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Developments with respect to Sustainability Reporting [Research]

Last up­dated:

February 2019


What is “sustainability reporting”?

Sustainability reporting generally encompasses more than merely disclosure of environmental issues that affect entities, such as climate change and carbon emissions. For example, the Sustainability Accounting Standards Board, one of the world’s leading organizations in this area, states that “sustainability refers to corporate activities that maintain or enhance the ability of the company to create value over the long term. 

Sustainability accounting, thus, reflects the management of a corporation’s environmental and social impacts arising from production of goods and services, as well as its management of the environmental and social capitals necessary to create long-term value. It also includes the impacts that sustainability challenges have on innovation, business models, and corporate governance and vice versa.”   The SASB, therefore, considers that environmental, social and governance (ESG) factors are all relevant to sustainability reporting.  

Organizations that have promoted the need for sustainability reporting in recent years include:

  • The Global Reporting Initiative;
  • The Carbon Disclosure Project;
  • The Prince's Accounting for Sustainability Project; and
  • The Sustainability Accounting Standards Board

Sustainability reporting is not yet mandatory for entities listed on global stock exchanges. Instead voluntary sustainability reporting is being promoted by a variety of organizations, including the four listed above.

In the future there may be a single set of such standards generally accepted on a global basis which may become mandatory on global stock exchanges. Currently, the most widely used voluntary standards are those of the Global Reporting Initiative. However, the recent issue in November 2018 of industry-specific sustainability accounting standards by the Sustainability Accounting Standards Board (which has integrated its standards into the Form 10-K which must be filed by public companies with the U.S. Securities and Exchange Commission) may result in a significant increase in entities adopting these standards in the future, particularly those listed on the U.S. stock exchanges.

Further details of leading organizations promoting voluntary disclosure of sustainability reporting are as follows:

The Global Reporting Initiative (GRI)

The Global Reporting Initiative was formed in 1997 and is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption.  

Under increasing pressure from different stakeholder groups – such as governments, consumers and investors – to be more transparent about their environmental, economic and social impacts, many companies publish a sustainability report, also known as a corporate social responsibility (CSR) or environmental, social and governance (ESG) report. GRI’s framework for sustainability reporting helps companies identify, gather and report this information in a clear and comparable manner.  

First launched in 2000, GRI’s sustainability reporting framework is now widely used by multinational organizations, governments, small and medium enterprises (SMEs), NGOs and industry groups in more than 90 countries. In 2017, 63% of the largest 100 companies (N100), and 75% of the Global Fortune 250 (G250) reported applying the GRI reporting framework. 

The most recent of GRI’s reporting frameworks are the GRI Standards, launched in October 2016. Developed by the Global Sustainability Standards Board (GSSB), the GRI Standards are the first global standards for sustainability reporting and are a free public good. In contrast to the earlier reporting frameworks, the GRI Standards have a modular structure, making them easier to update and adapt. 

The Carbon Disclosure Project (CDP)

The Carbon Disclosure Project is an organisation based in the United Kingdom which supports companies and cities to disclose the environmental impact of major corporations. It aims to make environmental reporting and risk management a business norm, and drive disclosure, insight and action towards a sustainable economy. Since 2002 over 6,000 companies have publicly disclosed environmental information through CDP. 

The CDP has: (i) established a comprehensive collection of self-reported environmental data in the world, accounting for over 20% of global anthropogenic emissions; (ii) started to establish a globally used standard for emissions and energy reporting; (iii) examined the 250 major electric utilities globally (high GHG emitters); (iv) obtained backing from blue chip investors including HSBC, JPMorgan Chase, Bank of America, Merrill Lynch, Goldman Sachs, American International Group, and State Street Corp; (v) has active staff or partner organisations in the United States, China, Japan, Germany, United Kingdom, France, Canada, India, Brazil, Nordic region, South Africa, Netherlands, Australia, and New Zealand, among others; (vi) works with corporations including WalMart, Tesco, Cadbury Schweppes, Procter and Gamble, and many others to measure emissions through the supply chain. 

Much of the data elicited by the CDP has never been collected before. This information is helpful to investors, corporations, and regulators in making informed decisions on taking action towards a sustainable economy by measuring and understanding their environmental impact and taking meaningful steps to address and limit their risk to climate change, deforestation and water security. 

The Prince's Accounting for Sustainability Project (A4S)

The Prince’s Accounting for Sustainability Project was established by HRH the Prince of Wales in 2004 “to help ensure that we are not battling to meet 21st century challenges with, at best, 20th century decision making and reporting systems”.  

A4S aims to inspire action by finance leaders to drive a fundamental shift towards resilient business models and a sustainable economy. To do this, A4S has three core aims that underpin everything it does: (i) inspire finance leaders to adopt sustainable and resilient business models; (ii) transform financial decision making to enable an integrated approach, reflective of the opportunities and risks posed by environmental and social issues; and (iii) scale up action across the global finance and accounting community. 

The Sustainability Accounting Standards Board (SASB)

The Sustainability Accounting Standards Board was founded in 2011 and is an independent, non-profit standard-setting organization that develops and maintains reporting standards relating to sustainability that may be voluntarily adopted by reporting entities. The SASB has identified a set of 30 broadly relevant sustainability issues which are organized under five broad sustainability dimensions, namely: (i) environment; (ii) social capital; (iii) human capital; (iv) business model and innovation; and (v) leadership and governance.  

On November 7, 2018, the SAB published the world’s first set of industry-specific sustainability accounting standards covering financially material issues. Covering 77 industries, the standards were approved after six years of research and extensive market consultation, including engagement with many of the world’s most prominent investors and businesses from all sectors. By addressing the subset of sustainability factors most likely to have financially material impacts on the typical company in an industry, SASB’s industry-specific standards are intended to help investors and companies make more informed decisions. The SASB aims to integrate its standards into the Form 10-K which must be filed by public companies with the U.S. Securities and Exchange Commission; in this sense it differs from initiatives such as the GRI, by working within the current system of financial regulation.

The SASB’s standards are not yet widely used. Only a few leading companies (including GM, Merck, Nike, Kellogg’s, JetBlue, CBRE, Diageo, Groupe PSA, Schneider Electric, Host Hotels, and NRG Energy) have begun using the SASB standards.  The SASB hopes that interest and use will continue to expand among investors. The members of the SASB’s Investor Advisory Group (IAG) and the SASB Alliance, which collectively include 56 members from North America, the UK, Europe, and Australia, have collective assets under management valued at $29 trillion. Most of these companies are listed entities.


Recent de­vel­op­ments

December 2018

On December 18, 2018, the Saïd Business School, University of Oxford, held a debate as to whether corporate sustainability reporting should be mandated. Speakers included Ms. Anne Simpson, Investment Director of CalPERS, Mr. Paul Druckman, Former CEO of the IIRC, Mr. Ian Mackintosh, Former Vice Chair of the IASB, Mr. Tom Quaadman, EVP of the US Chamber of Capital Markets, Mr. Bob Herz, Former Chair of the FASB and Mr. Harvey Pitt, Former Chairman of the SEC.

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