The Sustainable Investment Research Analyst Network (SIRAN)
The Sustainable Investment Research Analyst Network (SIRAN) is an analyst network within US SIF that supports more than 260 North American sustainable investment research analysts from over 50 investment firms, research providers and affiliated investor groups.
Statement on Corporate Sustainability Reporting
2011 Update
SIRAN offers these perspectives based on our experience using the information disclosed in sustainability reports and our insights gained by working collaboratively with companies we hold to improve their reporting.
Summary of Reporting Expectations
As an investor community emphasizing sustainable and responsible investments, we encourage all publicly traded companies to provide annual standardized reporting of their environmental, social, and governance (ESG) policies, practices and performance. Further elaborated below, we strongly recommend companies base their reporting on the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines to increase the credibility, comparability, and utility of this type of reporting. At a minimum level of commitment to the GRI guidelines, we recommend that companies include an index of the GRI indicators covered in their reports.
Responses to Frequently Asked Questions
Q: Why do investors value ESG reporting?
A: The availability of ESG performance data is critical to our analysis of a business. Current financial disclosure requirements do not reveal all of the risks, liabilities or advantages associated with a corporation’s activity. We also view a company’s commitment to transparency and its efforts to address ESG risks as indicators of strong corporate governance. Overall, we find compelling the large and growing body of evidence linking companies’ strong performance addressing these issues to the creation of long-term shareholder value.
Q: What is the business value of ESG reporting?
A: Many companies have stated that their sustainability reporting has yielded significant internal benefits in addition to helping them meet increased expectations for transparency by investors and other external stakeholders. Citing the adage, “what gets measured gets managed,” many executives have commented that the reporting process has helped their companies better integrate and gain strategic value from existing corporate social responsibility efforts, as well as identify gaps and opportunities for improvement. Some express surprise at the level of interest and enthusiasm their sustainability reports generate from employees at all levels of the company. Further, we believe this helps companies recruit and retain skilled employees in competitive job markets.
In terms of external stakeholders, we believe that companies can more effectively communicate their perspectives and report performance on complex ESG issues through a comprehensive report than through relying on corporate press releases and other ad hoc communications.
Comprehensive reporting can also help companies demonstrate that they have in place effective internal controls for reporting on ESG liabilities and risks in their financial statements.
Q: What format and frequency of ESG reporting is expected?
A: We encourage companies to report annually. This allows investors and other readers an opportunity to judge year-to-year performance and to have access to timely information. Whether companies choose terms such as corporate social responsibility, corporate citizenship or sustainability to frame their ESG performance reports, we strongly recommend they use the Global Reporting Initiative’s (GRI) “Sustainability Reporting Guidelines”, or G3, to increase the credibility, comparability, and utility of their reporting.
We support the GRI guidelines as the most comprehensive reporting framework available, and one that has gained broad credibility through a rigorous, global multi-stakeholder feedback process. We also believe the GRI guidelines provide a valuable tool for providing comparability and consistency across reports.
The GRI guidelines provide a standard for report content, including suggested performance indicators. Beyond these specific indicators, at the heart of the GRI is a commitment to eleven reporting principles: transparency, inclusiveness, auditability, completeness, relevance, sustainability context, accuracy, neutrality, comparability, clarity, and timeliness. (Each of these is explained in detail within the GRI guidelines document.) We view these as bedrock principles for all credible corporate sustainability reporting. We believe that good faith efforts to apply these principles result in reports that are more valuable for report users and the companies engaged in reporting alike.
A growing number of companies note that their reports are based on the GRI. We believe that all such companies should provide an index of the GRI performance indicators they have covered to enable easy access to specific indicators of interest. Reporting “in accordance” with the GRI guidelines gives companies the flexibility to choose which performance indicators to use, but requires them to include an explanation if they do not report on all of the core GRI indicators.
For larger companies, investors are increasingly urging integrated financial and sustainability reporting, known as Integrated Reporting. At the same time some companies are working to incorporate ESG performance information into their annual reports, rather than producing a separate report. We welcome such efforts if they can be done without compromising the depth and breadth of coverage. However, we do not view short or general treatments of ESG factors in an annual report as a substitute for more in-depth reporting. We also support company efforts to provide more in-depth, stand-alone reports on issues of particular concern to stakeholder groups.
Some companies are also moving to provide sustainability performance information only on their websites, which can generate some cost savings and potential environmental benefits. Additionally, websites can be updated more frequently and can reflect responses to time-sensitive issues. However, some key stakeholders (from community members to employees in the field) still lack Internet access, and others find that published versions are easier to work with. Thus, we encourage companies to issue printed summary reports or produce at least a limited set of printed reports to be available upon request.
Q: Will we still face multiple questionnaires and surveys if we produce an ESG report?
A: The GRI was developed, in part, to reduce the number of different ways companies are asked to report on their performance (i.e., “survey fatigue”). The World Business Council for Sustainable Development estimates that the GRI covers 80 percent of the data asked for across the range of standard SRI-related screening and benchmarking surveys.
We support the principle that a company’s GRI report should be the first place investors and research institutions consult for information before asking companies to fill out surveys and questionnaires. We encourage our research providers and consultants to accept this principle as well. However, we expect that individual institutions and analysts will continue to ask companies for some additional or clarifying information not covered by their GRI reports, much as traditional securities analysts raise questions about standard financial reports.
Q: What value do you as readers place on verification statements?
A: We do not have a common position on whether companies should have an outside auditor provide a verification statement for their report, although we have heard from many companies that auditors have helped them improve their measurement and reporting. We do encourage companies to include in their reports an explanation of the processes they have used to ensure the accuracy of the information they report. GRI recommends the use of external assurance for sustainability reports in addition to any internal resources. When reports include a verification statement, they should clearly explain the scope of the verification and how it was conducted.
In addition to verification statements, we encourage companies to consider other assurance mechanisms to help ensure that sustainability reports provide an accurate picture of a corporation’s ESG performance for the issues that are material to its operations. These include effective stakeholder engagement processes, publishing credible third-party testimonials and critiques, and others. We would welcome dialogue with companies to jointly explore meaningful assurance mechanisms that enhance the credibility and value of reporting.
Tips for Enhancing ESG Reporting Value
We frequently find that corporate sustainability reports are less credible and useful than they could be because of some common shortcomings. We encourage companies to avoid these by addressing the following four points:
• Demonstrate integration of sustainable business practices. After an initial materiality assessment to identify material ESG risks and opportunities, we seek, whenever possible, demonstrable integration of sustainability factors into company operations and long-term business planning decisions.
• Include goals as a means to judge progress. It is helpful to see year-to-year performance data to allow us to track the company’s progress over time. Although we recognize there are challenges in doing so, we encourage companies to provide quantitative performance metrics and goals to help us more accurately measure the company’s progress and to compare it to its peers. In addition to evaluating past performance, we also seek to understand where companies are heading in their management of material and emerging ESG issues. To this end, we strongly encourage companies to include in their reports forward-looking goals and expected timelines as well as challenges encountered in meeting goals.
• Provide balance. Reports that include frank discussions of a company’s strengths and weaknesses are more credible and useful than those that only include good news. In particular, companies lose significant credibility if they are facing high profile controversies on ESG issues that they fail to discuss in their sustainability reports. We find it far more persuasive when companies acknowledge controversies, share their perspectives and discuss how they are seeking to address the issues, than when they only discuss positive performance.
• Provide adequate context. Reports are most useful when they provide context for the information shared. For instance, if a report includes an anecdotal case study, it should explain how the example fits into a broader framework (e.g., is it a pilot project the company plans to roll out more broadly?). Similarly, when a report provides data on an indicator such as purchases from minority suppliers or purchases of recycled material, it should provide relevant context data on the total amount of purchases for that time period, or what percentage of total purchases those programs represent. In addition, companies should disclose how they have drawn the boundaries for the performance data they include (e.g., U.S. figures versus worldwide operations). Given trends in outsourcing and globalization, investors and other stakeholders are increasingly interested in key impacts related to companies’ supply chains (such as environmental impacts and labor practices). While we recognize the challenges of collecting and reporting such information, we encourage companies to follow the example of leadership companies that are increasingly collecting and reporting key performance data related to their supply chain.
• Incorporate stakeholder engagement into the reporting process. In our experience, companies produce far better reports and gain far more value from the reporting process when they consult with key stakeholders in planning the framework for an upcoming report or getting feedback once they release their report. Many companies have told us that the chance to engage stakeholders in discussions on important issues is the most valuable outcome of their reporting. Some have also incorporated stakeholder feedback into their reports in ways that demonstrate thoughtful consideration of stakeholder input and enhance the credibility of their reporting.
Reporting Benchmarks
We recommend that companies benchmark their reporting performance against reports within their sector versus peers who are recognized for quality and leadership in reporting.
Information Contact
For additional information or inquiries, contact:
Amy Augustine at aaugustine@ceres.org
Karoline Barwinski at KBarwinski@clearbridgeadvisors.com
SIRAN Co-Chairs
Participating Firms in SIRAN