Ceres to Corporations: You're Gaining Ground, But Pick Up the Pace

Too much talk, not enough walk. That’s one way to sum up a recent report from Ceres and Sustainalytics on just how well 613 of the country’s largest publicly-traded companies are integrating sustainability concerns into business decision-making. The 'Gaining Ground' report, released earlier this week, measures companies’ progress on a sustainability “roadmap” created by Ceres to help guide businesses toward meaningful, long-term and measurable sustainability tactics. It tracks the same group of companies assessed in a similar 2012 report, and covers 20 expectations across four areas: governance, stakeholder engagement, disclosure and performance.

The results leave much to be desired. The authors paint a picture — thoroughly backed with meticulous analysis — of a corporate world caught flat-footed in the accelerating race against climate change. While there were some standout actors and some modest gains across most areas under study, the authors contend that, overall,  businesses are simply not moving fast enough to address sustainability concerns.

Nevertheless there at least two reasons to be optimistic that corporations will learn to catch up: 1) Investors are paying more attention to sustainability and, 2) with each passing day of crazy weather, natural disasters, workplace tragedies and materials shortages, the business case for sustainability is getting stronger and stronger.

Gaining Ground is definitely worth a full read for all you corporate social responsibility (CSR) wonks out there. The list of insights and fascinating examples is too long to detail here, so here are just a few of the most intriguing takeaways:

Investors are watching more closely, and they are looking for action on climate change

Investor interest in sustainability issues has shot up since the last report in 2012. In the 2014 proxy season, the number of shareholder resolutions related to climate change and other environmental issues increased 20 percent from 2012. Sustainability concerns are beginning to become more institutionalized — stock exchanges in London and Johannesburg (among other cities) now require listed companies to disclose “sustainability risks and opportunities.”

While U.S. exchanges have yet to jump on board, corporations are naturally lending an ear to investor concerns. The number of companies engaging with investors on sustainability issues grew from 40 percent in 2012 to 52 percent this year. The momentum is promising, but there is room for improvement on quality. Pressure from investors on companies to make material changes to manage climate change risk may prove to be a much greater impetus for sustainable business than “green” consumer demand.

Change must come from the top, but leaders are dragging their feet

CEOs and companies are often quick to voice concern over climate change and other environmental issues. Ninety-three percent of CEOs surveyed by the U.N. in 2013 said sustainability performance was important to future company success. In another U.N. report, 60 percent of over 1,000 companies reviewed publicly advocate for climate action — but only 30 percent align thier lobbying activities with their own stated goals.

As they say, actions speak louder than words. Ceres cites leadership at the board and management level as a crucial driver for sustainability action, but their findings show change at the top is slow and stubborn. Less than a third of companies currently have board oversight over sustainability issues. The number of companies with strong sustainability and risk managment policies actually decreased to 19 percent from 24 percent in 2012.

Accountability on the management level has also been slow to take — only 25 percent of companies surveyed have an executive committee with oversight on sustainability goals and progress. One the upside, the number of companies linking executive pay to sustainability targets is on the rise, up from 15 percent in 2012 to 24 percent today. But there’s an important caveat — only 40 companies publicly disclose those targets and, of those, only 19 set voluntary sustainability targets, like greenhouse gas emissions.

Disclosure is up, but sustainability targets sometimes miss the mark

As the authors note, disclosure is a critical step on the path to sustainable business. Disclosure means accountability, and accountability means action. Almost half (48 percent) of companies studied now disclose material sustainability risks in financial filings, up from 39 percent in 2012. The number of companies using industry-standard GRI guidelines in sustainability reports crept up from 29 percent to 32 percent this year. These modest gains are a step in the right direction, but over half (313) of the country’s largest companies still haven’t taken any steps toward transparent sustainability reporting.

While disclosure is essential, setting the right targets is equally important. For example, 79 percent of companies have a formal environmental policy, but very few set sector-specific targets. Instead of zeroing in on specific changes, companies tend to punt broad — and their performance on this measure is getting worse. Only 19 percent of companies have formal policies on sector-specific environmental and social issues that place them in the top two performance tiers for this report. This is a decline from 26 percent in 2012.

Similarly off the mark, authors note, is the fact that too many companies treat sustainability as a stand-alone metric. That tactic is, they say, “short-sighted and risky because sustainability is implicated in every decision, from product design and delivery to supply chain management.”

They recommend biodiversity as an increasingly important lens through which companies in manufacturing, food and beverage, energy and other relevant industries can evaluate business impact. A commitment to biodiversity, the authors point out, “demonstrates an understanding of the connections between social, environmental and economic issues.” However only 6 percent of relevant companies have a formal biodiversity policy.

One more important, but unrelated, statistic worth noting: Only 160 companies (26 percent) formally protect employees’ right to freedom of association and collective bargaining.

The authors of the Gaining Ground report repeatedly frame climate change and related effects as not only a risk to businesses, but also an opportunity. With climate change scientists issuing increasingly urgent calls to action and bottom-line-focused investors finally registering the very real business risks, one thing is undeniable: American companies need to not only talk the talk, but also walk the walk.

Image courtesy of Ceres