Report: Investors Recognize Correlation Between Sustainability and Performance
Business stakeholders are calling for enhanced reporting of corporate social responsability (CSR) and other information related to sustainability as part of businesses’ financial performance reports, a new report from PricewaterhouseCoopers (PwC) maintains. Moreover, companies that use integrated reporting concepts will be seen as more transparent, which could potentially improve access to capital.
Evolving shareholder expectations are prompting companies to recognize the increased importance of integrated reporting. In addition, a growing number of businesses in more than 80 industries are voluntarily adopting sustainable accounting standards developed by the Sustainability Accounting Standards Board’s (SASB) for publicly traded companies. SASB is a U.S.-based independent, non-profit organization engaged in the development and dissemination of industry-specific standards for disclosure and accounting of material sustainability topics.
Companies are investigating new approaches to reporting financial and non-financial key performance indicators (i.e. strategy, governance, performance, sustainability, and prospects), and how they can create value, according to the PwC report.
“We’re working with leading companies to look beyond their core financial results and develop a new framework that aims to give a more informative view of their businesses,” said Kathy Nieland, PwC’s U.S. Sustainable Business Solutions practice leader. ”Companies that are engaged in integrated reporting have been able to successfully think about their businesses in new and innovative ways. Increasingly, companies are beginning to take on integration, incorporating sustainability and other non-financial information in their reports, and those that haven’t done so, should take the time to look inward in order to prepare and gain valuable insights into their business.”
The International Integrated Reporting Council (IIRC) defines integrated reporting as bringing together “material information about an organization’s strategy, governance, performance, and prospects in a way that reflects the commercial, social, and environmental context within which it operates.”
The PwC report notes that integrated reporting should build on the existing financial reporting model to present additional information about a company’s strategy, governance, and performance. New reporting models are aimed at providing a complete picture of the company, including how it demonstrates stewardship and how it creates and sustains value. Integrated reporting is achieved when the report shows how governance connects with remuneration and risk, when strategy is designed to exploit a changing market environment, and when strategic priorities align with key resources, relationships and key performance indicators.
Although SASB standards are currently provisional, the report reveals that stakeholders are increasingly asking companies to provide clear information about external drivers affecting their businesses, their approach to governance and managing risk, and how their business models work. Investors are also recognizing the relationship between sustainability/CSR and financial performance, and are increasingly considering non-financial factors such as resource scarcity when assessing companies’ long-term prospects. PwC claims that well-positioned companies are utilizing integrated reporting concepts to drive this need for transparency, as well as their focus on integrated thinking and strategic decision-making.
In the U.S., certain companies have shown an interest in voluntarily reporting more non-financial information. Research from the Investor Responsibility Research Institute and Sustainable Investments Institute shows that nearly all of the S&P 500 companies made at least one sustainability-related disclosure in their financial reports, though only seven of those companies claim to have published integrated reports.
Depending on the sector in which companies operate, several factors can impact business, such as environmental and CSR matters, talent attraction and retention, and intellectual capital. According to PwC, these factors are influencing many companies to voluntarily disclose non-financial factors in their reporting, and these decisions can potentially lead to reduced costs and more concise, less complex reporting.
“Businesses that incorporate integrated reporting into their agenda and board strategy sessions will be closer to succeeding in such a quickly evolving business environment,” said Nieland. “When considering how to best disclose environmental, social and governance matters, integrated reporting concepts can provide companies with a useful framework to help meet shareholder and investor expectations, as well as provide a complete picture of the company, including how it demonstrates stewardship and how it creates and sustains value.”