Few companies calculate fiscal effect of sustainability

All US companies except one in the Standard & Poor’s 500 list make some sustainability disclosure but few calculate its effect on their financial performance, says a new report.

Anecdotal examples are common, it observes, but many companies miss opportunities to improve financial results by not intensifying their sustainability efforts and building them into a unified policy. 

The report, from the New York-based Investor Responsibility Research Center Institute (IRRCI) and the Sustainable Investments Institute (Si2) in Washington DC, is the first in the US to benchmark comprehensively the status of integrated reporting. 

Although 499 companies made at least one sustainability-related disclosure, the report states that only seven integrated their financial and sustainability reporting. 

The seven were American Electric Power, Clorox, Dow Chemical, Eaton, Ingersoll Rand, Pfizer and Southwest Airlines. The one without any disclosure was Zions Corporation.

Altogether 74% put a financial figure on at least one sustainability-related activity but other such practices were often unquantified. 

Disclosure of spending on environmental controls, made by 68% of the companies, was the most common. The aspects reported included health and safety risk reduction and avoiding environmental spills with their associated remediation costs, fines and lawsuits. 

The allied subject of waste management was covered by 49%. These companies described their efforts to reduce packaging and eliminate landfill waste. 

On employment, 67% of the companies reported the benefits of attracting and retaining talent, diversity policies, and involving employees in business topics, workplace issues and job satisfaction principles. They added concerns about health and safety and the risks surrounding poor employee relations, strikes and other stoppages. 

Climate change, on which 66% made disclosures, is frequently considered for regulation in the US and is a main interest of stakeholders. Many companies regarded their own money-saving energy efficiency as “low hanging fruit”.

Equally, the disposal of hazardous waste occupied many companies – 63% factored this into the bottom line, largely because the legal implications of irresponsibility are costly.

A total of 54% related product life cycle assessments and the marketing of green, fair trade and other environmentally desirable goods to financial results.

Water use was fairly low in the table of the reported effects on company finances.

The survey said 39% of companies integrated water into their calculations, mentioning mainly the cost or risk to business from water shortages.

Only 21% of the companies brought ethical issues, such as fraud, into their calculations, but human rights policy was the least discussed subject as a business opportunity. Of the 500 companies 15% factored human rights into their financial results, mainly as a reputational risk, covering suppliers’ use of child or forced labour or operations in conflict zones.

Jon Lukomnik, the IRRCI executive director, said: “The challenge today is to connect the dots between sustainability initiatives and corporate earnings and then to quantify the causal relationship.