Seven questions CEOs and boards should ask about ‘triple bottom line’ reporting, a new report by Ernst & Young LLP
New York, 28 October 2010 – Research by Ernst & Young LLP shows that more than two-thirds of the Fortune Global 500 companies publish some form of sustainability or corporate responsibility report. These reports increasingly help organizations accomplish cost-cutting goals, improve efficiency, and achieve other business imperatives. Reporting has become an accountability tool as employees, analysts, stakeholders, investors, competitors and customers pressure companies to report nonfinancial data more effectively.
Advancing sustainability reporting initiatives requires management teams to take greater interest in these efforts and the myriad risks and opportunities the reports identify. According to a report issued today by Ernst & Young LLP, there are seven questions CEOs, boards and other executives should ask to understand how sustainability reporting impacts their organizations. These questions will help executive teams examine internal processes to collect, store and analyze nonfinancial data, which could help generate long-term benefits, such as better measurement of the organization’s “triple bottom line” performance; greater stakeholder trust; improved risk management; and increased operational efficiency.
”Sustainability reporting is taking on new meaning as corporations try to keep up with the onslaught of corporate responsibility ratings and rankings – which are also getting C-suite attention. In addition to being transparent to employees, customers and shareholders, the reports present an opportunity to manage analysts’ assumptions about a company’s sustainability performance,” said Steve Starbuck, Americas Leader, Climate Change and Sustainability Services.
Analysts and other third parties are taking notice
A mid-2010 EY survey of 300 global executives at large corporations showed that 43% believe equity analysts consider factors related to climate change when valuing a company. Another recent study by Ioannis Ioannou of the London Business School and George Serafeim at Harvard indicated that equity analysts are starting to rate companies higher that exhibit exemplary CSR practices. The study, which surveyed more than 4,100 public companies over 16 years, found that, since 1997, analysts have viewed CSR strategies as creating value and reducing uncertainty about future cash flows and profitability. As a consequence, in recent years they have issued more favorable ratings to companies that have sustainability strategies in place.
A range of third-party organizations from all sectors is also calling for more accessible and accurate sustainability and CSR information. In October 2010, the Federal Trade Commission issued its first new guidance on environmental marketing in 12 years. The guidance puts pressure on companies to substantiate claims that products are “recyclable” or “carbon neutral.” Robust reporting on “green product development” gives organizations an opportunity to document the basis for any such claims they make. Additionally, as government entities and private-sector companies develop supplier sustainability initiatives, organizations will find that regular reporting helps avoid scrambling to collect new information when a customer requests it as part of the supplier vetting process.
“Leading companies use what they learn from third-party engagements and assessment to formulate sustainability reporting strategies. These strategies inform decision-making when it comes to managing issues like greenhouse gas emissions, water use, and supply chain activities,” explained Ann Brockett, Assurance Leader, Americas Climate Change and Sustainability Services. “C-suite executives are missing significant opportunities if they do not engage in the nonfinancial reporting process and begin to ask fundamental questions.”
The seven questions Ernst & Young LLP examines in its new report include:
- Who issues sustainability reports?
- Why report on sustainability if you don’t have to?
- What information should a sustainability report contain?
- What governance, systems and processes are needed to report on sustainability?
- Do sustainability reports have to be audited?
- What are the challenges and risks of reporting?
- How can companies get the most value out of sustainability reporting?
To access the full report, visit www.ey.com/climatechange. The risks and opportunities presented by sustainability reporting will be explored in greater detail during a webcast featuring Mike Wallace, Leader of GRI’s newly announced Focal Point USA, today, October 28 from 1pm – 2pm ET. The webcast panel will discuss and identify actions that companies can take to create value and mitigate risk in an organization, as well as methods for triple bottom line reporting. Register for the webcast or access the archive.
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