Companies expend much effort on reporting operational metrics for sustainability, but that tells investors, regulators and ratings organizations little about the financial benefit (or ROI).
According to a new study of over 110 U.S. based publicly traded companies:
While sustainability/climate matters are almost universal as a material Business Risk in SEC 10-Ks/Annual reports, few companies balance that with discussions or data about upsides, value or ROI.
These firms have no control over their story - third parties apply judgement with their own assumptions and interpretations about the value of sustainability.
In addition, this lack of formal financial value disclosure supports the perception that sustainability is simply a cost and business risk driving negative business conditions.
Capital markets and executives reward business fundamentals.
Sustainability must tell its story in that way.
Operational metrics are only half the story, leaving financial stakeholders to apply their own interpretations and control the narrative.
False. Many operational metrics for sustainability are proxies for dollars. For instance, emissions reductions result from burning less fuel (offsets notwithstanding). A year-over-year reduction in emissions equals year-over-year reduction in fuel expense. Those are hard dollars. Comparative cost reductions are but one example of financial benefits.
There is more risk to not reporting. The US faces unprecedented federal business-friendly Executive Orders, deregulatory & enforcement policies - so regulatory risk is low. Yet states and courts push anti-ESG agendas. Activist investors still file proposals. Companies showing business value can proactively reduce risks.
Probably false. Most companies disclose EBITDA or other non-GAAP numbers beyond accounting standards. Management teams use non-GAAP metrics and other means beyond balance sheet and income statement results to effectively communicate the value proposition they believe their company offers to investors and others.
Not necessarily. Many companies report sustainability matters as an Item 1A material business risk, implying benefits are also material. Further, materiality consists of two themes: numbers & context. Operating numbers may not exceed a threshold, but investors, raters, regulators and litigants want assurance company resources are managed well.
We believe that sustainability is a business problem needing business solutions. Executives, boards and external stakeholders - especially investors - have grown cynical about soft-dollar values like intangibles and reputation. Leaning heavily on those concepts helps fuel attacks on corporate sustainability.
There is opportunity in the confluence of unprecedented operational sustainability data availability and today's political, regulatory and cultural zeitgeist.
For sustainability to survive current trends in US policies, de-regulatory agenda and enforcement pullbacks, we must adjust our priorities. Failing to do threatens practitioners, staff, leaders and corporate functions.
Not every sustainability matter has a direct ROI: there are intangible benefits of sustainability programs that can’t be quantified, but are nonetheless worthwhile. Investments in local communities and education, charitable donations and philanthropy are some examples.
However, where opportunities exist to demonstrate financial value, it is critical to do so.
Focusing on the ROI/business value is vital to fighting lawsuits, shareholder activism, regulatory investigations, and claims of breaching fiduciary duties.
It's never been more important - or easier - to demonstrate the real financial value/ROI of corporate sustainability programs.
Let us show you.
Reach out with questions or schedule a meeting to explore how to uncover and disclose the real dollar value of your corporate sustainability programs and initiatives.
Lawrence Heim, Founder lheim@sustainabilityvaluereporting.com (678) 200-3424
