Will 2016 be the Breakthrough Year for Sustainability Disclosures?
If breakthrough progress means significant improvements in the quality of sustainability, energy and EH&S information disclosures, the track record for most businesses so far is not promising. Corporate Knights Capital research found in late 2014 that only 3% of the 4,609 global firms with over $2 billion in market capitalisation disclose on all seven of its ‘first-generation’ sustainability indicators (employee turnover, energy, GHG emissions, injury rate, payroll, waste and water). UNEP found in late 2015 that only 8% of 108 multinational firms analysed had science-based GHG emission targets. Verdantix research shows that the practice of getting assurance for sustainability reports has remained steady since 2012 at just over one-third; despite the fact that over four in five large firms (billion-dollar-plus turnovers) surveyed now publish a standalone sustainability report.
Similarly, firms have also struggled to engage beyond the niche ‘green ghetto’ of audiences that already have a strong interest in sustainability issues such as NGOs. Reaching broader audiences requires tailoring disclosures to meet fundamental audience interests and needs. Witness investor surveys by the audit firms such as Deloitte and EY which found that over 80% remain dissatisfied by “how risks and opportunities are identified and quantified in financial terms” and a similar amount are dissatisfied by the “comparability of [data] in the same industry”. In addition, only one-third were satisfied with the usefulness and reliability of ESG disclosures.
That’s not to say businesses have made no progress. While disappointments such as VW’s fraud, Exxon caught hiding climate realities, environmental fines and greenwashing continue to grab the headlines, there is real evidence of executives changing the business-as-usual reporting activities from within firms. Witness Unilever’s standalone human rights report, DuPont and Ikea reporting on the sales growth for innovative sustainability products as well as H&M using YouTube to grow awareness of its ‘Close The Loop’ recycling program whilst also expanding its team of ‘Sustainable Materials Innovation Specialists’ to name a few.
However, the underlying pace of change in corporate sustainability remains too gradual for time-sensitive societal challenges such as climate mitigation. Due to the voluntary nature of sustainability, externalities such as GHG emissions will struggle to be managed by most firms without relevant policies such as carbon pricing. The largely voluntary nature of reporting leaves flexibility for changing the scope or content from year to year – some firms even seem to have done a full 360° loop and have gone back to what looks like CSR reporting that was in vogue some 10 years ago. Even the most promising drivers such as stock exchange rules can take multiple years to affect change with reliance on market consensus. Witness the SGX which used six years to transition from a sustainability reporting guide in 2011 to a mandatory ‘comply-or-explain’ approach.
So what’s most promising for 2016? Verdantix anticipates that supply chain stewardship will be an influential near-term driver due to the mix of voluntary B2B value chain pressures and regulatory drivers. Witness the recently introduced UK Modern Slavery Act, US SEC Conflict Minerals ruling as well as organisations such as the Rio 2016 Organising Committee and BT who are using collaborative software platforms to move beyond ‘Code of Conduct’ documentation to increase supplier sustainability reporting and actively assess supply chain performance.
To learn more and join the discussions on energy and EH&S data management for sustainability disclosures, consider attending our Verdantix events for energy and facility managers as well as EH&S executives.