The 6 Biggest Trends in Sustainability Reporting
At the GreenBiz Forum in New York City last week, Ernst & Young offered a preview of fall 2011 survey results of sustainability program and reporting trends at leading companies in 24 sectors. Of the more than 270 respondents, 85 percent are based in the U.S.
The session, led by E&Y assurance and sustainability and climate change practice experts, highlighted six trends:
1. A rise in sustainability reporting;
2. An increase in the CFO's sustainability role;
3. The emergence of employees as a key sustainability stakeholder force;
4. Strong reporting on greenhouse gas emissions and mounting reporting on water use -- despite regulatory uncertainty;
5. Growing concern about access to raw materials (including so-called conflict minerals) as a business supply chain issue;
6. Special attention to outside rankings and ratings on the part of corporate executives.
What the Trends Mean
For those who follow business sustainability, what's striking about the survey results may be less the trends identified than the reasons for them -- and what they spell for companies in the years ahead.
Interviews after the session with Christopher Walker, Americas Market Leader, and Adam Carrel, Senior Manager, both of E&Y's Climate Change and Sustainability Services group, offered the following insights:
1. More Reporting
Sustainability reporting is on the rise, with 76 percent of survey respondents already issuing such reports, and 93 percent expected to do so in the next five years.
Yet, despite a welcome increase in reporting, the tools used to gather the information are "suboptimal," with spreadsheets such as Excel widely used in the U.S. as the primary data collection source, supplemented by email and even telephone calls (which prevent third-party verification and/or assurance).
That weakness among U.S.-based companies contrasts with more mature reporting markets, such as Australia, where data collection architecture is often more robust, largely because of regulations or those pending. Explains Walker: "In order to verify information, companies need to show a reliable, accurate information trail."
Another problem: Sustainability reporting, which aims to capture environmental and social trends, is intrinsically more qualitative than traditional financial reporting, based on numbers and longstanding accounting rules.
While some environmental information is relatively easy to capture in numbers (for instance, amount of energy used, or related calculations on GHG emissions), social impact of company programs is harder to capture quantitatively. And, while "the school of social impact assessment has advanced, with a proliferation of benchmarks across industries, it's not used as much," says Carrel.
"There's no standout model for ethical behavior," he continues, so auditors and consumers will likely have to "tolerate a higher level of subjectivity," partly because sustainability is a broad and evolving field.
2. Growing CFO Involvement
One in six CFOs are now actively engaged in sustainability, with over half "somewhat" involved.
The rise likely reflects "an increase in uptake of sustainability data from capital markets," including major investors and banks, along with greater pressures from internal employees," explains Carrel.
However, while the CFO's role is growing, "it still isn't as aligned with sustainability as it should be," says Walker. He notes that the major focus is on efficiencies in areas like energy costs and savings, which are more easily quantifiable. Still, he believes greater CFO alignment will come, as quantitative sustainability data becomes more reliable.
3. Employee as Stakeholder
Among the most noteworthy trends is the rise in employee engagement as a key reason for company sustainability reporting -- as well as employee involvement in sustainability programs, and even initiation of such programs, including increasingly popular green teams.
Indeed, the survey found employees were ranked as the second most important stakeholder group (after customers) for a company's sustainability programs and reporting efforts. Shareholders trailed employees by seven percentage points and policy makers by nine percentage points.
Use of social media like company intranets makes employee-management and employee-to-employee communication easier and can help build and sustain employee momentum in sustainability programs.
Particularly as younger generations enter the workforce, employee pressure on companies to show positive sustainability performance can now start as early as the interview stage. And as younger employees advance in their careers and begin to set the business agenda, they're likely to become an even stronger sustainability force, notes Carrel.
4. GHG Reporting
Despite regulatory uncertainty, three-quarters of companies surveyed now report on greenhouse gas (GHG) emissions, and 92 percent are expected to do so in the next five years. What's more, 62 percent of companies now report water use, an indication of growing awareness of changing weather patterns, droughts and pollution.
The continuing interest in GHG reporting, even in the face of obstacles -- including the global financial crisis; at best mixed outcomes of international climate talks; and lack of regulatory drivers in the U.S. -- is at least partly due to new and more widely accepted "roadmaps for reporting via voluntary initiatives," like the Carbon Disclosure Project (CDP), says Walker, former U.S. head of The Climate Group and a lawyer by training.
Plus, capturing data on emissions and water is a relatively straightforward, quantitative process.
5. Risk of Strategic Materials
One newer concern to companies is the growing risk of using so-called strategic raw materials throughout the supply chain in the manufacture of key products.
The most glaring issue recently has been the use of so-called conflict minerals (those often sourced in conflict-prone parts of the world) in microprocessors. While such commodities are critical for devices, such as cell phones, that the developed world considers essential, they are also a potential social risk for companies that source them in sensitive geo-political places, says Carrel.
Notably, in the past, such "invisible ingredients to business success haven't been described in terms of balance sheet risks," Walker adds.
6. Ratings and Rankings
Finally, the survey shows that rankings on sustainability lists and ratings in sustainability indices -- particularly those of concern to investors--are of growing concern to executives.
As sustainability performance becomes 1) a greater shareholder concern (in a separate report, E&Y noted a rise in so-called ESG -- environment, social, governance--demands among shareholders, 2) a benchmark for employee attraction and retention, and 3) a general staple of the corporate vocabulary, it's perhaps unsurprising that companies increasingly value such investor-related reputational referees as the Dow Jones Sustainability Index or the CDP.
Coming Consumer Referendum
What the survey doesn't explicitly reveal but may likely to emerge as the sustainability "sleeping giant" is a "consumer awakening," says Carrel.
The business challenge of the future will come once consumers begin more actively incorporating sustainability knowledge into buying practices.
He adds that consumers will likely prompt change in companies across industries -- not just manufacturers, but also the service sector--that include practices "currently hardwired into the supply chain that just won't fly anymore."
Reporting photo via Shutterstock.