Investors Driving Dramatic Shift in Corporate Sustainability Disclosures

Investors have made clear that they want good, solid data when it comes to sustainability performance and companies are increasingly giving investors what they want, according to a new white paper from Deloitte.

More than 80 percent of mainstream investors now rely upon sustainability or ESG (Environmental, Social, Governance) disclosures to make decisions. In 2011, 20 percent of the S&P 500 companies published some form of a sustainability disclosure; that figure surged to 86 percent in 2018, according to Deloitte.

“We've definitely seen a dramatic shift in corporate disclosure in the whole ESG, non-financial sustainability disclosure space,” Kristen B. Sullivan, a partner of Deloitte and one of the authors of the paper, told TriplePundit in a recent interview. “It’s very much a reflection of the way companies want to provide their stakeholders, investors in particular, with more insight into how the company is navigating shifting environmental and societal trends, impacts, risks and opportunities.”

Deloitte also noted a shift in how ESG disclosures are provided. More companies are presenting or referring to nonfinancial measures in financial filings, and they are getting those disclosures assured by a third-party provider. Almost 40 percent of S&P 500 companies voluntarily address some aspect of sustainability in financial filings. Some 36 percent of those companies are getting partial external assurance, although the number who have their sustainability reporting fully assured remains low at 3 percent.

“External assurance is definitely on the rise,” Sullivan says. “Investors want confidence that the information is complete and accurate and reliable and that ESG is truly integrated into corporate practices and how companies are making decisions.”

Millennials also driving the transparency train

Customers and employees are also driving the appetite for more sustainability disclosure, in particular, millennials and Generation Z, a trend 3p has reported on extensively. According to Deloitte’s 2019 Millennial Survey, these consumers are values-driven in the choices they make, with 42 percent they have begun or deepened a business relationship because they perceived a company’s products or services to have a positive impact on society or the environment.

“No matter where you play in the capital markets, confidence and trust is foundational,” Sullivan noted. “Transparency is really a tool to drive trust and confidence with stakeholders. The discipline of disclosure helps management more effectively manage their activities as they think about these risks and opportunities and how it integrates into their business strategy and make better informed and make better decisions as well.”

Risky business to hide information

Sullivan issues a warning as well: companies that are not transparent about their sustainability performance could lose favor with investors or lose their competitive advantage, and have more difficulty attracting and retaining customers and employees.

“Even just a few years ago there was a perception that the risk of voluntarily providing sustainability information to the market outweighed the benefit, but I think we’ve seen that shift and the absence of disclosure is increasingly outpacing any sort of a concern about voluntary disclosure risk,” Sullivan said.

“They’re really leaving value on the table because the traders and analysts who are providing an ESG evaluation to the marketplace are doing so very transparently,” she adds. “If you’re not telling your story, someone else is. The absence of meaningful, high quality, reliable disclosure really puts a company at risk.”

You can run but you can’t hide, as a growing number of investors use proxy voting and shareholder proposals to push their ESG objectives, as 3p has discussed. The 2019 proxy season was the third consecutive year in which environmental and social-related proposals accounted for the majority of shareholder proposals.

“Without disclosure, there's a perception of hidden risks and that's when investors are going to use that lever of shareholder proposals,” Sullivan said.

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