For the sixth consecutive year, the Governance & Accountability Institute (GAI) has surveyed the sustainability reporting practices—environmental, social, and corporate governance (ESG)—of companies included in the S&P 500 Index. Its analysis of 2016 reports shows a modest increase for the year to 82% but a quadrupling since the first study in 2011 when only 20% of the index reported. Louis Coppola, executive vice president and cofounder of GAI, notes that leading-edge reporters “are seeing dramatic benefits from their efforts and are also increasingly engaging with investors to help make ESG data more strategically useful for decision-making by both company management, stakeholders and investors.”

Globally, the rate of corporate responsibility/sustainability reporting is even higher, according to the Global Reporting Initiative (GRI), a pioneer in developing sustainability disclosure standards. GRI reports that 92% of the 250 world’s largest corporations report on their sustainability performance. Large European companies are required by European Union directive to report on their performance regarding environmental, social, employee-related, human rights, anticorruption, and bribery matters.

Corporations based in the United States have no mandatory requirements for sustainability reporting, but the Sustainability Accounting Standards Board (SASB) sets disclosure standards from a U.S. perspective. Additionally, the International Integrated Reporting Council (IIRC) promotes corporate reporting that integrates both nonfinancial and financial plans and performance.

The quality of the information provided in sustainability reports has also been studied by GAI and the CSR-Sustainability Monitor® (CSR-S Monitor) from Bernard M. Baruch College of the City University of New York. This tool uses 11 components called contextual elements to analyze reports: chair’s/executive message, environment, philanthropy & community involvement, external stakeholder engagement, supply chain, labor relations, governance, anticorruption, human rights, codes of conduct, and integrity assurance.

Analysis of 572 of the CSR-S reports of the world’s largest corporations included in the Fortune 500 and Global 500 corporate rankings shows that the four topical areas of highest reporting quality in descending rank order are: philanthropy, environment, labor relations, and chair’s message. The four areas of lowest reporting quality in decreasing quality order are: external stakeholder engagement, integrity assurance, governance, and anticorruption.

The Baruch/GAI study also examined the extent of use of GRI’s Sustainability Reporting Framework and found that 84% of the publishing companies utilized the Framework. Perhaps not surprisingly, the quality scores of the companies that used the GRI Framework were significantly higher than those that didn’t use the Framework in all topical areas, but the quality rankings by area had no significant change.

Mert Demir, director of research at the Baruch Center, said, “As companies pursue sustainability objectives, they increasingly face the necessity to address growing stakeholder concern and expectations regarding comprehensive, detailed, and material ESG information to complement the financial information that they believe to be insufficient to assess the big picture alone. And in this respect, following a reporting framework—GRI in particular—seems to make a big difference.”

The SASB examined the quality of sustainability reports using information from U.S. Securities & Exchange Commission (SEC) filings. The SASB 2016 annual report shows a much lower overall reporting quality for U.S. public companies. Of the 69% of the companies that reported on SASB topics, just 47% didn’t use generic or boilerplate language, which SASB considers inadequate. Further, fewer than one quarter of the reports included metrics of some kind, but since the metrics weren’t standardized, comparison between companies is impossible.

The IIRC continued its strategy of dialogue about its International Integrated Reporting Framework with global organizations concerning nonfinancial integrated reporting and with the user investor community. According to the leadership in the 2016 IIRC annual report, it “saw increased acceptance of financial capital as part of a broader canvas of resources to be managed. This shift from a silo mentality, one that often masks material risks or opportunities, to a systems-based value creation model is important to the IIRC.”

Each of the Big 4 accounting firms provides sustainability reporting. Ernst & Young (EY) has published Integrated Reporting: Driving Value, which describes the various aspects of integrated reporting and illustrates application methods through the use of case studies. It looks at the evolving view of value, changing corporate reporting, main aspects of the integrated report, and measuring value creation.

Deloitte has published many pieces on both sustainability and integrated reporting, including Five Trends Shaping the Future, Sustainable Development Reporting: Striking the Balance, Sustainability & Compliance Trends, and CFOs and Sustainability. PricewaterhouseCoopers (PwC) and KPMG have also published articles describing their services involving integrated and sustainability reporting. And IMA® (Institute of Management Accountants) has published two relevant Statements on Management Accounting: The Evolution of Accountability: Sustainability Reporting for Accountants and Integrated Reporting.

Management accountants need to maintain awareness of the activities of the various nonfinancial reporting standards setters as they attempt to harmonize their efforts over time. While research supports the premise that nonfinancial reporting is the new norm for public companies, it may soon be expected by the noninvestor stakeholders of all enterprises. Integrating the strategic planning process will facilitate implementation of integrated reporting.


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