Forbes: A Tipping Point on Sustainability Disclosure in Rio?
Fifteen years ago, Ceres launched the Global Reporting Initiative (GRI), the first-ever framework for corporate sustainability reporting. Today, more than 2,500 companies worldwide use the GRI voluntarily to inform investors and the public about how they are integrating sustainability into their operations. Such disclosure is also one of the core expectations of The 21st Century Corporation: The Ceres Roadmap for Sustainability, a platform we developed to help companies become sustainable enterprises.
This week, as thousands of diplomats, world leaders, corporations, institutional investors, NGOs and social and environmental activists gather in Rio for the U.N. Conference on Sustainable Development (also known as Rio+20 or the Earth Summit), corporate sustainability disclosure has risen to the top of the global agenda. An agreement by governments to support such disclosure may be in the offing. But whether such an agreement is reached in Rio or not, a tipping point is approaching as investors, governments and even many influential corporations come to see such disclosure as a key mechanism for strengthening markets and essential to building a sustainable economy.
The idea behind corporate disclosure of sustainability risks and performance is straightforward: markets operate best and most efficiently when investors have the information they need to evaluate the future prospects of companies. Investors need to know how companies are preparing to compete in a new world of risk and opportunity in which sustainability issues will be paramount. Such reporting allows investors, and forces companies, to take a long, hard look at the risks and opportunities of economic game-changers such as climate change, natural resource scarcity and ensuring workers’ rights.
Today, though on the upswing, sustainability reporting is generally lacking, underscoring the need for action. Together with Sustainalytics, a leader in sustainability analysis, we recently assessed the progress of 600 major U.S. companies against the expectations of the Ceres Roadmap. It revealed that fewer than half did any sustainability reporting and of those that do, it is often cursory and narrowly focused on issues such as the costs to the company of regulations to curb greenhouse gas emissions.
Increasingly, however, major institutional investors are integrating sustainability considerations into their investment decisions, especially evaluation of risk and long-term value creation of stronger sustainability performance. They are also demanding credible, uniform sustainability information in a framework that allows data to be readily compared company by company.
Some of the momentum we are seeing in Rio is clearly the result of a push by networks of institutional investors for stronger disclosure. This week, for example, more than 20 capital market leaders from around the world met in Rio as part of the U.N. Sustainable Stock Exchange Initiative (SSEI). The SSEI’s goal is to catalyze improved corporate transparency and performance on key sustainability issues. Some stock exchanges – in Brazil, China and India, for example – have already made sustainability reporting a listing requirement for companies whose stock is traded on their exchanges.
The SSEI received a major boost yesterday when the NASDAQ joined four other major exchanges in a commitment to encourage its listed companies to disclose sustainability information, though it stopped short of embracing disclosure as a listing requirement.
And in 2010, the Johannesburg Stock Exchange became the world’s first to require listed companies to disclose financial and sustainability performance in single, integrated reports (so-called “integrated reporting”) which many believe is the most useful to investors. SSEI received a major boost yesterday when NASDAQ joined four other major exchanges in calling for better disclosure from its listed companies, though it stopped short of embracing disclosure as listing requirement. The group also committed to advance sustainability reporting through the World Federation of Exchanges, a trade association of 54 publicly regulated stock, futures and options exchanges.
A complementary effort in Rio being coordinated by the Corporate Sustainability Reporting Coalition (CSRC), which includes investors managing trillions of dollars in assets, including the Ceres-led Investor Network on Climate Risk, seeks an international Convention on Corporate Sustainability Reporting. Under such a convention, which has the force of a treaty, signatory nations would be obligated to require companies under their jurisdiction to publicly disclose material sustainability information.
Whatever the mechanism, disclosure is a tool for driving companies towards more sustainable performance. As the renowned management consultant Peter Drucker once famously said, “what gets measured gets done.” When a company publicly discloses sustainability data and goals, it’s much more likely to meet those goals.
The momentum behind the push for corporate sustainability disclosure in Rio is a reflection of the urgency of global threats such as climate change, water scarcity, and social and economic inequality. These threats, so much more severe than in 1992 when Rio hosted its first Earth Summit, require that we act now to make sustainability disclosure a global norm. Organizations such as ours, hundreds of institutional investors around the world, and a small but growing cohort of visionary companies are putting their shoulders to the wheel. With the support of the governments represented in Rio, a global expectation of corporate sustainability disclosure could be one of the signature achievements of Rio+20.