Sustainability Practices: 2016 Edition

The Conference Board recently released the 2016 edition of Sustainability Practices, a comprehensive dataset and analysis capturing the most recent disclosure of environmental and social practices of business corporations. The study reviews a total of 75 environmental and social practices of publicly traded corporations included in the S&P Global 1200 index. For benchmarking purposes, data are historically compared with the S&P 500 and the Russell 1000, and further analyzed across 10 business sectors, four revenue groups, and four regions (encompassing North America, Latin America, Europe, and Asia-Pacific).

The following are some of the Key Findings from this year’s edition:

Companies are shifting their focus to the materiality of sustainability reporting, and the average disclosure rate across a wide set of sustainability practices increased only slightly. Companies in the S&P Global 1200 had an average disclosure rate of 27 percent across the 75 practices covered, compared to 26 percent in last year’s analysis. The increase in disclosure was slightly higher among social practices (e.g. labor standards, diversity, health & safety) than environmental practices (e.g. atmospheric emissions and climate change policies, energy and water consumption, waste and material use levels, etc.).

New regulatory interventions by stock exchanges and financial market authorities in Asia-Pacific countries have driven a 43 percent surge in sustainability disclosure for the region, a stark contrast with the flat reporting rate found across European and U.S. companies. While the change in disclosure is fairly negligible across North America, Europe, and Latin America, this year marked a significant increase in disclosure among companies in Asia-Pacific. Companies in this region had an overall disclosure rate of 33 percent, up from 23 percent last year. This represents the second-highest disclosure rate among the four regions and only 4 percentage points below the disclosure rate of companies in Europe. By comparison, companies in North America had an overall disclosure rate of 17 percent, slightly down from 19 percent last year. The surge in sustainability disclosure in Asia-Pacific is driven in large part by the emergence of regulations encouraging—and in some cases requiring—companies to disclose more nonfinancial information. The approval of CSR reporting requirements by the Taiwan Stock Exchange and the introduction of Japan’s Corporate Governance Code are examples of the reforms in question.

Despite a fivefold increase in the number of companies including sustainability performance metrics in executive compensation, disclosure on the specifics of these metrics remains vague in most instances. Unlike the disclosure rate of most other environmental and social practices, which remained substantially flat, the last year has shown a significant uptick in the number of companies including sustainability metrics as part of their executive compensation schemes. In fact, this particular practice saw an increase in disclosure across all indexes, sectors, revenue groups, and regions. Among the S&P Global 1200 sample, 16 percent of companies now report including sustainability metrics in their incentive plans. The biggest increases come from the energy and utilities sectors, and particularly from companies in Europe and North America. However, there are wide variations in the quality and breadth of such disclosure. In most cases, companies provide only vague statements on how they incentivize executives to pursue sustainability goals, without offering much supporting detail.

While sustainability disclosure rates among the largest companies declined this year, these rates continue to be, on average, 50 percent higher than those of small and medium-sized enterprises. With the exception of companies in the highest revenue group, average sustainability disclosure rates by revenue group changed only slightly compared to last year. Companies with revenues of $100 billion and over, however, saw average disclosure rates drop from 38 percent to 32 percent this year. The biggest decreases were in disclosure of water consumption, GHG emissions, and percentage of women in management positions. Still, the largest companies continue to register some of the highest overall disclosure rates. Across all 75 practices tracked by the study, the largest companies by revenue had an average disclosure rate of 32 percent. By comparison, companies in the lowest revenue group—under $1 billion— had an average disclosure rate of 21 percent.

Disclosure of business risks related to climate change remains low. Only 19 percent of S&P Global 1200 companies discuss these risks in their annual reports. Greater disclosure will be needed as governments begin preparing to meet the goals of the Paris Agreement, adopted at the 2015 United Nations conference on climate change. The agreement aims to strengthen the global response to the threat of climate change by limiting the rise in global temperature and to help countries mitigate the eventual impact of climate change. Investors are taking note: average shareholder support for resolutions asking U.S. companies to disclose climate change risks rose by 10 percentage points in 2016.

Median performance improved across several key environmental practices, including reductions in water consumption and GHG emissions. Among the S&P Global 1200, median water consumption dropped 26 percent from the previous year. There were also notable decreases in energy consumption (down 13 percent), GHG emissions (down 12 percent), and median levels of waste (down 6 percent). Median performance improved across these key environmental practices as companies manage increasingly scarce resources and adapt to a low-carbon future.