On Public ESG Disclosure Trends

The trends in corporate sustainability reporting and public disclosure are for the most part encouraging. First, more companies are reporting on their sustainability performance. According to the Governance & Accountability Institute, Inc. more than 80 percent of S&P 500 companies published a corporate sustainability report in 2016. This number is up from only 20 percent in 2011.[1] Even more encouraging is large and small companies are getting involved. According to KPMG, roughly three-quarters of the N100 companies — defined as the top 100 companies by revenue in 49 countries — released annual sustainability reports.[2]
Another critical trend is that environmental, social, and governance (ESG) issues are helping to inform the investment process. The CFA Institute states that more than 73 percent of investors take ESG indicators into account in their decision making process, and that they are doing so to manage risks. [3]
While the rise of public disclosure of ESG performance data is certainly a positive signal, a lack of comparable metrics and reporting fatigue can drive confusion, devalue reported information, and create barriers to entry.

A Call for Standardization

Increased public disclosure of ESG performance data is great when that data is consistent, robust, and comparable. While we are witnessing an increase in the quantity of information being reported, the quality is not always reliable, and often generates more questions than answers. The CFA Institute cited a lack of appropriate and comparable quantitative data as the most restricting factors for investors in effectively evaluating nonfinancial information.[4] Moreover, the proliferation of reporting schemes is making it harder to generate consistent metrics, both within and across sectors.
Organizations and initiatives such as the Sustainability Accounting Standards Board (SASB) and the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) are helping to drive consistency by making disclosures on specific ESG topics standardized through mainstream financial filings, such as the Form 10-K. They believe that certain risks, such as those posed by climate change, are material to many public companies, who should then be required to disclose relevant information in their public filings.[5]

The Real Estate Divide

In spite of the growing pains mentioned, sustainability reporting, and increased investor interest in quality, public ESG performance disclosures is here to stay. What about the companies that still do not publicly report on this information?
As the 2017 GRESB Public Disclosure snapshot illustrates, a considerable number of listed companies and real estate investment trusts (REITs) still do not publicly disclose ESG performance data, despite increasing investor demand.[6] Potential reasons include: a lack of internal resources; difficulty in choosing or identifying an appropriate reporting scheme and/or key performance indicators from the plethora of options available; no direct board or investor pressure, etc. Regardless of the reason(s), these (often smaller) companies risk falling behind should current investment trends continue.

Practicing What We Preach

As a privately held company, CodeGreen Solutions is committed to helping companies navigate the complex world of ESG reporting and better understand how to properly track and disclose those issues most critically important to their businesses. Among the exciting, innovative initiatives we are undertaking, CodeGreen Solutions is in the process of producing our very own, publicly available corporate sustainability report. Our ambitions are two-fold:

  1. As a sustainability and energy management consultancy, we need to practice what we preach. To truly demonstrate leadership in this space it is critical that we disclose our own sustainability performance.
  2. By better understanding the challenges associated with tracking ESG metrics and assembling our own sustainability report, we can impart lessons-learned to the companies we advise. For example, like many smaller companies, we have finite resources and our employees wear several different hats. Staffing a project such as a sustainability report is therefore challenging, as it might not be considered critically urgent, and will depend on employee goodwill, dedication, and excellent planning.

Our hope is that we can use our reporting experience to streamline our internal processes, demonstrate leadership, establish best practices, and share lessons-learned with clients to help them meet their reporting goals and navigate the road ahead.
This article is written by Daniel Liswood, Associate Technical Director at CodeGreen Solutions.
[1] Governance & Accountability Institute, Inc., 2017: https://www.ga-institute.com/press-releases/article/flash-report-82-of-the-sp-500-companies-published-corporate-sustainability-reports-in-2016.html
[2] KPMG, The KPMG Survey of Corporate Responsibility Reporting, 2017: https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/10/executive-summary-the-kpmg-survey-of-corporate-responsibility-reporting-2017.pdf
[3] CFA Institute, Environmental, Social and Governance (ESG) Survey, 2017: https://www.cfainstitute.org/learning/future/Documents/ESG_Survey_Report_July_2017.pdf
[4] CFA Institute, Environmental, Social and Governance (ESG) Survey, 2017: https://www.cfainstitute.org/learning/future/Documents/ESG_Survey_Report_July_2017.pdf
[5] Financial Stability Board, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, 2017: https://www.fsb-tcfd.org/publications/final-recommendations-report/#
[6] GRESB, GRESB Public Disclosure Snapshot, 2017: https://gresb-public.s3.amazonaws.com/2017/Public%20Results/2017_RE_PD_Snapshot.pdf

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