Sustainability, CSR and ESG Reporting

This week’s Barron’s cover story is about the “100 Most Sustainable Companies.” Six years ago when I got involved, through the NYS Society of CPAs, with sustainability reporting perhaps 20 of the S&P500 companies were issuing reports on their “Green” activities. Today almost all of them issue such reports. Do a search of any company and use either “Sustainability,” “CSR” or “ESG” and you will be able to access the reports.

Sustainability has become a movement and is also known as Corporate Social Responsibility (CSR) and Environmental, Social and Corporate Governance (ESG) reporting. Barron’s lists provides a weighted score to its top 100 companies. There are also “social responsibility” mutual funds and analyst reports that cover these activities by the largest public companies. Going green has become not only a trend, but a necessity. This is not a political movement, but a social movement with added emphasis on corporate responsibility on how the environment will be 20 and 30 years from now.

There are four major premises to this:

1. Six capitals which are categorized as financial, manufactured, social, human, intellectual and natural with each important in its own right. Whether one is more important than the others is not the issue – they are all important. It is similar to asking a person with six children which one they love best.
2. Integrated reporting (IR) is a way that companies can disclose information relating to the six capitals, sustainable development goals and other targets that can lead to value creation over the long term. IR is a relatively new concept that is taking hold in some countries and with many large companies.
3. Stakeholders are no longer only the owners and management, They are any party who affects or is affected by a company and includes shareholders, employees, suppliers, lenders, creditors, service providers, the local community where it does business, the government and the natural environment that is impacted by the companies’ actions. Of the group the one most able to diversify its involvement are the shareholders since they can spread their investments among multiple companies. The least able might be the employees who spend all their working time with the company. The one with the least advocates is likely the environment which cannot speak for itself.
4. Sustainability –The six capitals and IR are tied into the “sustainability” movement. However you feel about sustainability, clean air, toxic wastes and species extinction there should be no deniability that these are issues that must be responisbly considered. Six capitals are six separate issues and IR is another issue on how reporting should adapted to wider issues involving all the stakeholders. Each needs to be focused in separately and then in their totality. This is not a single do-good issue, but something much bigger and more important.

New Concept

Sustainability reporting is a relatively new concept that addresses not only the way companies issue reports but how they account for waste, sustainable actions, human resources management, natural resource conservation and replenishment and other related issues. It also requires that companies establish a mindset and culture to assume responsiblity toward this and how this needs to be established, organized and implemented. These are important and should be carefully looked at. Good citizenship requires awareness and actions promoting positive sustainability behavior.

For those interested, i suggest obtaining three or four sustainability reports and reviewing them. Some are very elaborate and detailed but they all provide a ton of information on how the company is dealing with this.

This is important stuff; your life… and breath might depend on it.

Here is a link to the Barron’s article. You might have to sign in to read it, but you do not need to be a subscriber.

If you have any tax, business or financial issues you want to discuss please do not hesitate to contact me at [email protected].