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Nov 02, 2014

What investors look for in CSR disclosure

Integrating key sustainability concerns into everyday decision making and useful metrics of what's been achieved into companies' storytelling are among the things on SRI firms' wishlists

It makes a whole lot of sense that companies’ sustainability disclosures are being subjected to increasing scrutiny by regulators, boards and investors. After all, these stakeholders – all aware of how critical risk management is – are pressing for more information about the factors that present business risks and therefore could affect future profitability.
Corporate Secretary’s Best Practices Symposium on November 5 will include a panel of this year’s Corporate Governance Awards nominees for the best CSR disclosure award, and they will discuss (and provide examples of) what constitutes state-of-the-art CSR reporting.
The increase in disclosure may be driven by regulators acting on the mandates of the Dodd-Frank Act, but more and more companies are realizing how useful disclosure can be to mitigate shareholder concerns. It’s instructive to see which aspects of sustainability reporting resonate most with institutional investors, especially those dubbed socially responsible. One of this year’s nominees sent letters of support from three well-known SRI investment firms, as well as a letter from Ceres, a non-profit that pushes for sustainability leadership, to attest to the value of its CSR initiatives and reporting.

For Walden Asset Management, a company’s clarity about integrating ESG throughout the company and business strategy is critical. ‘This is important as too many companies have CSR in a silo where they fail to take full advantage of the benefits of these initiatives – both in terms of risk mitigation and expanding opportunities,’ Walden’s letter supporting a nominee says. The company ‘places a high priority on sustainability disclosure because it recognizes how integral sustainability is to its business and how ESG transparency is necessary to better measure, manage and communicate ESG performance.’
Calvert Investments’ letter cites the company’s reporting on its ‘efforts to improve the sustainability of its supply chain, workplace practices, and investment in sustainability innovations, as well as a discussion of sustainability-related risks facing [its] business.’ ‘By outlining a vision for the company that weighs business growth alongside societal improvement, [the company] has been able to integrate key sustainability concerns into everyday decision making,’ Calvert’s letter says. One practice Calvert praises in particular is a filter mechanism that requires all expenditures over $5 million to include a review of sustainability issues and highlight alignment with key sustainability benchmarks.    

‘An investor could be fooled by a company blowing green smoke at it, if you will, giving it a very laudable, upbeat report on what the firm is doing,’ acknowledges Tim Smith, Walden’s director of ESG shareowner engagement. But he disagrees with cynics who believe such ‘green washing’ in CSR reporting is rampant.

Walden asks companies not just to report with stories, but with stories that have metrics about what the company’s done, whether on diversity, supply chain management or reducing greenhouse gas emissions. ‘And if progress is not being made, we encourage companies to be honest and say We ran into an obstacle here. We weren’t able to meet our goal and here’s why. And we respect that,’ Smith says.

Institutional investors are also using checklists to evaluate a company’s CSR efforts and consider a range of issues, including governance practices, board diversity, efforts to deal with climate change and what it’s doing with its supply chain.
Companies would benefit from better awareness of just how carefully investors are looking at their CSR disclosures and make an effort to be as specific and substantive in what they report as possible. To hear more about best practices in CSR reporting, we invite you to join us on November 5 for the Best Practices Symposium, which will also feature a panel of nominees discussing shareholder engagement and a fireside chat with governance veteran Stephen Norman.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary