Companies Have Significantly Increased Disclosure on Sustainability Issues, But Pressure to Do More Continues

Source: The Conference Board, 10 February 2020

A new study finds that companies are significantly increasing disclosure of their environmental and social practices, but change in underlying practices has not kept pace. Published by The Conference Board, Sustainability Practices: 2019 Edition analyzes data on sustainability disclosure across North AmericaEurope, and Asia-Pacific. The report shows that in the face of increasing pressure, a growing number of companies are significantly increasing the amount of sustainability information they disclose. For the first time, more than half of US companies in the sample – which comprises the 250 largest US companies by revenue – report greenhouse gas (GHG) emissions.  Among US companies, climate risks are now disclosed by almost half of companies (47 percent), a significant increase from 36 percent a year ago.

At the same time, more than half of companies (53 percent) in the global sample now report on gender composition of boards, up from 45 percent the previous year. While this type of disclosure is already common practice among US companies, it is becoming increasingly expected of companies in other regions. For example, the report finds a surge in board diversity reporting by companies in India and South Korea.

But change in underlying practices has not kept pace with disclosure. Globally, the median number of women on boards remained unchanged from the previous year, with women accounting for only 17 percent of board seats globally. Similarly, while more companies across regions are acknowledging the business risks posed by climate change, the median amount of greenhouse gas emissions from those same companies has risen over the last three years. These findings mirror a broader trend of transparency not necessarily translating to changes in practice.

“The gap between disclosure and practice is likely due, in part, to companies not yet integrating sustainability as an integral part of their business strategy, and thus they lack an incentive to change their practices,” said Thomas Singer, principal researcher in the ESG Center at The Conference Board and the report’s lead author.  “Major investors are already calling for even greater disclosure, and if the disclosure/performance gap remains, there will be even more investor and government pressure aimed not just at increasing disclosure, but at requiring changes in performance.”

“Looking ahead, the challenge for companies is to focus on those issues that are truly material to their long-term future, taking all their stakeholders into account, so that disclosure and practice go hand-in-hand,” Singer added.

As part of the research, disclosure data on 92 environmental and social practices were analyzed for nearly 6,000 companies in 26 countries, as well as for companies in the S&P Global 1200 index. The new report distills insights from the data to reveal how companies are responding to increased demand for transparency on their nonfinancial impacts.

The following additional findings from the report can help companies anticipate what lies ahead as they engage in the evolving practice of sustainability reporting:

  • Companies are increasingly disclosing information relating to climate change risks. In the S&P Global 1200, the biggest year-over-year increase in disclosure was in the number of companies reporting climate change risks. A total of 38 percent of S&P Global 1200 companies disclosed these risks, up from 25 percent the previous year. The highest disclosure rates by sector came from energy companies (71 percent) and utilities (65 percent).

Another sign of the issue’s increasing salience: The number of S&P Global 1200 companies referencing the Task Force on Climate-related Financial Disclosures (TCFD) in their annual reports rose from 40 (when the TCFD recommendations were released in 2017) to 337 in 2019.

  • Regulation, even from other jurisdictions, is increasingly a disclosure-driver. Regulatory developments in Europe will continue to influence the sustainability disclosure practices of companies in other jurisdictions, the report found. The recent imple­mentation of sustainability disclosure requirements in Europe-such as the European Union’s nonfinancial reporting Directive and the UK’s gender pay gap reporting require­ments-is resulting in increased disclosure. Specifically, more disclosure by both European and foreign companies operating in Europe, as the latter are also subject to the requirements.
  • Disclosure of gender pay gap details is gaining traction among US companies, spurred in part by growing pressure from shareholders. In 2019, the gender pay gap was the most frequently voted topic among shareholder resolutions on environmental and social issues. Shareholders of Russell 3000 companies voted on 13 proposals on this topic, up from five proposals in 2018.

Support for these proposals is also increasing. The report found that 20 percent of US companies disclosed their gender pay gap information, up from only three percent last year. By comparison, 41 percent of companies in the UK sample report this information, driven largely by the mandatory gender pay gap reporting requirements that became effective in 2018.

  • The practice of obtaining external assurance of sustainability information has risen sharply, reflecting a desire to confirm that disclosures are reliable. For the first time, a majority of S&P Global 1200 companies (51 percent) seek such confirmation of their data, up dramatically from just three years ago, when about one-third of the companies (34 percent) did so. At the same time, there remains much variation in the practice of sustainability assurance. Most companies obtain assurance for only a selection of their sustainability information, not for their full sustainability report, and there are notable differences in the levels of assurance obtained by companies and the types of organizations providing the assurance.
  • Companies with at least $1 billion in revenue are much more likely to engage in disclosure than their smaller counterparts. Previous editions of this report have noted that sustainability disclosure rates generally increase with company size, so the current edition aimed to find the sustainability-reporting tipping point. The data show limited uptake of sustainability reporting by companies with revenues of less than $1 billion and a strong increase in disclosure once companies pass that threshold.

Reasons for limited disclosure among smaller enterprises may include lack of resources and knowhow to track and report relevant data, as well as a relative absence of pressure from stakeholders.

Practices analyzed in the report include board diversity, gender pay equity, climate-risk assessment, external assurance, and water consumption, among others. For the first time, this edition also tracked how many companies have quantitative sustainability targets explicitly linked to the UN Sustainable Development Goals.

The Sustainability Practices Dashboard, a comprehensive database and online benchmarking tool, complements the report. It enables users to segment data by region, market, sector, revenue groups, and index (including the S&P Global 1200, S&P 500, and Russell 3000).