Taking sustainability reporting up a few notches
One of the Corporate Governance Awards bestowed by Corporate Secretary each year is for best CSR disclosure. In the minds of a growing number of sustainability experts and the people behind reporting frameworks, one of the markers of such disclosure is how well a company shows that its sustainability efforts are linked to strategic business goals and financial performance.
The newly released findings of research conducted jointly by the Conference Board and the Investor Responsibility Research Center Institute (IRRCi) point to a model for what more companies could be doing to elevate their CSR reporting. And with a handful of the world’s largest companies now showing revenue from sustainable products and services growing six times faster than their overall company revenues, it’s time to stop looking at sustainability initiatives through a compliance lens and start recognizing them as viable drivers of strategic growth.
That’s one of the core conclusions of ‘Driving revenue growth through sustainable products and services’, a report released earlier this month by the Conference Board and IRRCi. The report focuses on 12 companies in the S&P Global 100 Index that have launched sustainable portfolios of products and that already publicly disclose revenue generated by those portfolios. Out of 100 companies, 12 makes for a small dataset, but it is still deserving of governance professionals’ attention for the conclusions it draws.
The 12 companies range across six sectors, from industrials and chemicals companies to insurance providers and consumer product manufacturers. In 2013 (the latest year for which data is available), industrials such as Philips, Siemens and General Electric saw the highest revenue from their sustainable portfolios as a percentage of total revenue at 50 percent, 43 percent and 30 percent, respectively. Revenues from all 12 companies’ portfolios averaged 21 percent that year, up from 18 percent in 2010. That such revenues are growing at six times the rate of overall company revenues is consistent with data released jointly by the Principles for Responsible Investing (PRI) and the United Nations Global Compact in December 2013, in a report titled ‘Value driver model: a tool for communicating the business value of sustainability’.
The new report also shows that among the seven companies in the sample that track sustainability-specific R&D, on average nearly two fifths (38 percent) of R&D spending is allocated to sustainability. These investments contribute to the growth in revenue from sustainable products and services.
A few companies have published measurable sustainable product revenue goals, which has helped spur growth of these portfolios by incorporating sustainable products into strategic planning and target-setting. All but one of these goals are set to be realized by 2015, and most of them have already been achieved.
On a July 14 webinar that discussed the findings, there was a question about how sustainability is aligned with good governance. ‘Many of these companies [in the sample] are fairly mature in their journey toward sustainability’, including having board committees on sustainability and targets to advance their sustainability portfolios, said Thomas Singer, principal researcher in corporate leadership at the Conference Board. He is also the report’s author. ‘That indicates the strong role good governance has in driving these initiatives. You couldn’t make a case for these initiatives without the governance in place to drive that.’
IRRCi executive director Jon Lukomnik added: ‘As sustainability goes from being a compliance initiative to a strategic growth driver, the role of the board becomes clearer because the board is no longer doing ad hoc compliance checks. It’s much more integrated into the strategy planning that boards do off-site once a year and then with markers during the year.’
The advice that leaders from the 12 companies offered to others considering launching their own sustainable portfolios is to widely engage stakeholders in the development of these portfolios, from the CEO to employees (whose passion needs to be tapped into, and who are often energized by such initiatives) to customers, whose desires and what they are willing to pay for must be understood. This is critical because of the many challenges involved in launching such a portfolio, starting with a lack of global standards, Singer said. What needs to be standardized is the process for determining what constitutes a sustainable product or service, what the qualifications for it are, and the actual reporting of those metrics, whether revenue or something else.
Another tip from the companies in the sample is to clearly communicate the business benefits of sustainable products and services.
There are just a couple of weeks remaining to submit nominations for our Corporate Governance Awards. Whether it’s for best CSR disclosure or any of the other 13 categories, don’t miss the chance to let the world know what your company is doing to advance good governance.