The Alliance for Corporate Transparency project analysis of companies’ reporting published a report in February 2019, following three years of research. The main finding was that corporate sustainability reporting still has a long way to go to meet the expectations of stakeholders.
Sustainability is now an established business principle, and the vast majority of companies reviewed as part of the research, acknowledge the importance of it to the business. However, only in 50% of cases for environmental matters, and less than 40% for social and anti-corruption matters, is information clear in terms of concrete issues, targets and principal risks.
This is problematic for a number of reasons, and a cause for concern among investor audiences in particular. The research report focuses on the fact that most reports do not allow readers to understand corporate impacts and by extension their development, performance and position.
This shortfall in reporting persists, despite increasing regulatory requirements and innovation in the market. Regulation comes in the form of the EU Non-Financial Reporting Directive. While examples of innovation include Arabesque which, as ‘sustainability investor quants’ (ESG-focused asset managers), is taking matters into its own hands using machine learning to continually review public disclosures. Its S-Ray tool combines over 200 environmental, social and governance (ESG) metrics from sustainability or integrated reports, with news signals from over 50,000 news sources across 20 languages, to provide a daily sustainability score to investment houses and banks.
The takeaway is that business needs to up its game. Establishing robust commitments that are time-bound, measurable and linked to the mainstream business objectives, is essential to providing the necessary transparency and accountability. They can be an effective means of demonstrating the long-term viability of a business, in a climate of rapidly changing contexts and increasing levels of scrutiny.
