In 2011, only 20% of S&P 500 Index companies issued a sustainability report. By 2019, that figure had quadrupled to 90%.
One driver of this change is investor demand. As more people seek to invest in alignment with their values, companies have responded by providing more information.
Another driver is recognition by company management teams that addressing ESG factors is material to their business success.
For example, in a 2019 study of 1,000 CEOs at companies across 100+ countries in 25+ industries, 99% of CEOs said they recognize sustainability as important to the future success of their business, and 48% are actively implementing sustainability into operations.*
In 23 countries (and counting), governments and/or markets have adopted mandated disclosures along ESG lines. The U.S. does not have any such requirements, but voluntary reporting-most prominently in the sustainability reporting noted above-is nonetheless providing investors with meaningful information.
While it’s true that some sustainability reporting might be best considered “public relations,” much reporting does get at material business issues. As companies begin to define and address these issues, they embark on what we call their ESG journeys.
Not surprisingly, those journeys vary greatly across companies and industries. Material factors for a mining company, say, will be very different than those at a bank. The key idea is that a company sets medium- and long-term goals in relevant areas, works to meet those goals, and reports on the progress.
Here’s an example from Nestle, which has made specific public commitments across all of the United Nations Sustainable Development Goals (SDGs), one of which is Clean Water & Sanitation. In that area, Nestle set a medium-term goal to achieve by 2020; the company is approaching success on its specific objective:
GOAL: By 2020 – Reduce direct water withdrawals per tonne of product in every product category to achieve an overall reduction of 35% since 2010.
Status. In progress-29.6% reduction in direct water withdrawals per tonne of product across every category since 2010.
Though sustainability reporting varies across companies – as it should, given material differences among industries – investors are benefitting from some consistent reporting standards that have emerged. These standards provide a framework for against which investors can more readily evaluate companies’ progress toward their commitments. The most prominent of these frameworks is known as “GRI,” which stands for “Global Reporting Initiative,” an organization based in Amsterdam that launched the first framework for sustainability – all the way back in 1997, several years before the term “ESG” was even coined.
The GRI Standards have become the most widely adopted in the industry, with 90% of the largest 250 global corporations using them to report on their activities in over 100 countries. The following set of “Material Issues” in the GRI framework provides a further sense of where companies are focusing on their ESG journeys.
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