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Ceres report: US corporate progress on sustainability remains incremental

By Jo Confino
The Guardian
The latest evidence that businesses are failing to grasp the need to restructure their business models comes from an analysis of 613 major publicly listed US companies, which represent three-quarters of the country's total stock market capitalisation.

Most of America's largest companies aren't taking the action needed to tackle climate change, according to a new report


If a car is hurtling at full speed towards the edge of a precipice, would it suffice to ease up a little on the gas?

This is the perfect metaphor for how America's largest companies are responding to the rapidly worsening social and environmental challenges the world is facing.

The latest evidence that businesses are failing to grasp the need to restructure their business models comes from an analysis of 613 major publicly listed US companies, which represent three-quarters of the country's total stock market capitalisation.

The report by Ceres, a non-profit focused on sustainable business, and Sustainalytics, a research firm focused on environmental, social and governance analysis, shows that while a small number of companies are showing leadership in some areas of sustainability, the vast majority are making progress that can at best be described as modest.

While there has been some incremental improvement across a number of measures since the research was last carried out in 2012, it is worrying that so few companies have incorporated any time-bound quantitative targets for improving their performance.

The study highlights some of the setbacks, such as a decline in the percentage of water-intensive companies assessing water-related business risks, as well as a drop in the number of businesses (19%) that have strong sustainability policies and risk management systems in place.

Despite the Intergovernmental Panel on Climate Change warning of the need for urgent action to limit the devastating impacts of climate change, two-thirds of the companies have failed to establish time-bound reduction targets for greenhouse gas emissions and 94% have not set quantitative targets to increase renewable energy sourcing.

"US companies are simply not taking the comprehensive actions necessary – through energy efficiency, renewable energy procurement and other steps – to tackle climate change," says the report. "Efforts to assess whether companies are reducing their GHG emissions are hampered by weak disclosure."

'Simply not enough'

Another concern for the future is that of the 419 companies evaluated for innovation, 86% have adopted no formal programs to invest in and promote sustainability products and services.

The report's conclusion is stark: "We are still not seeing the speed of change that is required – or the scale of innovation that is possible. Incremental progress in tackling global climate change and other sustainability threats is simply not enough.

"Given the acceleration of environmental and social challenges globally – floods, droughts and workplace tragedies, among them – corporate actions and solutions are not keeping pace with the required level of change.

"It is imperative that many more companies shift from being reactive to proactive in embracing the sustainability challenges that lie ahead. The need for investors, businesses, NGOs and other stakeholders to fully engage in the essential work of creating a sustainable economy has never been more urgent."

More than 80% of the 613 companies were found to be failing to approach sustainability in a comprehensive fashion, and few are creating the incentives to spur improved performance.

There are few surprises in the list of companies considered to be showing leadership in individual areas, such as supply chain management and biodiversity. The list, which has not changed much in the last few years, includes the likes of Nike, Ford, Intel, Alcoa, Coca-Cola, PepsiCo and Starbucks.

The report warns that "treating sustainability as a stand-alone effort, or one that can be managed apart from the rest of the enterprise, is short-sighted and risky because sustainability is implicated in every decision, from product design and delivery to supply chain management."

The comprehensive study looks at 20 measures that would suggest whether companies are integrating sustainability into their business systems and decision-making, based around the four key areas of governance, stakeholder engagement, disclosure and performance.

Leadership

Only a third of the 613 companies' boards of directors formally oversee sustainability performance, while a quarter link executive compensation to sustainability performance. Even worse, only 3% link executive compensation to voluntary sustainability performance targets – such as greenhouse emission reductions – that go beyond goals required for compliance with laws and regulations.

The report says "the significant number of companies with no visible management level oversight of sustainability is disappointing and must be improved".

Stakeholder engagement

Just over half the companies are engaging investors on sustainability issues, up from 40% in 2012, but only a tiny 3% are showing leadership by using multiple tactics such as integrating sustainability information into mainstream investor communications, highlighting sustainability performance and innovations at annual meetings, and directly engaging with shareholders on sustainability topics.

A third of companies disclose how they formally engage stakeholders on sustainability issues, but only 7% engage stakeholders in the materiality assessment process and disclose the insights gained.

Meanwhile, 40% have some programs in place to engage employees on sustainability issues, yet only 6% go further by systematically embedding it.

Procurement

While a third of companies have established some form of engagement with suppliers on sustainability performance, just 14% have formal supply chain engagement programs in place.

Water risks

Of the 103 water-intensive companies evaluated, only half assess water-related business risks, a decline from the 55% in 2012. Only a quarter are prioritising efforts in water stressed regions.

Human Rights

Fifty-eight percent have supplier codes of conduct that address human rights in supply chains, compared to 43% in 2012, but 79% have no formal human right policies covering their direct employees and only 19% have policies that cover an employee's right to freedom of association and to collective bargaining.

Biodiversity

While most companies have policies and management systems that broadly address environmental issues, an evaluation of 126 companies across seven relevant sectors found only eight companies with a formal biodiversity policy.

Attention to biodiversity as a material business issue is especially lacking in the food and beverage, with only Molson Coors disclosing a formal policy, and the energy services sector which did not have a single company with a formal policy.

Disclosure

Just over half of US companies in the Ceres report evaluation publicly disclosing sustainability information, which compares poorly with the 93% of companies in the Global Fortune 500 that report that data. Less than one in 10 of the corporations seek out verification of their reporting.

Of particular concern is that more than half of the 30 companies in the oil and gas sector fail to publish a sustainability report. The study says: "Due to the sector's high sustainability impacts and potential exposure to license to operate issues, this is a significant area where improvement is needed."

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