The start of 2019, which happens to be our 20th year in business, seems like a good time to pause and reflect on trends shaping sustainability disclosure and communications today. Taking advantage of the combined wisdom of our BuzzWord team members, we identified several trends that are shaping sustainability strategies and reporting.
One key trend that is driving many others is the strengthening influence of mainstream institutional investors in sustainability disclosure and communications. Of course, investors have always been the most important stakeholder influencing corporate disclosure broadly. But for many years, “socially responsible” or, more recently, “environmental, social and governance” (ESG) investors were the only ones focusing on the kinds of non-financial disclosures found in sustainability reports. ESG investors skillfully used the levers available to them, such as shareholder resolutions and direct dialogue, to gain influence out of proportion to the size of their investments. But most mainstream institutional investors were like the guests of honor that never showed up to the party.
Many people would say the winds shifted with the 2016 letter to shareholders issued by Larry Fink, CEO of Blackrock. The letter clearly signaled that investors that represent vast sums of capital were beginning to evaluate companies based how well they articulated their company’s purpose and how it created value. (Always working to be a jump ahead, BuzzWord interviewed Larry Fink as an external voice in the 2014 Ford Sustainability Report.) That letter may have been a reflection of, rather than a driver of increased mainstream investor interest in ESG disclosure, but we hear from our clients that these investors have become a more active part of the conversation around sustainability performance. This, in turn, has fueled several trends in disclosure and communications:
- • Integrated reporting: For a number of reasons, integrated reporting – which explicitly targets the investor audience by combining financial and non-financial disclosures — has lagged in the U.S. even as it has become a more common practice in places like Brazil and South Africa. Recently, however, companies that don’t formally issue integrated reports have begun to adopt elements of the practice, such as articulating how sustainability is integrated into their business model and how they create value as well as speaking to the use of multiple capitals, along with financial capital.
- • Investor-oriented disclosure frameworks: Beyond integrated reporting, the Sustainabiilty Accounting Standards Board’s (SASB) industry-specific standards that focus specifically on financially material sustainability indicators have gained influence. In addition, the Task Force on Climate-Related Financial Disclosures (TCFD) has emerged as an important guidepost for companies seeking to provide information about climate risks and opportunities. Many companies are responding to TCFD by incorporating additional disclosures in their sustainability reports and pointing to that information through indexes. Examples include Citi (see p. 131) and Hess, and Southwestern Energy.
- • Rise of ESG rankings and ratings: There’s nothing like a major investor asking a company’s head of investor relations about their score on a particular rating to spark interest sustainability performance and ESG ratings at large. Though they are gaining in importance, the landscape of rating and rankings remains complex and confusing. (Note: BuzzWord is doing a session on this topic at the upcoming GRI Reporters’ Summit North America and we’ll be posting additional information before and after the session.)
Lorraine Smith chimes in: Another emergent trend in reporting is the growing awareness of the complexity and importance of the Sustainable Development Goals (SDGs). Some companies are realizing that reports with lots of colorful SDG boxes that fail to tie to fundamental value creation don’t do their company any favors nor do they respect the seriousness of the challenge. Contributing to the long-term outcomes in a demonstrable way is tough. Companies that are rising to this challenge are focusing on fewer SDGs that relate to their business model and aligning report content with some of the more specific targets within the goals framework, rather than keeping things at the conceptual goal level.
Ali Dimond notes: Producing more nimble sustainability reports is also trending. While the 150+ page, encyclopedic sustainability report is still pretty common, it’s becoming a less effective way to communicate an organization’s approach to sustainability to the multiple audiences seeking this kind of information. Developing more targeted communications for a variety of audiences has never been more important. For example, providing investors with the hard data they seek, along with the relevant governance and management information shows your organization is solid on managing sustainability-related risks. Employees, another increasingly important audience for sustainability information, are more interested in understanding how a company’s business supports a larger purpose, how well the company does on labor and employee issues including benefits, work life balance, workplace conditions, health and safety, etc. (BuzzWord’s long-term partnership with the National Environmental Education Foundation has demonstrated the link between sustainability and employee engagement in this report.)
Managing multiple, tailored communications sounds like a lot more work, but the core data remains the same. The difference comes in identifying key audiences and presenting that data in a way that is both meaningful and accessible to them. Buzzword has always helped our clients use their sustainability reporting as a “reservoir” of information for a wide range of uses, like recruiting materials and investor rater/ranker responses. So, it’s easier than many clients think to use their existing sustainability reporting process to develop audience-specific communications.