p. A growing number of organizations are starting down the path of voluntary reporting of their sustainability policies and initiatives. They are often disclosing information about the progress of their initiatives towards addressing specific sustainability initiatives in the hope of providing investors, and other stakeholders an understanding of the environmental and social impact of the organization’s business model and practices. A recent study by The Conference Board found that currently 25% of a global sample of 3,000 companies issued sustainability reports. While this may seem to be a small number, it must be noted that organizations are not required by law to report on its sustainability initiatives and the nature and extent of that reporting can vary widely across organizations. Such reporting is still a fairly new practice, which may pose some interesting challenges and risks that organizations may want to consider.

p. Not realizing the importance of these efforts may give rise to future adverse events that could cause harm to companies. The Conference Board’s report, Sustainability Matters 2013:  How Companies Communicate and Engage on Sustainability, provides guidance on enhancing the sustainability reporting to better highlight every organization’s ESG initiatives. The goal of the report is to encourage boardroom discussions on the subject.  The report addresses eight key topics:

  • The State of Sustainability Disclosure – This section deals with the factors of how sustainability differs by industry, company size, and geography. It also provides an overview of the landscape of sustainability reporting. Furthermore, it also entails the role of the board in an organization’s sustainability initiatives. While senior management manages its these initiatives, the board is ultimately responsible in fostering sustainability disclosures contain fairly represented material information.  
  • Sustainability metrics – Given the broad nature of sustainability, the breadth and depth of these initiatives vary widely. Hence, this section provides some form of common ground measures of sustainability reporting of organizations so that investors and outside stakeholders can track environmental and social impacts of organizations. It further describes certain indicators that are required to be noted for a more transparent understanding of how companies execute these efforts. The metrics can also shed light on the practices that are frequent and material to the sustainability reports.
  • Sustainability standards – Organizations need to adopt certain standards that provide them with guidance on how to explore sustainability efforts and compare their standards with other existing ones. Due to this variance in standards, there exists a need to examine the differences in the nature, benefits and shortcomings of such standards. Doing so can help reconcile differences between standards and show companies the importance of a more collaborative solution.
  • Sustainability communication strategies – Organizations need to communicate their sustainability strategies in order to better reflect the reputation of the organizations. Understanding how different methods and content of communication can affect their sustainability agenda is crucial to choosing the right strategic method. Thus, the focus of this section is to discuss how organizations choose their sustainability communication strategies.
  • Stakeholder engagement – An important connection exists between stakeholders and sustainability reporting. Organizations must decide on an approach on how they can effectively engage stakeholders to come on board with its sustainability initiatives. There are differences in the manner in which companies choose to engage their stakeholders across industries and geographies. 
  • Sustainability and executive compensation – Sustainability efforts are initiated by corporate executives. But the board is also responsible for successful implementation of such efforts. Hence, there is a need to structure executive compensation to include non-financial incentives in a manner that promotes and boosts such sustainability efforts. Some companies have already disclosed how their executive compensation policies may foster sustainability performance by the top management. 
  • Supply chain transparency – With organizations involved in global operations, there is a greater need for supply chain transparency to ensure that labor conditions in the suppliers’ locations are not abused. With larger operations, there is a risk of reputational repercussions if it discoveries reveal questionable supplier practices. Shareholders and other stakeholders are pressuring companies to disclose supplier lists. Organizations face the difficult task of improving their supply chain transparency while at the same time guarding supplier lists.
  • Integrated reporting – This section refers to the reporting that integrates financial and non-financial performance. Although this form of reporting is not popular, company directors are looking for ways to accelerate the adoption of this type of reporting. Integrated reporting helps to highlight the intertwined relationship of how the sustainability initiatives’ performance can ultimately boost the organizations’ financial performance. Although the CEO, with the approval of the board, may initiate integrated reporting, the board should further its role by asking management to produce these reports internally for board meetings as well. This would reinforce the expectation that due importance will be given to such efforts.

Link: The Conference Board

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ERM Enterprise Risk Management Initiative 2013-02-26