It’s common knowledge that investors, analysts and other stakeholders view certain non-financial information as increasingly important indicators of a company’s long-term value. This information tends to be grouped into three categories—social, governance and environmental (including sustainability). Stakeholder attention is often evidenced by proxy proposals, inquiries from institutional investors, questions during earnings calls and investor conferences and, ultimately, by the company’s market value.
Voluntary reporting of sustainability initiatives and performance has increased significantly in recent years. This report by the Investor Responsibility Research Institute and Sustainability Investments Institute states that almost all S&P 500 companies already include some type of sustainability disclosure in their public reports, which suggests that sustainability reporting is moving from cutting edge to mainstream. Although every company may not yet be ready to, or need to, add sustainability disclosures to its filings, it’s time to consider the possibility.
Is sustainability reporting hard to do?
Chances are that you are already assessing sustainability issues. Companies with effective enterprise-wide risk management typically collect and evaluate sustainability-related information as part of their risk assessment process. Because there are no regulations governing sustainability disclosure at this time, it is relatively simple to add such information to your internal disclosure process, evaluate whether and how to disclose it and then craft disclosure language that suits your specific situation.
As further evidence that sustainability has become a hot issue, several non-profit organizations now exist to provide guidance and frameworks. Any one of the following organizations would be a good resource for beginning or enhancing your sustainability analysis and reporting:
What are the benefits of sustainability disclosure?
Effective sustainability analysis and disclosure can enhance company performance and market value through:
Better internal focus on sustainability-related risk assessment and strategy
Enhanced reputation among stakeholders due to disclosure transparency
Improved employee morale and loyalty due to environmental emphasis
Reduced environmental footprint from closer attention to sustainability issues
Increased operating efficiencies through identification of operational improvements
Competitive advantage over peers
Better overall enterprise risk management
It’s important to note that sustainability reporting is neither required by SEC regulations, nor majority practice among companies outside the S&P 500. However, the trend toward enhanced sustainability analysis and disclosure suggests that it is time to consider it.