Wanted: US Leadership in Sustainability Reporting

The TakeAway: The US played a pioneering role in sustainability reporting, but we currently fall short in advancing it.

The US has “the largest and most technologically powerful economy in the world,” according to the CIA World Factbook, and traditionally plays a leadership role in global business.  Yet on corporate sustainability and disclosure, US leadership lags.  Spain, with an economy roughly one-tenth as big as the US, boasts more sustainability reporters than we do.  In 2009, 140 Spanish companies used Global Reporting Initiative (GRI) guidelines, while only 132 in the US did.  Laws in Sweden and France mandate sustainability reporting.  The Johannesburg Stock Exchange (JSE) listing requirements now require “integrated reporting”, blending financial and nonfinancial metrics.

While the US has taken small steps in the catch-up game – for example, last January’s SEC Guidance on climate – we haven’t lived up to our leadership potential.

Why not?  For one thing, US corporate boards are slow to embed environmental, social, and governance (ESG) factors into their decision-making, according to two recent studies: one from The Conference Board and another from Calvert and The Corporate Library.  Institutional investors aren’t much better: they drag their heels when it comes to corporate sustainability.  Compared to their global counterparts, only a handful of US institutions put their power to work – of the 210 asset owner signatories to the UN’s Principles for Responsible Investment (PRI), just 20 are US funds.

Yet more than 40 percent of the world’s 100 largest pension funds call the US home, according to a recent report from the UN’s Conference on Trade and Development (UNCTAD) that argues for better standards.  The report – called Investment and Enterprise Responsibility Review and based on research from EIRIS – covers the world’s top 100 transnational corporations (21 domiciled in the US) and pension funds (46 based in the US).

“The data show that both corporate reporting and investor engagement on business responsibilities is now globally widespread, yet remains very variable in both form and quality,” said report co-editor Jem Bendell of Lifeworth, a consultancy.  UNCTAD’s report authors agree:  “Unless reporting is produced in a consistent and comparable manner, it is difficult for policy makers, investors and other stakeholders to use it to make informed decisions.”  They recommend “wider adoption of one of the existing generally accepted frameworks…in order to improve the transparency of calculations and the comparability between companies”.  To this end, the authors laud the Global Reporting Initiative, especially its recent partnership with the Carbon Disclosure Project.

Emerging markets such as China, South Africa, Brazil, and India provide more leadership on sustainability reporting than the US, according to two GRI reports issued earlier this year.  Carrots and Sticks – Promoting Transparency and Sustainability provides both an overview and in-depth analysis of reporting standards (which continue to evolve) at the global and the national level.  The Transparent Economy, produced by GRI in conjunction with Volans, analyzes future trends driving sustainability reporting—including integrated reporting.

Years ago, the US took the lead by pioneering social and environmental reporting—most notably with the work of Clark Abt in the late 1970s.  In 1989, Vermont-based Ben & Jerry’s became one of the first companies to report on its social and environmental performance, and in the late 1990s used the influential Ceres Principles as a reporting template.  Meanwhile, Ceres helped launch the Global Reporting Initiative, serving as its secretariat until GRI established roots in Amsterdam.  On the shareholder activist front, members of the Interfaith Center on Corporate Responsibility (ICCR) have filed hundreds of shareholder resolutions asking companies to issue sustainability reports.  More recently, Bloomberg terminals added ESG data to their dashboard of stock information for investors.

Now, the US has the opportunity to tap into this heritage and move the needle forward.  Next week, Harvard Business School hosts an invitation-only gathering of experts from throughout the world.  Developing an Action Plan for Integrated Reporting is the inaugural event for an envisioned annual conference.  Organized by HBS Professor Bob Eccles – who, with Mike Krzus, wrote One Report, a primer on integrated reporting – the consultation extends momentum from the launch of the International Initiative on Integrated Reporting (IIRC) in August.  We hope this begins a new chapter in corporate (and investor) accountability, where the US becomes a leader, once again.