The growth of sustainability reporting means shareholder value is no longer the only corporate benchmark that matters. A report using Refinitiv ESG data tracks the benefits of Corporate Social Responsibility metrics, including for financial outperformance.
- A growing number of organizations appreciate that adopting best practice on sustainability reporting can be a significant business differentiator.
- By aligning corporate purpose with profit, organizations are more likely to achieve financial outperformance than those that fail to see the value of sustainability reporting.
- Corporate Social Responsibility reporting leads to a host of positive outcomes, including much increased chances of setting or meeting emissions reduction targets.
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The increased focus on sustainability and governance practices is providing business leaders with a unique opportunity to transform their companies at the same time as playing a part in addressing a range of global issues, including the climate crisis.
While sustainability reporting is not mandatory in all jurisdictions, a growing number of successful organizations appreciate that adopting best practice can be a significant business differentiator.
Watch: Refinitiv Perspectives LIVE – ESG Investment, a cure all for Asset Management?
This trend was highlighted by our CEO David Craig on his return from January’s World Economic Forum. It had been a “watershed” Davos, he noted, with an unprecedented number of leaders committing to real and measurable action on climate change.
And following on from BlackRock’s announcement to put sustainability at the heart of its investment decisions, it is clear that the “business as usual” approach just won’t do anymore.
#ESG related risks are wiping billions off companies’ valuations. @Refinitiv set out @wef in @Davos, that we think a $4 trillion '#CarbonCorrection' to the markets could wipe off more still. Read Refinitiv CEO, @davidwicraig's latest blog: https://t.co/WJX8f54jVJ #TrustedData pic.twitter.com/mgkP2tUCcx
— Refinitiv, an LSEG business (@Refinitiv) February 6, 2020
Financial outperformance
Our report, Governance & Sustainability: Inside not just beside the business highlights the development of some encouraging trends in terms of sustainable leadership.
It concludes that companies who undertake transparent environmental, social and governance (ESG) reporting manage their ESG performance and risk significantly better than those that do not report.
Written in collaboration with Professor Andreas Hoepner of University College Dublin and Gabija Zdanceviciute from Sociovestix Labs. The report analyzes disclosure in sustainability and long-term business practices.
The report leveraged Refinitiv’s ESG database, which comprises over 400 ESG measures dating back to 2002, and covers more than 70 percent of global market capitalization and 5,584 active companies at the time the study was conducted in November 2019.
This detailed research revealed the organizations that succeed in aligning corporate purpose with profit are financially outperforming those that fail in this regard. It also unpacked some important trends unfolding within the sustainability arena.
Watch: ESG — the Good, the Bad and the Ugly
Sustainability reporting on the rise
It has been said that you can only manage what you measure, and the assertion appears to hold true when it comes to sustainability reporting.
The percentage of companies reporting on sustainability has risen from 47 percent to 54 percent over the last three years and, while this is not an enormous jump, it indicates a solid trend.
Alongside this growth, we have observed greater corporate transparency and disclosure relating to ESG initiatives at a global level; a fairly significant increase of 15 percent over the past three years.
Not only is more reporting evident, but companies are also actively taking steps to verify their data.
Companies across different industries disclose disparate metrics relating to their sustainability performance. This has led to a persistent and key challenge surrounding sustainable investing: a perceived lack of trust in the reliability of this data.
Encouragingly, more companies are now hiring external auditors to verify their ESG data — 25 percent compared with 21 percent three years ago.
This increase, although not substantial, once again indicates a positive trend that underscores a commitment to improving both the quality and reliability of ESG disclosure.
Corporate Social Responsibility benefits
The analysis further revealed that Corporate Social Responsibility reporting leads to a host of positive outcomes, ranging from enhanced commitment to sustainability goals, to overall effectiveness in achieving them.
Our report found that CSR reporting leads to:
- A 40 percent increase in a company’s management commitment to and effectiveness in achieving efficient use of natural resources in the production process.
- A significant 56 percent increase in the likelihood of a company setting emissions reduction targets or objectives to be achieved.
- Greater awareness of the company’s ranking within the CSR standard.
- An increased likelihood to set targets to improve the company’s performance.
- Greater awareness of the need for and benefits of, for example, reducing emissions or using resources efficiently.
Sustainable compensation targets
Interestingly, the number of companies that link executive compensation to sustainable targets has more than doubled — from six percent to 14 percent — in the last three years. This once again indicates that organizations are increasingly placing sustainability measures within the compensation schemes of their executives, and ensuring that sustainable principles are woven into the fabric of their operations.
These organizations appreciate that good corporate governance is the key to driving long-term value and are taking concrete steps to entrench a fundamental commitment to transforming their companies and contributing to a more sustainable future for all.
Refinitiv ESG data
At Refinitiv, we strive to be the trusted and preferred partner for ESG data and solutions, and are committed to bringing to the market an array of best-in-class data, analytics and fully integrated workflow solutions.
We have deep domain expertise and have been providing ESG solutions to the financial industry since the early 2000s.
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