{"id":697,"date":"2015-01-21T14:24:19","date_gmt":"2015-01-21T18:24:19","guid":{"rendered":"http:\/\/blogs.bard.edu\/mba\/?p=697"},"modified":"2015-01-21T14:59:50","modified_gmt":"2015-01-21T18:59:50","slug":"pitfalls-in-measuring-corporate-sustainability","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/mba\/2015\/01\/21\/pitfalls-in-measuring-corporate-sustainability\/","title":{"rendered":"Pitfalls in Measuring Corporate Sustainability"},"content":{"rendered":"

By Amy Kalafa originally published January 21st, 2015 on www.TriplePundit.com<\/a><\/p>\n

\"6093690339_a09493f126_z-300x175\"<\/a>Are you one of those people who gets excited when the price of a\u00a0Tesla \u00a0 \u00a0becomes almost affordable, or when you can buy a toothbrush made from \u00a0recycled plastic, or a lipstick certified cruelty-free? If so, then you may be glad to know that there are a whole host of tools in the business world that give companies a way to report on their corporate sustainability practices.<\/p>\n

Business directors are fond of the phrase, \u201cWhat gets measured gets managed.\u201d According to a\u00a02013 report by KPMG, 86 percent of large American companies use some form of sustainability reporting, up from 74 percent in 2008.<\/p>\n

To date, all sustainability reporting in the U.S is voluntary self-reporting, but a growing number of indexed stock portfolios are based on\u00a0corporate environmental and social governance (ESG) metrics. Firms like MSCI and ENSOGO\u00a0scrutinize report contents\u00a0and provide detailed evaluations to stock analysts, and companies that don\u2019t file a corporate sustainability report are now perceived as laggards in corporate citizenship.<\/p>\n

The Dow Jones Stock Exchange even has its own index \u2014 the\u00a0Dow Jones Sustainability Index (DJSI)\u00a0\u2014 for publicly-traded companies.<\/p>\n

The field of sustainability reporting is still a bit of a minefield, however, stewing in an alphabet soup of acronyms. Analysts struggle to standardize metrics and measurements.\u00a0Reports may not be comparable from year to year, as the frameworks for measurement continue to evolve. Worse yet, companies are free to define their boundaries in whatever terms they choose. Some will interpret boundaries in the broadest sense, reporting on the environmental impact of all of their suppliers (Walmart, for example, asks each of its suppliers to file a sustainability report), as well as the impact of their products once they\u2019ve been purchased and used by consumers. Others ignore these factors and only report on their corporate offices or factory floor.<\/p>\n

A close examination of a number of reports reveals that some are difficult to distinguish from a company\u2019s regular annual report to stockholders. Accomplishments in energy conservation and public relations are highlighted while indirect costs such as water pollution, carbon emissions, and other health and social impacts are glossed over. Some reports seem to be based on a loose definition of sustainability that refers only to the financial sustainability of the company.<\/p>\n

Globally, Brazil, Denmark, France and South Africa\u00a0now require companies to file sustainability reports. Shareholders, analysts and investors are also putting on the pressure by\u00a0requesting disclosure on matters of corporate sustainability. This phenomenon is certainly having an impact on business performance, with those companies that do file reports\u00a0performing significantly better in the markets\u00a0than their non-reporting peers.<\/p>\n

Even for smaller companies that can\u2019t afford to hire consultants and purchase software, self-reporting raises issues and awareness about which sustainability aspects are most relevant to the business. The process obliges managers and directors to acknowledge the cost of depleting natural capital and damaging the environment whether directly through pollution or indirectly through energy consumption, waste and employment practices. According to a\u00a0report by Ernst and Young, sustainability reporting gives companies a better reputation, meets the expectations of employees, improves access to capital and increases efficiency and waste reduction.<\/p>\n

Most companies that make the commitment to report use some version of the\u00a0Global Reporting Initiative (GRI) standards. These standards guide a company through a comprehensive sustainability audit, with sections on human rights and resources, environmental impact, \u00a0and consumption of natural resources, as well as fossil fuel. In addition to a numerical rating system, GRI requires a narrative approach. As a result the reports can run over 100 pages.\u00a0Datamaran,\u00a0Governance and Accountability Institute\u00a0and\u00a0RobecoSAM\u00a0are among the new businesses that are crunching data and developing software to simplify the process of sustainability reporting.<\/p>\n

Another framework in development, the\u00a0Sustainability Accounting Standards Board (SASB)\u00a0may ultimately displace GRI. SASB aims to disclose the risks that sustainability issues have on a company\u2019s financial bottom line. Its goal is to integrate sustainability measurements into the annual 10-K reports required by the Securities and Exchange Commission (SEC) for all public companies in the U.S. If SASB can succeed in demonstrating that sustainability issues would materially affect a \u2018reasonable\u2019 investor\u2019s assessment of a company, it could come to be required by the Securities and Exchange Commission. For the first time in the U.S., sustainability reporting would be mandatory.<\/p>\n

Though all the acronyms are still baffling, with an environmental crisis looming \u2013and consumers, investors and other stakeholders demanding corporate accountability \u2014 we can bet that sustainability reporting will soon become a big business in its own right. As that happens, the demands of the marketplace will vie with regulatory frameworks to determine which metrics and standards will become the norm.<\/p>\n

Image credit: Flickr\/teegardin<\/a><\/p>\n

Amy Kalafa is a TV producer, filmmaker, author and current student at Bard MBA in Sustainability. Her work in the fields of sustainable food, clean energy and mental health has earned international recognition and awards.<\/p>\n","protected":false},"excerpt":{"rendered":"

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