The key to improved board oversight of sustainability
A recent IRRCI study revealed that 55.4 percent of S&P 500 companies have board oversight of sustainability issues, with the corporate governance or nominating committee most frequently asked handle the tasks.
Sustainability reporting guidelines, including the Global Reporting Initiative, the International Integrated Reporting Council, and the Carbon Disclosure Project, all encourage board oversight.
Corporate political disclosure is an important issue to investors. According to the IRRCI study, between 2010 and 2014, 259 proposals were submitted by shareholders requesting board oversight of political spending, 21 resolutions requesting board oversight of sustainability issues, and 16 asking for board committees on human rights.
Over the same period, investor backing for these types of resolutions has risen steadily to an average vote support of about 26 percent—more than six times what they were prior to 1990.
The dramatic increase in both the volume of resolutions and support for them was fueled in large part by requests for board oversight of political spending following the U.S. Supreme Court ruling that full disclosure of a company’s political spending allows shareholders to "determine whether their corporation's political speech advances the corporation's interest in making profits."
Investors who understand the link between societal and environmental performance and financial viability believe there are significant gaps in current disclosure practices, including a general lack of sustainability reporting.
They believe that it's the board’s fiduciary duty to ensure that listed companies report annually on a comprehensive, uniform set of sustainability indicators—comprised of both universally applicable as well as industry-specific components.
Many believe that more stringent disclosure requirements are necessary due to the lack of adherence to already existing laws. For example, the SEC issued its guidelines on disclosure relating to climate change in 2010, but to date, half of the largest 3,000 companies in the United States did not report on it in their annual filings.
Keep in mind that in Europe, CSR disclosure requirements were already implemented earlier this year with a non-financial reporting directive for the E.U.'s 6,000 largest companies with at least 500 employees. These companies must report policies, risks, and outcomes in the areas of human rights, employee relations, corruption and bribery, board diversity, and environmental impact.
Large U.S. corporations that are listed on European stock exchanges are also covered are also covered by the European Directive. Indeed, 118 S&P 500 companies that are not currently publishing sustainability reports are listed in Europe.
Finally, the IRRCI study noted that the paper and forestry (100 percent), healthcare services (93 percent), oil and gas (81 percent), utilities (80 percent), and aerospace and defense (80 percent) industries were the most likely to have board oversight of sustainability issues, while the real estate (29 percent), construction and engineering (33 percent), technology hardware (33 percent), retail (34 percent), industrials (35 percent), and media (35 percent) sectors were the least likely.
Concerns about sustainability are rising every year for both companies and investors alike. Given this context, it's not surprising that sustainable and responsible investors are increasingly turning to boards with questions about companies' sustainability performance. Investors, now more than ever, see board oversight as an effective way to encourage corporations to accelerate such efforts.
For many companies the key question is this: If investors, or other key stakeholders, call today with sustainability questions about risks and new business growth opportunities, do we have appropriate answers we can provide to our senior management in a timely manner to address these concerns?