Environmental and social performance touches every aspect of a company’s value-chain. The question that must be addressed is: What’s material to our business?
By Mark Serwinowski and Michael Muyot
The recent Quarterly Analyst Call for ESG brought together listeners from multiple industries on the latest news on SRI and ESG reporting.
Here, hosts Mark Serwinowski, founder and CEO of MetaVu, and Michael Muyot, president of CRD Analytics, tackle an audience question that came in through the parallel Twitter chat hosted with CSRwire at #SDROI during the call.
With such a significant percentage of companies not reporting on sustainability performance, what can the industry do to demonstrate a materiality to their business and compel these companies to begin reporting?
Serwinowski: While sustainability reporting is still voluntary, there are two primary business drivers for companies to report – operational performance and financial performance. It has been well established (no matter the scale of the organization), that a reporting framework (such as GRI) enables a company to establish a baseline of its operational performance. When you position sustainability as an investment strategy, it provides a framework to view the environmental and social impact of your products and services throughout the value chain and supply chain.
The resulting analysis empowers executives to make informed decisions and create long-term plans to marshal talent and resources on a clear path for innovation.
Put another way, environmental and social performance touches every aspect of a company’s value-chain and, therefore, the question that must be addressed is, what’s material to our business? Reporting provides the roadmap to materiality assessments of operations and enables investments to manage risk and pursue opportunities that drive financial performance – both bottom- and top-line.
Muyot: Besides the internal operational and financial performance drivers, we must also keep in mind the numerous external drivers today, including regulation compliance, NGOs petitions, shareholder resolution filed by investment managers, ESG disclosure from firms like CRD Analytics that run Financial Indexes such as the NASDAQ CRD Global Sustainability Index, and sustainability rankings. These drivers have visibly changed the number of public companies that produce an annual public Corporate Social Responsibility, Sustainability and/or Integrated report.
Reporting is still one of the best universal mediums to reach a wide range of stakeholders. A more targeted approach can then be developed for communication and engagement for each of the different types such as investors, employees, clients, NGOs, regulators and suppliers. A materiality analysis and stakeholder survey is a common form of intelligence gathering to help determine the most material issues for each stakeholder group.
The second annual Sustainability & Innovation Global Executive Study by MIT Sloan Management Review and The Boston Consulting Group, for example, asked C-suite executives about the benefits of sustainability-driven management. The top five reasons according to them were:
Key Benefits (from the C-Suite)
- Improved Brand Reputation
- Competitive Advantage
- Increase Profit Margins
- Increased Market Share
- Greater Potential for Innovation
Want another compelling reason for firms to produce a report? To manage reputational risk, especially among key stakeholders such as customers, investors, purchasing managers and employees (both current and future hires).
The second annual Sustainability Leadership Report: Measuring Perception vs. Reality co-produced by CRD Analytics and Brandlogic, for example, showcases the challenges and opportunities for companies in pursuing sustainability but not necessarily receiving the credit they deserve. Then there are the companies who are in danger of being labeled promoters because their perceived sustainable performance doesn't match up with actual reporting and performance.
Lastly, many firms especially those in resource intensive industries, see CSR and sustainable development as a license to operate. For them, ESG reporting is as much a requirement of doing business as it is getting permits to build a new factory.
Interested in learning more? Register [free] for our upcoming Quarterly Call on December 20th, join the conversation on Twitter at #SDROI and catch up on what you might have missed by hearing our September QAC on YouTube.