenheide said.
While it is pretty easy for executives to figure out which financial metrics matter, there are fewer guidelines for assessing ESG measures or even for figuring out which ones should be weighted more heavily by your company.
The Deloitte authors suggest the following as a start for companies that follow the Global Reporting Initiative guidelines:
- Keep your company's mission and strategy at the top of mind. (This is why you see so many beverage and food companies, for example, making water consumption a key pivot for innovation, plant locations and so forth.)
- Find points of intersection: Which factors might impact your financials significantly in the short term or long term?
- Consider the ripple effect throughout your company's supply chain.
- Ponder which international standards or agreements might hold sway.
- Pay attention to what outside expert communities are telling you.
- Ask this question: Is there a social impact?
In order for an ESG-materiality-assessment exercise to be meaningful, however, the nonfinancial data collected and used for decision-making needs to be thorough and accurate. Which hasn't necessarily been a priority for every company.
"Framed in this manner, a company is obligated to spend the requisite time and money to implement processes and controls to help ensure accurate, timely and complete disclosure on material ESG topics and use the data for internal decision-making," according to the report.
Considered from this point of view, the exercise of tracking and reporting on greenhouse gas emissions, waste-management policies, water consumption and corporate social responsibility activities takes on a whole different dimension.
Also read GreenBiz contributor Amy Westervelt's story on companies whose compliance efforts have boosted their bottom lines.