Among global firms, the average disclosure rate across a wide set of sustainability practices increased only slightly compared to last year, signaling more focused sustainability reporting, according to a new report by The Conference Board. However, companies reported improved performance among a number of environmental practices.
These findings are based on The Conference Board’s Sustainability Practices Dashboard 2016, a comprehensive database and online benchmarking tool that serves as the foundation for the report. The dashboard captures the most recent disclosure of environmental and social practices by large public companies around the world and segments them by market index, geography, sector and revenue group. The dashboard is a collaboration between The Conference Board, Bloomberg, and GRI.
Companies in the S&P Global 1200 showed an overall disclosure rate of only 27 percent (an average across 75 different practices), up slightly from 26 percent the year before. The plateau in disclosure was in part driven by more focused reporting and an emphasis on materiality.
Disclosure rates remained mostly flat across all sectors and geographies, with one significant exception—Asia-Pacific. Disclosure rates in this region increased by 10 percentage points, from an average overall disclosure rate of 23 percent to 33 percent this year. “This increase can be attributed to the emergence of a number of regulatory developments in the region requiring greater reporting of nonfinancial information from companies,” said Thomas Singer, a principal researcher in the Corporate Leadership practice at The Conference Board, and author of the report. “Overall, some of the greatest increases in disclosure were among social practices, particularly those related to labor standards. This is consistent with the growing scrutiny companies are placing on their supply chains. Also, more than half (59 percent) of companies in this region now report their total water consumption, the highest water disclosure rate among the four regions in the study.”
Overall, while the report finds that disclosure rates among the largest companies declined this year, these rates continue to average 50 percent higher than those among small and medium-sized enterprises, signaling a continued need to expand disclosure among SMEs.
Disclosure of Climate Change Risks
Disclosure of the business risks related to climate change remains low. Only 19 percent of S&P Global 1200 companies discuss these risks in their annual reports. Greater disclosure will be needed as governments begin preparing to meet the goals of the Paris Agreement, adopted at the 2015 United Nations conference on climate change. The agreement aims to strengthen the global response to the threat of climate change by limiting the rise in global temperature and to help countries mitigate the eventual impact of climate change. Investors are taking note: average shareholder support for resolutions asking U.S. companies to disclose climate change risks rose by 10 percentage points in 2016.
Positive Trend in Resource Use
The report reveals some positive trends in resource use. Among the S&P Global 1200, median water consumption dropped 26 percent from the previous year. There were also notable decreases in energy consumption (down 13 percent), GHG emissions (down 12 percent), and median levels of waste (down 6 percent). Median performance improved across these key environmental practices as companies manage increasingly scarce resources and adapt to a low-carbon future.
Increased Use of Sustainability Metrics in Executive Compensation
More companies now include sustainability performance metrics in their executive compensation schemes. Among the S&P Global 1200, 16 percent now include sustainability metrics, up from just 3 percent last year. The biggest increases occurred in the energy and utilities sectors, mostly from companies in Europe and North America.
Energy companies lead the increase in disclosure of this practice by a wide margin. Forty-four percent now include sustainability performance metrics in their executive compensation schemes. Among utilities, 35 percent make the link between sustainability and compensation.
“This finding marks the growing importance of sustainability performance to companies’ long-term strategies and priorities,” adds Singer. “However, despite a significant increase in the use of sustainability metrics in executive compensation, disclosure on the specifics of these metrics remains vague in most instances.”
Source: Sustainability Practices 2016 / The Conference Board
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