A New Global Standard for CSR Reporting
Investors, stock exchanges, and regulators are actively working together to build the consensus on how companies should report on their corporate social responsibility (CSR) performance.
In recent years, there have been several initiatives to encourage stock exchanges to improve their issuers’ sustainability reporting. This includes the United Nations Sustainable Stock Exchanges Initiative, Ceres’ Investor Initiative for Sustainable Exchanges, and the Principles for Responsible Investment’s Sustainable Stock Exchanges Investor Working Group.
The fruit of these consultations is a proposal to establish a minimum global standard for CSR reporting.1 The proposal focuses on the following questions about companies’ sustainability risks:
- What are the material CSR risks a company faces, and how was this determination made?
- What is the minimum amount of information each company should disclose?
- What CSR information is currently disclosed, and how can it be accessed efficiently?
The proposal is open for comments until June 2014. To answer these questions, the following three-step process has been proposed:
- Step 1: Management should perform a materiality assessment to determine the company’s material CSR issues and present its findings in its annual financial disclosure.
Step 2:In a format and manner of the company’s choosing, companies should report on the 10 specific CSR topics that have been identified.
Step 3: Companies should indicate where the CSR information can be found in their annual financial filings, preferably using a CSR Disclosure Index modeled on the Global Reporting Initiative Content Index or an equivalent.
To address investor demand, financial institutions have set up CSR-themed platforms, like Goldman Sachs’ GS SUSTAIN and Morgan Stanley’s Institute for Sustainable Investing. A group of banks also released Green Bond Principles in January 2014 to address the rapid growth in sustainability-themed bonds over the past few years.2
Bloomberg currently provides CSR indicators from publicly traded companies alongside mainstream financial indicators for its 300,000 customers worldwide. Against this backdrop, its no wonder that voluntary sustainability reporting continues to grow each year. Corporate Register’s online database of sustainability reports currently has over 55,000 reports from more than 11,000 companies worldwide.3
A recent survey of 600 U.S. companies revealed the 52 percent of them are actively engaging investors on sustainability issues, which is up from 40 percent in 2012.4 Tactics to engage investors include integrating sustainability information into mainstream investor communications, highlighting sustainability performance and innovations at annual meetings, and directly engaging with shareholders on sustainability topics.
The same survey also found that 24 percent of U.S. companies link executive compensation to sustainability performance, up from 15 percent in 2012. At Alcoa, 20 percent of the executive cash compensation is tied to safety, environmental stewardship—including greenhouse gas reductions and energy efficiencies, and diversity goals.4
As investor scrutiny of sustainability performance grows, the pressure will only increase for companies to accelerate and broaden their sustainability efforts and report on their progress. Those that shift from being reactive to proactive in embracing the challenges of sustainability will ultimately benefit—in the form of increased access to capital, lower insurance rates, or by gaining a net competitive advantage.
1"Investor listing standards proposal: Recommendations for stock exchange requirements on corporate sustainability reporting." (2014). Ceres. Retrieved from https://www.ceres.org/resources/reports/investor-listing-standards-propo...
2"Green Bond Principles 2014: Voluntary Process Guidelines for Issuing Green Bonds." (2014). Bank of America Corporation, Citigroup Inc. Retrieved from http://www.ceres.org/resources/reports/green-bond-principles-2014-volunt...
3"Corporate Register Reporting Database." (2014). Retrieved from http://www.corporateregister.com
4"Gaining Ground: Corporate progress on the Ceres roadmap for sustainability. (2014). Ceres, Sustainalytics. Retrieved from http://www.ceres.org/resources/reports/gaining-ground-corporate-progress...