Without an effective integrated report tying together environmental, social and governance concerns with financial ones, events that are harmful to business and devastating to countries, like the 2012 Bangladesh garment factory fire, are always possible, since worker conditions in a supply chain can slip through the cracks.
Companies often approach sustainability and business issues as parallel concerns that never cross over. To them, the two concerns are like adjacent elevators, functioning in similar and important ways but independently operational rather than an interdependent system. In other words, just ships that pass in the night. But as a conference on impact investing recently discussed, there’s a great need to start seeing them as elevators working in tandem.
Companies such as PepsiCo, American Electric Power and Southwest Airlines have published what were traditionally treated as separate reports as a unified entity. This blend of the ESG concerns with financial ones is often known as “the integrated report.” It’s a hot topic that is gaining traction.
Mindy Lubber, president of Ceres, an advocacy organization for sustainable leadership, said the boundary between financial and nonfinancial reporting doesn’t have to exist; in fact, if companies want to increase efficiency, it shouldn’t exist at all.
“People don’t want to build in the way they did years ago,” she says. “There are ways to build now that are sustainable and not sustainable.” To Lubber, “pernicious short-termism” could be avoided through, among many things, an integrated report. Or, to put it another way, “we need to think about investing in the right way,” she says.
Kristen Lang, a senior manager in the corporate programs at Ceres, said the consequences of not having an integrated report are clearly seen in the supply chain, with the Bangladesh factory fire a sobering example. Plus, holistic reporting reflects a holistic attitude toward one’s company. “Many of these companies and investors really understand the business case for sustainability and embedding sustainability within their traditional business practices without it becoming just a silo or an afterthought,” Lang says.
Ceres works with S&P 500 companies, investors and other advocacy organizations. Along with pension fund investors, it aims to guide $13 trillion (U.S.) in investments so that the product each entity endorses will yield profit while also promoting sustainability.
“We are seeing incremental improvement, but we’re not seeing it at the speed required or scale for innovation that’s possible,” says Lang.
A major obstacle to progress is the corporate perception that disclosure will harm profits. But in this day and age of sustainable investing, when everyone knows sustainable investing is possible, there’s no reason not to disclose. In fact, not doing so can make a company less competitive.
“[Companies] are hanging on to some of this information that is generally thought of in some of these industries as not that big of a deal,” Lang says. “They think they don’t have to be competitive about this. But they do.”
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