CEOs need to ramp up communications about environmental, social and governance (ESG) issues even when Wall Street is more concerned with short-term financial performance like earnings per share (EPS), according to a new report from the Conference Board.
While acknowledging that reporting about sustainability is at an all-time high, the failure of the investment community to engage can be remedied if CEOs take the lead, maintains Thomas Singer, principal researcher in corporate leadership at the Conference Board.
“In addition to incorporating sustainability into annual reporting and investor presentations, signs of leadership in this area include the willingness of CEOs to consistently reference sustainability in their speeches and actively participate in the development of global sustainability initiatives. The number of CEOs who do this, however, remains low,” Singer writes in The Seven Pillars of Sustainability Leadership, released Wednesday.
In his 82-page report, Singer praised Unilever CEO Paul Polman for participating in the framework that resulted in the United Nations Sustainable Development Goals. Also lauded for leadership and foresight were founders of the 2013 “B Team initiative,” and those who backed the COP 21 Paris climate change agreement.
Other CEOs appear to have taken notice. In the 15 year since the Conference Board has surveyed chief executives, 2015 was the first time sustainability was named a top-five global challenge, Singer wrote, adding that the investor and analyst community now must be convinced.
Only about 13 percent of U.S. listed companies proactively engage by integrating sustainability information into mainstream investor communications, highlighting sustainability performance and innovations at annual meetings, or directly engaging with shareholders on sustainability topics, Singer maintains.
“To be fair, the absence of sustainability issues from quarterly earnings calls is largely a reflection of the primary audience for these calls: short-term investors,” he writes. “These investors are less concerned with issues that could affect the company’s long-term viability and thus see little need to ask about its sustainability strategy.”
The Conference Board study recommended companies adhere to these best practices in sustainability reporting:
- Follow standard reporting guidelines. The Global Reporting Initiative’s GRI standards are used by almost half of the S&P Global 1200.
- Ensure content is well balanced. Openly discuss challenges and risks in addition to sustainability achievements.
- Focus on issues that are material. Medtronic’s integrated report was cited for integrating both GRI reporting guidelines and standards being developed by the Sustainability Accounting Standards Board.
- Update information regularly. Dow Chemical releases quarterly sustainability updates that supplement the company’s annual sustainability report.
- Provide assurance. Almost one-third of S&P Global 1200 companies issuing sustainability reports now include some degree of third-party verification and assurance.
Singer will be discussing his research Wednesday and Thursday at The Conference Board’s Sustainability Summit in New York City.
KEYWORDS: Finance & Socially Responsible Investment
By Dave Armon, 3BL Media CMO
SOURCE: 3BL Media, LLC
This post was originally published on 3BLmedia.com
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