The idea of melding sustainability reporting with companies’ traditional financial reporting has been kicking around for a few years, but is now starting to take root — “starting” being the operative word. As it does, it becomes another potent tool to help make sustainability mainstream inside companies and among investors.
Freestanding sustainability reports have become mainstream — more than 5,000 are published annually worldwide, according to CorporateRegister.com — but most aren’t very helpful. They contain too much information that is feel good, extraneous to evaluating a company’s sustainability impacts and risks. Moreover, most reports aren’t written with investors in mind — they are targeted at a broad range of stakeholders, many of which have a specific environmental, social or governance interest.
There are signs that standalone sustainability reporting may go the way of the rotary-dial phone. A growing movement is shaping up to push companies toward “integrated” reporting, or IR, that combines conventional financial information along with key sustainability data, all in a much more investor-friendly way. Says Harvard Business School professor Robert G. Eccles, one of the leaders of the IR movement: “Even so-called mainstream investors are increasingly recognizing that a company’s ESG performance increasingly affects its ability to create value for shareholders over the long term, and can even put its license to operate at risk.”
One of the more interesting and public exercises in IR comes from PUMA, a division of the PPR Group, a French company that also owns several luxury and lifestyle brands, including Gucci, Yves Saint Laurent and Alexander McQueen. In 2012 PUMA published an Environmental Profit and Loss, or EP&L statement, valuing the costs to the planet incurred by its operations across its supply chain. The company says the report will help it pinpoint areas to develop more sustainable materials and methods; provide an early view of emerging risks, for instance around availability of water for production and costs associated with greenhouse gas emissions; and enable the company to make better, more informed business decisions that take account of environmental impacts as well as more traditional financial and operational considerations.
The footwear company doesn’t yet have many companies following in its footsteps, but its high-profile efforts have shown how blending financial and nonfinancial metrics can strengthen decision-making.
Much of the energy for IR is coming from outside the United States. For example, 2012 was the first year that the nearly 500 companies listed on the Johannesburg Stock Exchange were required to file integrated reports — or explain why they can’t. Another stock exchange, Brazil’s BM&FBOVESPA, adopted a similar “Report or Explain” policy earlier in 2011 for listed companies. Germany, Spain and the U.K. are also considered leaders in this area. At least one U.S. stock exchange, Nasdaq OMX Group, led by its vice chairman, Meyer “Sandy” Frucher, already is beginning to push integrated reporting. In June 2012 it signed up to begin requiring more material information on ESG operations for listed companies.
Next page: Rudimentary, even primitive tools