While at the GreenBiz12 Forum in New York earlier this week, I got a sneak preview of the findings of the new Ernst & Young and GreenBiz Group survey of trends in sustainability reporting. The soon-to-be-released survey validates much of what I’ve seen firsthand in my work preparing sustainability and corporate responsibility reports for Fortune 100 companies in various industry sectors.
There’s been no slowdown in the number of reports being produced, despite the poor economy, noted John DeMelis, a sustainability assurance partner with Ernst & Young. DeMelis kicked off the standing-room-only breakout session by noting the links between the rise in sustainability reporting and drivers such as cost reduction efforts, growing investments in sustainability, an increasingly strategic approach to sustainability efforts, and intensifying calls for accountability. The report also revealed growing concerns around validity of the data contained in sustainability reports (more on that later).
Sustainability reporting is growing, but the tools are “suboptimal.”
Reporting has clearly become de riguer among leading businesses, as a mere 7 percent of survey respondents indicated that they either don’t currently report or have no plans to do so in the near future. A clear majority - 75 percent – of those who do produce sustainability reports indicated that they follow the Global Reporting Initiative (GRI) sustainability reporting framework.
That’s the good news. The bad news – especially if you want rigor in your data – is that the tools used to capture data are “suboptimal,” said co-presentor Chris Walker, associate director of climate change and sustainability services with Ernst & Young.
Survey respondents cited Excel spreadsheets as the most common method for collecting data. Okay, that leaves a paper trail. But, the second and third most common means of data collection were email and telephone, respectively. (I could see the E&Y team cringe.) Some survey respondents reported using packaged ERP (enterprise resource planning) software, but all in all, automation of sustainability data collection is still fairly rudimentary.
This finding correlates with my experience in working with clients who were issuing their first sustainability report. First-time reporters often fail to comprehend the scope of data gathering required. They frequently lack relevant data collection methods and have to dig pretty hard to find the data called for by the GRI guidelines.
Inadequate data gathering methods can lead to the “irrelevant data, unsubstantiated claims, gaps in data and inaccurate figures” reported a Leeds University team in its examination of more than 4,000 corporate social responsibility (CSR) reports and company surveys.
As more investors rely on sustainability reports to guide their investment decisions, the squishiness of data becomes less tolerable. Given this state of affairs, the next trend is understandable.
The CFO’s role in sustainability is on the rise.
The survey revealed that in the quest for better data, there’s an emerging shift of involvement within the C-suite, with CEOs stepping back a bit as CFOs take on a larger role in sustainability reporting. Clearly, CFO concerns center on raising the quality of data and eliminating risks associated with distributing bad data.
The move toward integrated reporting – combining both sustainability data with financials – is also spurring this push for higher quality data. Brendan LeBlanc, executive director of climate change for Ernst & Young, shared that companies are looking for ways to provide data assurance to achieve the comfort level required by investors and other stakeholders. This doesn’t necessarily mean full assurance of the entire report – at least not initially. Rather, companies often embark on the assurance journey through interim measures such as internal assurance, pre-assurance and verification of a limited number of the most material indicators.
Employees emerge as a key stakeholder group for sustainability programs and reporting.
Ernst & Young’s presentors seemed a bit surprised that survey respondents ranked employees as the second most important audience, ranking above policymakers and shareholders. (Investors still held sway as the prime audience for these documents.) In fact, a focus on reaching employees was echoed by other speakers and presentations I attended. As a professional corporate communicator, this emphasis on engaging employees doesn’t surprise me. Many of my clients identify employees as a key audience, recognizing the powerful draw of a strong sustainability story in retaining and recruiting employees.
As companies set more aggressive sustainability, innovation and performance goals, they need every employee on board to reach their objectives. Moreover, many companies are involving employees in determining their sustainability strategy and setting goals. But that story doesn’t always get told in a sustainability report. More often, discussion of employee engagement centers on descriptions of the ubiquitous annual employee survey.
Interestingly, the marketing manager for a $3 billion division of a Fortune 50 corporation told me over breakfast that his business unit would soon release its inaugural sustainability report – the first such report prepared by any division of his global corporation. The parent company’s report regularly attracts accolades within reporting circles, but given the scope of the behemoth, its global report simply can’t offer in-depth coverage of any one business unit. So, this marketing manager is hoping to motivate, recognize and engage the folks in his division with a report of their own. (I’ll write about this report when it’s released in late February.)
Despite regulatory uncertainty, GHG reporting remains strong, along with growing interest in water.
More than nine out of ten survey respondents reported that they plan to begin or continue reporting greenhouse gas emissions (GHG) in the next five years. Even though the United States does not yet require GHG emission reporting, mandatory GHG reporting thresholds outside of this country are driving reporting among U.S.- based companies who operate in those areas.
While the full effects of rising GHG levels will hit future generations, the impact of water shortages are being felt now. Reporting on water consumption, access and risk factors – virtually ignored only recently even by water-dependent companies such as beverage makers – is clearly on the uptick.
Access to strategic materials is growing as a key risk factor.
Sustainability reports are including more discussion of access to strategic materials as a potential risk to the organization. Rather than just reflecting on past performance and current initiatives, many reports are looking ahead, explaining their supply chain risks and how they’re preparing for them. So, look for this year’s reports to feature more analysis of risks associated with industry-specific materials such as water supplies, conflict minerals, and other commodities such as responsibly-sourced paper pulp.
Rankings and ratings matter to company executives.
Finally, companies still want to know how they stack up against others and are eager to strut their stuff when they do well. Of all the sustainability performance and reporting rankings, the Dow Jones Sustainability Index and Carbon Disclosure Project are the most sought after by survey respondents. Why? They’re the rankings which are mainly investor-driven and catch the attention of CFOs and the C-suite.
So what’s the takeaway? To me, these trends indicate that the nascent practice of sustainability reporting is growing up. That’s good news, because it means that sustainability reporting has yet to reach its full potential for driving transparency and corporate responsibility. The best is yet to come.