Putting Companies on a Green Economy Path
By Achim Steiner UN Environment Programme Executive Director;
Mervyn King, Chairman of the International Integrated Reporting Committee;
Steve Waygood, Chief Responsible Investment Officer at Aviva Investors;
David Pitt-Watson, Chair at Hermes Focus Asset Management & Chair of UNEP FI Investment Commission
Herman Mulder, Chairman of the Board of Directors, Global Reporting Initiative
When governments meet at Rio+20 in June one defining, decisive and positive outcome for the planet and its people could be a global commitment to corporate sustainability reporting.
Since the 1992 Rio Earth Summit, increasing numbers of companies have been factoring environmental, social and governance (ESG) issues into their operations and business models.
Around a quarter of corporations surveyed by Bloomberg are now encapsulating and disclosing some of these elements in their annual reports side by side with cash flows, debts and liabilities.
Meanwhile several stock exchanges ranging from Istanbul and Johannesburg to Sao Paulo and Singapore are now requiring a serious commitment to ESG issues from their listed firms.
Dedicated sustainability indices have also emerged among some international rating agencies and exchanges including the Dow Jones Sustainability Index, the FTS4Good and the NASDAQ Global Sustainability Index.
This progress is welcome: it allows pension funds, shareholders and other investors to pick firms where sustainability is central—not least because there is good evidence that such corporations are better run, manage natural resources more efficiently, have reduced pollution footprints, are less prone to shocks in a globalized world and less vulnerable to reputational risk.
It is also assisting governments across a wide range of challenges from meeting greenhouse gas targets to tracking health and safety improvements for workers across sectors and geographic regions.
However it is not enough: Indeed the Corporate Sustainability Reporting Coalition—an alliance of pension funds and investors with $2 trillion-worth of assets under management along with, UN agencies and NGOs—concludes that existing voluntary arrangements have hit their limits.
The time is ripe for a global policy framework on corporate sustainability reporting and is essential in order to deliver the basic information, transparency and comparability needed to move forward and assist in fast tracking a transition to a global Green Economy.
Why? Firstly several countries including China, Denmark, Ecuador, India, Norway, Singapore and the United Kingdom have recently created laws, procedures, guidelines and standards in line with the proposed convention. These are to be welcomed. But what business needs most is not many different standards, but a common global agreement on reporting. That will be more effective and lower cost.
Secondly, many of the nuts and bolts underpinning a potential global framework already exist, via such voluntary efforts as the UNEP – founded Global Reporting Initiative, the Global Compact, the Carbon Disclosure Project and the International Integrated Reporting Council which advocates integrated reporting—this being a holistic representation of the “state of play” in a company and in respect to sustainability reporting a necessary stepping stone in achieving such representation.
Thirdly, a survey of stock exchange respondents has found that 80% of those responding wanted a global approach to sustainability reporting; only 30% objected to this being mandated.
Some countries and companies may fear that a global policy framework, such as a convention could prove a bureaucratic strait jacket or a costly brake on profits. This need not be the case.
Indeed, experience around the globe to-date has provided a snapshot of how the benefits of corporate sustainability reporting can be reaped without become an extension of red-tape, and that having a global standard need not imply a ‘one-size-fits-all’ approach.
Governments can have the flexibility to implement in a variety of different ways, whether through new laws, existing company laws or via listing authorities such as national stock exchanges.
Once adopted on a national level, compliance by individual companies could be done on a ‘report or explain basis’ effectively turning the tables on the current situation of opting in to corporate sustainability reporting to one where companies would have to opt out
In other words, it would be for companies’ board of directors to define what it is material and needs to be reported on the one hand, and what is immaterial and should be merely be explained to regulators and shareholders.
Day in and day out trillions of dollar flow in and out of investments across the globe, a proportion of which is assisting in generating the conditions for a transition to a low carbon, resource efficient, job generating Green Economy.
A global commitment on sustainability reporting could dramatically assist in accelerating and scaling-up these positive investment flows and bridge what is currently a big gap between ambition and reality for a sustainable future.
The momentum is rapidly gaining ground among responsible investors, an increasing number of corporations and forward-looking sectors of civil society.
A range of commitments will be before world leaders in Rio in a few weeks time—evolving sustainability reporting onto a higher; more widespread and legally-grounded level, ideally in the form of a future convention, should be firmly on their radar as one inspiring policy option guaranteed to deliver powerful and positive environmental, social and economic outcomes.