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16 Jun. 2010 | Comments (0)

Boards of directors need to oversee corporate sustainability reporting more effectively as their companies should raise the bar on minimum reporting standards through voluntary disclosure, according to two recent reports. In its Director Notes series report released last week, Sustainability in the Boardroom, The Conference Board Governance and Corporate Citizenship & Sustainability Centers surmised from the results of a survey of 50 corporate secretaries that there are flaws in how boards oversee their companies’ social and environmental initiatives. “The environmental catastrophe that has been unfolding in the last few weeks in the Gulf of Mexico is indicative of how closely intertwined sustainability and corporate strategy really are,” said Matteo Tonello, the author of the report and The Conference Board’s corporate governance research director. Citing the BP oil spill as an example, Tonello points to the absence of a discussion on sustainability issues at the board level unless it is a disaster. The Conference Board report also found that:
  • Directors almost never rely on additional sources to help them critically verify and analyze any internal information on sustainability matters. (Nearly 90 percent rely on reports from management.)
  • Efforts to create enterprise-wide sustainability programs are fragmented and most don’t use metrics to link executive pay to social or environmental accomplishments.
  • Standardization and benchmarking are lacking. (Nearly three-fourths don’t use widely endorsed standards.)
  • Reporting is not always so meaningful.
  • Rising activism may make the difference. (About 60 percent have received a sustainability-related request from an activist shareholder.)
A study called Carrots and Sticks – Promoting Transparency and Sustainability released June 2 and conducted by the United Nations Environmental Program (UNEP), KPMG Sustainability, the University of Stellenbosch Business School and The Global Reporting Initiative (GRI) revealed that “the regulatory landscape has substantially evolved in all parts of the world.” The study on trends in voluntary and mandatory approaches to sustainability reporting discovered that as organizations face changing market conditions, information overload and a public demand for resources, they need new management tools and credible information to take action, according to Angela Cropper, UNEP deputy executive director. “Although our research suggests that the bar should be raised in terms of minimum reporting requirements, voluntary disclosure and innovation should be encouraged,” said Daniel Malan, head of corporate governance at the University of Stellenbosch Business School in South Africa. The Carrots and Sticks report cited the following research relating to sustainability reporting in 30 selected countries:
  • A total of 142 country standards and/or laws with some form of sustainability-related reporting requirement or guidance.
  • Approximately two thirds (65 percent) of these standards can be classified as mandatory and one-third (35 percent) as voluntary.
  • A total of 16 standards with some form of reporting requirement at the global and regional level.
  • A total of 14 assurance standards.
A major part of raising the bar on reporting requirements is increasing the number of independent sources of information as well as creating detailed procedures and metrics for integrating social objectives into daily business activities. That is what is missing in most of today’s sustainability reporting among U.S. companies, Tonello wrote. On the matter of delivering information effectively in sustainability reports, another study by AltaTerra Research Network (Greening the Company Website: A New Era in Sustainability Reporting [free membership required]) released in January reported that while most of the 60 companies it observed “presented basic information about sustainability efforts” on their websites, they are not yet using the Web to its full potential. The study found that most of the companies did not report in a timely manner.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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