I appreciated Ernst & Young and GreenBiz’s recent report, Six growing trends in corporate sustainability. The authors summarize findings from a survey of thought leaders on the six growing trends in corporate sustainability in the autumn of 2012. The report provides insightful information from the 282 survey respondents across 17 industries. More importantly, the authors discuss the findings in the context of the following six trends drawn from the survey results.
- The “tone from the top” is a key driver for corporate sustainability efforts
- Governments and multilateral institutions are not engaged in corporate sustainability
- Sustainability now includes the risks of both a shortage of and limited access to natural resources
- Corporations are not adequately prepared for the scale of future sustainability challenges
- Uptake of integrated reporting is slow
- Investor and shareholder inquiries on sustainability matters are increasing
Although this is not very encouraging news, I would like to share some points I found most interesting and add my own perspective on these six trends.
Tone from the top
Survey results indicate that direction and support of a corporation from the top are the main drivers for companies to integrate and invest in sustainability efforts. Sustainability has become mainstream. Nearly 70 percent of respondents cite sustainability in mission statements and say that sustainability is discussed regularly. Despite these strides, approximately half of the companies surveyed have not integrated sustainability into their business strategies.
I find it interesting to note that the board of directors plays an important role in ensuring that sustainability is on the overall business agenda. The survey found that 64 percent of respondents believe reporting to the board is a driver, while only 27 percent feel that the CEO is the most important driver. This can be quite positive and powerful. Board members may sit on multiple boards or lead another company. These members can share learnings from other organizations’ experiences and bring back ideas to their companies, resulting in increased alignment and increasingly more support from the top.
Customers are also increasingly motivating companies to take action by urging greater efficiencies (e.g. energy, packaging) and increased disclosure of working conditions or environmental impacts.
The role of governments and multilateral institutions
The report states that the lack of strong leadership from governments and multilateral institutions has created a “muddled policy environment.” Instead, respondents see large corporations as leaders in advancing sustainability at a global scale. Many also see consumers, non-governmental organizations, industry groups and governments as contributors.
This finding troubles me. Many companies have pursued the efficiency opportunities that they can tackle independently. We are now faced with the more complex issues that require long-term commitment and investment, including research and development. Companies need pragmatic, long-term policies if they are to invest in such long-term strategies, innovative research, or capital expenditures. We need governments to step up and set us all in the right direction through effective policies and incentives. President Obama’s recently announced plan to address climate change is a positive step, but additional policies and incentives will be required if we are to realize real progress.
Raw material shortages
The report cites that 51 percent of responding companies expect their business to be affected by shortages of or limited access to raw materials and natural resources in the future. Water is the natural resource most recognized as being at risk, with 76 percent of respondents mentioning water first.
Lack of preparation for the scale of future challenges
Continuing along these lines, the report indicates that corporate risk assessment and response planning are inadequate to address the scope and scale of some of the challenges we face. Most companies have not yet adequately assessed their risk to key inputs such as water or other raw materials. Even fewer companies have taken serious steps to address such risks.
I believe this lack of readiness needs to be given much more attention. It is not only the scale of the challenges but the complexity of the solutions that concern me. These risks will be exacerbated over time as populations grow and pressures on natural resources increase. We need all industries, governments and other actors to address the risks through harmonized and synergistic approaches.
The uptake of integrated reporting is slow
More than 5,000 sustainability and corporate responsibility reports are now produced worldwide, but the importance of integrating sustainability reporting into financial reporting has not taken hold as of yet.
The inclusion of sustainability in standard financial reports would raise awareness of sustainability issues, challenges and risks among shareholders as well as the board and senior management (including chief executive and chief financial officers – two critical supporters as the survey indicates). Many respondents also feel that integrated reporting would help reduce the separation between sustainability and other business functions.
The report cites some challenges to integrated reporting including the potential for legal risks associated with increased transparency, the difficulty of aligning sustainability processes with financial processes, and the potential lack of executive and board support.
While too many companies are putting off the integration of sustainability and financial reporting, we need to start. Risk-averse companies should, at a minimum, socialize the inclusion of sustainability into financial reports – possibly keeping to more general statements and shying away from detailed metrics and commitments. Others should include the appropriate level of detail, including key performance indicators and goals.
Investor and shareholder inquiries are increasing
The report indicates a rise in stakeholder and investor questionnaires as well as shareholder proposals on social and environmental issues. However, I can’t help but recall the last sustainability conference I attended or the numerous mentions that no investors are asking anything about environmental or social risks and progress during quarterly investment calls. we need to see continued pressure from investors and consumers on corporations in the areas of the unspoken risks of resource scarcity and environmental degredation.
The Ernst & Young and GreenBiz report on these six trends shows some positive advances. But what I see more clearly is that more progress must be made. Motivating more impactful investments based on science that can be more widely adopted by mainstream business would be the top priority in my book. This shift requires governments to set the course for where we must go and implement policies and incentives to encourage businesses to invest in research, technology or upgrading equipment and facilities and take action to reach the common goals.