Consultants GlobeScan and SustainAbility published The 2016 Sustainability Leaders, which surveys 900 global experts on the progress made since the 1982 Earth Summit, the expectations for the next 20 years, and which companies are considered to be leaders in integrating sustainability into their business models. From another vantage point, accounting firm KPMG has published Currents of Change for 2015, a global survey of corporate reporting practices of nonfinancial information, particularly corporate responsibility (CR) topics.
Interest in matters of sustainability and its reporting to the public is trending upward, so management accountants in organizations of all sizes and ownership patterns should listen and be prepared to lead their organizations as the conversation evolves. (See “The Next Frontier” in the June 2016 issue of Strategic Finance and “ERM and Sustainability” in the March 2015 issue of Strategic Finance.)
In the 2016 Leaders report, the experts listed “values, purpose, and integration” as the reasons that they considered companies to be global sustainability leaders. They also believe that leadership companies excel at integrating social and environmental purpose into the core business. Eric Whan, director at GlobeScan, said, “Leadership companies are seen as those that align the sustainability strategies and the internal culture and values. Their social, environmental and business purposes work together toward the same impact, powered by clear goals and the innovation required to achieve them.” Unilever continues to be the company ranked at the top of the experts’ global leadership list. Its dominant sustainability status is attributed to vocal support by its local leadership. It appears that acceptance of social and environmental objectives at all levels of an organization is critical to successful implementation.
The KPMG Currents of Change report is based on reviews of 4,500 companies in 45 countries in three categories: accounting for carbon emissions and related reporting, the quality of CR reporting in the G250 (250 largest companies in the Fortune Global 500, headquartered in 31 countries), and global trends in CR reporting in the G250 and N100 (100 largest companies in 45 countries). All ownership structures were included in the research—public, family, and privately owned—and a wide variety of industries is represented. The geographic breakdown of the G250 was approximately one-third each for the Americas, Europe, and Asia/Pacific, whereas Europe dominates the N100 with 47%. Asia/Pacific followed at 24%, the Americas at 16%, and Africa/Middle East at 13%.
KPMG’s report card on reporting carbon emissions isn’t favorable. Although 82% of G250 companies report on carbon emissions, there’s a lack of consistency in the information they report, making comparisons between companies almost impossible. Globally, fewer than half the respondents set carbon reduction targets. And of those, only 35% explain why and how their targets were established. One in five of the large companies in high-carbon industries, such as mining and chemicals, fails to report carbon emissions, and only half the respondents in emissions reporting explain how cutting carbon benefits their business.
Of the six countries with 10 or more companies in the G250, Britain and Germany have 100% doing carbon reporting, while the United States at 79% is below the global average of 83% and China has the lowest proportion, 56%. By KPMG’s scale, the companies in the six-country group also scored low on quality of carbon-emissions reporting. The global average score was 51%, the same score achieved by U.S. companies. Germany led the group with 75%, and China trailed the list at 10%. According to KPMG Global Head of Sustainability Reporting and Assurance Wim Bartels, “There is a clear need for improvement and global reporting guidelines could certainly help to address the problem. It should not be left to companies alone to figure that out.”
Using KPMG’s seven-point evaluation criteria, there has been a slight decline globally in the overall quality of CR reporting in the G250 companies since the previous survey in 2013. Asia/Pacific companies showed a two-percentage-point improvement to a score of 52, surpassing the 50 that companies in the Americas scored. Although European companies continued to lead (with a score of 68), their score declined three percentage points. Greater interaction and responsiveness to stakeholders was the cause of the improvement in Asia/Pacific. On the positive side, the survey found greater clarity in communicating identified trends, increasing from 34% of companies to 44%; clearer identification of risks, increasing from 25% to 36%; as well as better communication of the entity’s response to risks identified, increasing from 23% to 34%.
The major conclusion in the reporting trends section of Currents of Change is that CR reporting has become standard practice and that participation continues to grow, reaching 92% in the G250 and 73% in the N100. Asia/Pacific has become the leading region, with a reporting rate of 79%, an increase from 71% in 2013. The surge is due to mandatory and voluntary initiatives in India, Taiwan, and South Korea. The rate of reporting in the Americas was second, increasing one percentage point to 77%.
More than half the companies studied include CR data in their annual reports. KPMG attributes this development to two causes: regulatory requirements and an increasing realization by shareholders of the relevance of this information.
Management accountants need to increase their awareness of developments in accounting for environmental, social, and other sustainability issues as the reporting of nonfinancial information continues to take greater global prominence.
October 2016
