Requests for sustainability reports are evergreen in proxy season; investors have filed more than 300 proposals since 2010.  These requests for companies to provide quantified, comparable metrics about their performance on key environmental and social impacts earn substantial, sustained support from investors, with eight majority votes this decade.  Most companies are responding in some fashion, providing the metrics mainstream Wall Street analysts want to assess performance.

Last year Si2 published The State of Sustainability and Integrated Reporting 2018.  It reviewed how many companies in the S&P 500 issue sustainability and/or integrated reports, and the extent to which companies incorporate voluntary information on sustainability in their SEC filings.  While 78 percent of the index issues formal sustainability reports with performance metrics, just 14—less than 3 percent—had issued an integrated report as of last year.  This is double the number from 2013, but is a very low baseline.  

Integrated reporting patterns:  Si2 found the following patterns among the 14 integrated reporters:

• Most of the integrated reporters addressed the concept of “creating shared value for all,” the new paradigm promoted by the International Integrated Reporting Council (IIRC).  

• Integrated reporters are more likely to treat sustainability information as material to investment decisions.  Half the integrated reporters (seven companies) offer integrated reports as their annual reports, while three offer them in addition to and separate from annual reports.  

• Still, when it comes to SEC filings, only a few companies treat sustainability matters as equal to financial ones.  In 2018, just Intel and Clorox included sustainability issues under business and/or strategy descriptions in their Forms 10-Ks, the key annual financial report every public U.S. company must file with the SEC.  Another two—GE and Southwest Airlines—made brief references to sustainability efforts in 10-Ks and provided links to sustainability data, although the latter also included an explicit disclaimer that its integrated report should not be considered as a part of its 10-K.  

Best practices example:  Intel is a leader.  It publishes a full sustainability report, a summary document that integrates sustainability and financial information and includes a robust related discussion in its Form 10-K.  Intel’s 2017 sustainability report said that it followed IIRC’s recommendations for “Our Business” section of the report, discussing in detail how management incorporates sustainability into its business strategy and value creation framework.  

In addition, Intel’s 2017 Form 10-K contained a section on “Corporate Responsibility and Sustainability” under a “Fundamentals of Our Business” heading, discussing its environmental responsibility, supply chain responsibility, diversity and inclusion and social impact.  The same discussion is in Intel’s 2018 proxy statement, which notes the entire board is responsible for overseeing corporate responsibility, sustainability and corporate governance matters, with particular oversight by the board’s Corporate Governance and Nominating Committee.

Assurance challenge remains:  A general lack of external assurance presents a key challenge for assessing sustainability data reported by companies.  Si2 found only 38 percent of sustainability reports indicate they obtained external assurance; 90 percent of this assurance was partial, mostly for GHG emissions.  While 3 percent of reporters declared their reports “fully” assured, significant ambiguity exists about what this means.  

As companies and investors continue to tussle over the precise nature of what they should report, using which frameworks, we can expect continued attention to data quality and proof that what companies are reporting is accurate.

Heidi Welsh
Executive Director, Sustainable Investments Institute (Si2)